Serial entrepreneurs fail when it comes to making money with a technology business.
This is one often overlooked or hidden fact among your garden variety of business topics covered at technology conferences, particularly in SMB where most people are being attracted to thanks to no criteria, no barrier to entry and an overwhelmingly large market (and supposedly remote chance of grabbing a small share of it.)
But does it make sense to go into a technology business to make money if you aren’t good at whatever technical aspect your company is built on? Statistically speaking, no. Most people fail, some with a heavy debt, and a tiny fraction sells out at a large premium. The middle is astonishingly void.
Why is that? Generally because the profile of a business entrepreneur involves high risk, high stakes, high liquidity and high growth and unlimited potential and scale. Unfortunately for them, the successful technology business has immense infrastructure expenses that are highly insolvent – you’ve never seen a yard sale for Microsoft Volume Licensing and banged up plyboard furniture. On top of that, operations of a technology company tend to be executed by someone with a very high skill set, translating into a big salary and thus a big expense, and none of the assets are immediately useful because they require a lot of training, education and specialization. These obstacles in the lack of solvency and inability to rapidly scale headcount with demand are evident before you have even sold anything.
This is why most technology companies fold, even if they achieve some marginal degree of success and profitability.
Which brings me to the actual point of this blog post – if the above are the largest, near insurmountable, obstacles for someone with a ton of money to break into the technology business, why oh why are so many technology companies just dying to outsource their technical roles to someone else and assume the role of a technology consulting business advisor?
Maybe because the message being sent by those with vested interest in taking away technology roles from technology companies is the most advertised and pitched message – on fear that a larger company will break in, a fear that skills will not keep up, a fear that the opportunity is now and it is passing you by with every moment that your name is not drying in ink on an outsourcing contract. And many people foolishly fall for such a pitch because they are uncertain of their direction, they are afraid of what is coming down the pipe and they swallow the blue pill of business acceleration but trade in their key competence in for it.
Here is a question you should ask: If this business is dying and I should not focus on it, then why are you trying so hard to get me to sign on the dotted line and hand you over the very thing that earned me my salary in the first place? When they try to misdirect and tell you that you really got the clients on the business merits a blah blah cut them off and say: What do you see in the future of your business, and if it is truly dying then why are you in it?
Hint: Some people have thought about their exit strategy and were able to figure out that they can sell off their revenue generating assets with a high technical dependency under contract while business agreements and terms are generally always up for negotiation and are valued much, much less.
I think the future of this business is in scale, in ability to reach everyone and be dynamic enough to gather your resources and seize on the opportunities that present themselves in each segment as each goes through its hot stage.
The future of your business is in the ability to offer more services and make more money, not in trying to massacre it into small pieces and end up with a ton of expensive support contracts. The question is can you trust someone who isn’t trying to sell you either one or do you base your decisions on colorful flyers. Perhaps you should just be trying to copy the very people that are doing just that much slightly better than you to afford a colorful flyer. In commerce, there is interest behind every move, try to find out what it is.