Editor's Note: Learn from a panel of experts and entrepreneurs who have successfully financed their own ventures and are helping others do it at the Thought Leaders Live 2013 event May 29, in Long Beach, Calif. Event and ticket information can be found here.
John Daly's Florida software business got a boost from a law spurred by the 9/11 attacks. New York entrepreneurs Benjamin and Autumn Lido received a surprise call that resulted in a big order from a customer they'd never considered. After many frustrating struggles with patent infringement litigation, snowboard-binding inventor Jeff Sand was able to lock up leading market share by blocking a competitor from bringing product into the country. All these entrepreneurs benefited from major windfall events that were unexpected, unpredictable or both. In the wake of the windfalls, they found that a stroke of luck can do a lot to help a company. An unexpected gain can help expand production, pay off debts, fund new marketing and generate excitement among employees.
But a godsend isn't necessarily a gimme. If not handled correctly, a bonanza can even turn out to be a bust. If an entrepreneur is blinded by what looks like a golden opportunity, overoptimism can lead to overexpansion or overcommitment. For not a few entrepreneurs, this would-be blessing has turned into a curse. So if you want to make the most of an unexpected gain, you have to manage it carefully.
The Ways of Windfalls
Windfalls can come from all sorts of sources, some more unexpected than others. Government regulation, for instance, is commonly seen as an obstacle by many entrepreneurs. For some, though, it provides opportunity. After 9/11, Congress enacted the USA Patriot Act, which required banks to install systems to detect money-laundering. For John Daly, 46, whose small Miami company, Americas Software, sold software designed to detect money-laundering transactions, the law brought a windfall.
Clearly, windfalls can help you. They can also hurt you if not handled correctly. One risk of receiving a stroke of luck is that you'll be fooled into thinking that's the way things are going to be from now on.
Increased demand for software to detect money-laundering doubled Daly's sales revenue the year after 9/11. Business had already been good, says Daly. But existing regulations weren't well-enforced, and bankers' awareness of money-laundering rules was low. Since 9/11, he's gone from nine employees to 30, with no end in sight. "Instead of going from 0 to 60 in three seconds, it's [like] going from 0 to 60 in one second," he says.
Insurance and lawsuit settlements represent other potential sources of windfalls. San Francisco product designer Jeff Sand spent most of his time in the early 1990s fending off a number of patent infringement lawsuits filed against his company. "Most of them were nonsensical," relates the 42-year-old co-founder of Jeff Sand Product Development. "As it turned out, nobody really had any claim against us. But to get judgments cost a lot of money." Battling them required retaining a sizable platoon of attorneys, which consumed cash that could have been better spent developing new snowboard-binding designs. But as it turns out, those attorneys came in unexpectedly handy for restraining a competitor who had flagrantly infringed on one of Sand's patented designs.
"A competitor had copied our product, and we went to the trade show and delivered a cease-and-desist order," Sand says. "Then we went in and found all their customers and told them they weren't going to ship and that [the customers] should buy our product instead." After diverting a sizable percentage of customers to their own designs, Sand saw a chance to get even more aggressive. "When they tried to ship stuff from overseas, we had it intercepted at the dock and impounded," he says. With one blow, they locked a major rival completely out of the U.S. market. The result propelled Sand's company into the leading market share.