Matt McDonnell | Crain's

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

Matt McDonnell

Background:  

Austin-based Notley Ventures funds and support teams with the passion and tenacity to develop innovative solutions to systemic problems. Whether it's for-profit or non-profit, the firm prides itself on creating ecosystems that support social innovation. 

The Mistake:

We were putting too many eggs in one basket.

In the early part of my career, I worked with a couple of nonprofits. Grant funding primarily drives the nonprofit world. At one of the organizations, we had to get an RFP/RFQ out for a really big project. We applied for a grant that allowed for only one year of funding. I was young and blinded by the opportunity to try and help change children’s lives.

But we didn’t have a good sustainability plan, and I realized we had put all our eggs into one funding basket – this lucrative grant. So we ended up having to scramble later to put the program together. We didn’t have the diversity in revenue stream that we needed.

At another company, we were very good at selling to large enterprise customers.  But as you would imagine at a small startup of about 35 people, we basically got into the position of working hard to support a significant revenue stream. We eventually found ourselves building the organization around a key customer. When they went away through no fault of our own, it was a difficult loss of revenue.

We had adopted many processes and grown in a way that was designed to support that customer. The sort of trajectory we were on made it very hard to be nimble when the revenue went away. Another issue was not maintaining enough control over the relationship with our customer. We had an intermediary between us and the funding source. We got too reliant on those people and when they went away, we did not still have our customers.

You really need to think about building an organization so that when everything goes sideways it will be robust enough to manage that.

The Lesson:

From both those experiences, I learned that you really need to think about building an organization so that when everything goes sideways it will be robust enough to manage that and get stronger from it. I began to think about how to build an organization that is truly adaptive and gets stronger with shocks in terms of how its operated and revenue is generated.

In my current role as managing partner of an investment firm, I’m often put in the position of advising people. One of the takeaways from my past experiences is that the ability to recognize this mistake in a lot of first-time entrepreneurs. I see it constantly. So now I have a moral obligation when I see someone putting all their eggs in one basket to challenge them on it.

There are times when it’s right, but fundamentally if you can make money six different ways, then when one of those streams goes away it provides optionality in terms of how to keep a business going. There’s an inevitability that everything will go wrong at some point.

Follow Matt McDonnell on Twitter at @mmmcdonnell.

Pictured: Matt McDonnell | Photo courtesy of Notley Ventures.

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