Kurt Rathmann | Crain's

In this ongoing series, we ask executives, entrepreneurs and business leaders about mistakes that have shaped their business philosophy.

Kurt Rathmann

Background:  

Austin-based ScaleFactor automates the painful, time-consuming tasks that burden business owners, entrepreneurs and executives. It has developed a smart finance and accounting platform that enables businesses to operate in real time with automated bookkeeping, proactive alerts, at-a-glance performance metrics and more. The company’s accounting and finance experts review monthly financials, provide support and help users with their toughest financial challenges.

The Mistake:

Holding on to customers for too long.

Very early on in our business, we came across customers that were not a good fit for a variety of reasons. We were reluctant to let them go at that point and it turned into a pretty big distraction for the business. It affected team morale in that we almost had someone wanting to leave the company because they couldn’t see themselves working with the customer.

There were just philosophical differences in the people-to-people side of things. But at the time, we justified it because we thought it might grow into a bigger opportunity or we needed the revenue. Eventually we realized it was doing more harm than good, and at that point it was not easy to get out of an agreement. There was supposed to be six months left and we were able to come to an agreement to end the relationship.

Looking back, I do think I waited too long to act. I sat like a deer in headlights for too long. I just let the relationship go rotten and stale. I was the decision-maker and I could have made the decision to fire the customer earlier.

What’s valued from a leadership perspective is the ability to make fast decisions even with the knowledge they might not be all right.

The Lesson:

I learned ultimately that what’s valued from a leadership perspective is the ability to make fast decisions even with the knowledge they might not be all right. For someone who is fearful of failing or making wrong decisions, it can be very hard. This is sometimes a developed skill, not an inherent one. But we decided to make this a core skill for the management.

We really took a massive internal look at ourselves and what our values would be moving forward. We learned what we didn’t want moving forward in terms of the character and persona of a customer.

After that experience, we created a 72-hour rule meaning that we have three days to make a decision from the time we see there is an issue – whether minor or massive. It wouldn’t be, “Let’s have a meeting next week and discuss it.” We had to address problems almost immediately after identifying them.

Understanding the risks of what could go wrong is a key part of making a fast decision. We ask ourselves, “What’s the worst-case scenario?” We encourage employees to talk out the problem with others, but not hand off the problem-solving, or shift the burden, to someone else. We also let people know that it’s OK to fail. In fact, we expect people to fail and own it.

We also developed a WINS meeting, meaning that we had to find our “wins” out of every situation and discuss them on a weekly basis (every Friday afternoon). It was meant to essentially force everyone to think about the “wins” they’d had in the prior four to five days. For example, someone may have had a customer issue and got over it. Or, they didn’t know how to do something and worked with someone who helped them learn. It could even be more personal, like, “I had a flat tire and changed it myself, which is something I’d never done before.”

The lesson was that in business, and in life, everything is not going to go the way we want but we have to find the positives in whatever was happening. At these meetings, we also openly talk about failures and what we can learn from them. If you can’t articulate something you failed it, we push it.

Ultimately, we decided to shift from being a very tech-forward services company to a software company. A lot of people advise against doing that. As part of the shift, we had to fire in a nice way a number of customers. This was a little unnerving because we were ending relationships with almost $1 million in recurring revenue because they not longer fit our business model moving forward.

Fortunately, we learned from our earlier experience in ending that other relationship. We knew that it wouldn’t help to drag things out and try to make it work. A slow shift wasn’t the answer. So we were aggressive and intentional about it, and put a plan in place. That way, the business wasn’t impacted as much and the effects on our team would not be as great. We emerged better, stronger and more agile. We feel like we’re in a healthier spot because of it all.

 

Follow ScaleFactor on Twitter at @scalefactor.

Pictured is Kurt Rathmann. | Photo courtesy of ScaleFactor.

Do you have a good story you’d like to share, or know someone we should feature? Email jscheibel@crain.com.

And be sure to sign up for your local newsletter from Crain's Austin.