Expert Advice with Cam McLellan 23/02/2016
I’m consistently asked about starting up small businesses, given that I have quite a bit of experience in this field, I’m more than happy to impart what knowledge I have.
All of the businesses I have been involved in, I have started with my current business part Al Lewison. Our first business was a cleaning business. When we started this one we were working full-time and decided it would be easy to go and call on businesses and engage cleaners. The plan was that we would own the contracts and subcontract those out. Let’s just say that, that one didn’t work.
Then we started a window cleaning business. We would go into small shops and ask if they wanted someone to come and clean their windows. So it was the same concept and that one didn’t work either.
We also started a recruitment business which cost us just under $1,000,000. Here is some advice: don’t start a recruitment business three months before the GFC!
We tried our hand at an IT business, which was fast growing but we just didn’t have the passion for it and we started a hairdressing business… that one didn’t work either!
Needless to say there have been some failures but the one thing we knew was that we wanted to be in business. It might seem ridiculous that I’m telling you about the number of businesses I’ve failed in but I’ve also been quite successful in a number of businesses. I read Rich Dad, Poor Dad way back, sitting in a pool in Malaysia and it said, if you started 10 businesses, you only needed one to be successful and you’ve made it. That is true, except for the fact that it depends on how much money you have to put into those businesses and how much you can afford to lose.
We gained so much knowledge from those initial business failures and finally we cranked up our telco business. Still, I remember times early on, when Al, and I were sitting there with our heads in our hands. It was probably about five years into the business; we had about 25 staff and a reasonable turnover but our measured growth wasn’t occurring. We were growing so fast and our overheads were so high that while the business was really strong in revenue, our cash flow was really affected. Cash is king! If you haven’t got cash in the bank to pay the bills, you’re in strife.
We had poured money into this business multiple times. We had reinvested all our revenue back into the business plus taken money out of our property portfolios and we got to the stage where we had a huge amount of money owing. We probably had $1,000,000 of accrued revenue waiting to come in but we didn’t have any cash in the bank and we couldn’t continue on. So we were sitting there going, “Do we just shut up shop, collect that $1,000,000 and get back in the clear or do we put more money into it?”
We decided to give it one more go and rolled into work on the Monday without our staff and customers knowing any different. We scaled down a little bit and held on tight for a couple of years while we really built up. It was the old thing about building your sales model first, then your operations, reshaping your customer service account management, then giving up sales again and reinventing your operational.
I suppose there are two lessons I’d like to pass on from that experience. A lot of people think that small businesses are the way to go but the first thing is: don’t buy yourself a job because it is a big risk. Have a business that is scalable. I wouldn’t start a business unless it is going to be able to deliver me $10,000,000, bottom line. If it can’t do that, it isn’t scalable in my eyes. So going out and buying something that might turn over $1,000,000 and deliver you $200,000 is basically like buying yourself a job. There is no point buying yourself a job, with the added risk you take on.
Looking back, there was no way any of those businesses could have worked. We didn’t understand cash flow, operational efficiency, process in a business and a whole multitude of things that needed to happen, to make a business a success.
Today, people come and see us with business ideas and to be honest, some are great but I’ll know within five or 10 minutes of talking to someone, whether their idea will work because we have been through it. I can see holes in certain things because a great idea doesn’t always equal a great result! Usually the easiest way to tell is by working out if the person has the skills to execute the idea. You need to have been exposed to balance sheets, profit and loss and cash flow within an industry.
With our telco business, which ended up being hugely successful, we had a big market and we wanted to take a percentage of it to start with and then grow that percentage. People who want to reinvent something new and start a whole market have a lesser chance of being successful. It is really hard to create a market. It is a lot safer to get a market that is quite large and do something better than everyone else… take over the market and own it!
Process is one of the most important aspects of any business. At some stage in every business someone had to sit down and put a process in place to make it work. They had to work out everything, from whose job it was to place a sales order in the system, to whose job it was to take the order from the system to the warehouse and whose job it was to package the order up and get it out. Al and I invest in two things: really good people and measured process. While we might seem quite casual, there is a written process for every aspect of our business and everyone follows that process. As a collective they choose to improve our process and change our standard operating procedures.
We would not have been able to succeed in the businesses, without property behind us! We have talked before about having a buffer and we chose to use our buffer to get some businesses off the ground. Now, if that was money out of our own pockets we would be living in a gutter somewhere but we were able to leverage the constant growth in our portfolios to open more doors. So the key thing we’d say to anyone contemplating starting a business is - consider a property portfolio. It will teach you management of an asset, cash flow and balance sheet management and will most of all, build your asset based buffer so that you can go and try some other things.
I’m not saying, “Don’t start your own business,” just make sure you understand the risks you’re taking and the return on your dollar. Imagine you’re putting $50,000 into a property; that property might grow at 8 per cent but if you’re leveraging the bank’s money and only putting in 10 per cent, you’re getting a much larger return - as opposed to putting $50,000 into a business which might return you $100,000 a year. The risks are huge. I know which one I’d choose.
Director of OpenCorp, Cam McLellan is committed to sharing his passion and property investment knowledge with everyday Australians.
After thriving in the telecommunications, technology and recruitment sectors and making six BRW Lists in 8 years, alongside accomplished OpenCorp. entrepreneurs Matthew Lewison and Allister Lewison, founded OpenCorp eight years ago.
Cam started investing in real estate at a young age and quickly mastered the art of building sustainable wealth. He has used the same wealth building strategy to develop a multi-million dollar business, sharing his knowledge and skill with ordinary Australians. Cam has personally bought, sold and developed numerous properties and has an extensive residential and commercial investment portfolio.
Read more Expert Advice from Cam here!
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.