Most companies fail, and fail fast. The official statistics show that 50% of new companies fail within the first five years. However, I am inclined to believe that the numbers in fact undercount the true failure rate.
What can new business founders do to increase their chances of success? They can start a business in a field where they have experience, knowledge, and connections. If founders don’t have practical experience, they will make many unnecessary mistakes, wasting both time and money during the learning process. Connections are also equally important. Identifying and establishing credibility with clients takes time if one does not have an existing relationship. Those that start a business in a field where they have experience, have a huge advantage over those that are trying something completely new.
In 2000, I became the first employee at a forex brokerage firm. The firm allowed individuals to trade currencies (forex) similar to the way E-Trade allows individuals to trade stocks. I worked at the firm for almost eleven years as the firm’s Chief Marketing officer. Today, the company is publicly traded on the New York Stock Exchange. During my time there, I had a young, smart employee that worked in my department named Ian McAfee. A few years ago, he started a firm in the forex space that has become very successful in a short period of time. His story is an illustration of starting a company in a field you know.
How One Company Shifted The Odds In Their Favor And You Can Too
In late 2009, Ian McAfee and Justin Gilmore held mid-level management roles at the forex firm, FXCM. Justin was a sales-manager for an inside sales team and Ian ran marketing for an online trading education product. While they had rapidly risen in the firm, the next advancement steps would take time to achieve. Today, Ian, Justin and a third partner, run Shift Forex, a highly successful startup generating over $2 Million a year in revenue.
They Identified A Need In The Marketplace Based On Their Experience
Forex brokerage firms tend to acquire new clients through direct marketing and through referral agents. FXCM had a large team of account executives focused on finding new referral agents, onboarding them, and managing the relationship. However, once the agent was onboarded, attention was focused only on those that brought in new clients. A large number of less successful referral agents asked for help with their marketing from FXCM, but did not get the resources that they wanted. Ian and his partners saw this as an opportunity. By providing marketing consulting services to these referral agents, they could actually help FXCM.
Ian and Justin understood why many of these referral agents weren’t successful. The referral agents did not come from a sales and marketing background. Instead, they were technologists that had developed great charting and trade signal generation products. With good marketing, these firms could sell their products and produce referral revenues.
If Ian and Justin hadn’t worked at a forex brokerage firm, they wouldn’t have known there was a demand for marketing services and why these referral agents were struggling. Nor, would they have the sales and marketing skills to help them.
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As A Result, Capital Investment Was Minimal & Revenues Immediate
In 2009, the three partners started Shift Forex with an investment of less than $5,000 per partner. During their first full year of operations, Shift Forex recorded $200,000 in revenues. Three years later, revenues rose to over $2 million.
In my conversation with Ian, he stressed that the company has evolved tremendously since 2010, but that their previous experience was instrumental in the company’s early success. Here are some examples he gave:
- They immediately knew what type of companies to target and the services to offer.
- Potential clients were more willing to set-up meetings because of their previous experience, and they were able to win over clients because of their working knowledge of the industry.
- Because of their knowledge of industry metrics, they were able to price their services for some clients on a performance basis, which made closing the initial deals easier.
What can other founders learn from this story?
It is a common theme that lack of capital is a reason why companies fail. In my view, that’s like saying that a car stopped moving because it ran out of gas. One of the reasons why companies run out of gas (cash) is that don’t know their destination, or what route to take to get there.
Shift Forex had both both a destination and a sound map to their destination before they started. Before starting the journey of building your new company, shift the odds of success in your favor by making sure you can draw and follow the right map as well.
Marc Prosser is the co-founder of Marc Waring Ventures, a specialty online publishing company which operates several websites on trading, investing and running a small business. His most recent project is Fit Small Business where he shares his practical insights.