My biggest mistake: We sold out too much, too soon

MY BIGGEST MISTAKE
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The Independent Online
Chris Horseman, 41, was president of Atari's home computer division in his early twenties. In 1988, he set up Xebec, an interactive training business, which was sold to McGraw-Hill last year. He now runs McGraw- Hill's lifetime learning division

I THINK my biggest mistake was to be too optimistic about how quickly we'd sell our product. Three of us had set up Xebec, creating interactive training for companies such as BT. We understood the importance of programming, and delivering information, and attractive design. We ran it as a service business, but we realised we were only as good as our last job.

We started to specialise in training and discovered we were doing the same thing again and again for different companies. We realised there might be an opportunity to build a product that we could sell to many people: it was when CD-Roms were just starting to become popular.

But we didn't have any cash, so we had to raise money, and we decided to do it by selling shares in the company. We sold 21 per cent for pounds 150,000, and we were lucky because the two people who invested were really excellent business people and were able to give us a lot of advice. If we'd gone to venture capitalists, we'd have been in a much worse position.

What happened was that even though we saw an increase in sales initially, we were still running short of cash. For entrepreneurs, there's a real temptation to be enthusiastic about what you're going to achieve. We thought everybody was going to rush out and buy CD-Roms, and that training was a priority. But while it's key to business, it's one of those things that they can put back for three or six months, and that was what happened. We ran short of cash and eventually we'd given away just over 40 per cent, for investment of about pounds 300,000.

When we eventually sold the company, each of those investors got millions back. Had we understood financial strategy better, we'd never have given up so much. I risked my house to a degree, but I would have risked it to a much higher degree and would have gone without more during the process, and not taken so much salary.

Success didn't come quite as quickly as we expected, but we did execute our plan. We should have tried to fund that very first project ourselves, and got some customers. The first money you get is the most expensive, and you're always going to need more. If you use up all the equity you're willing to give away, that's a problem. The more you can do before you take the money, the better.

That mistake gave me a more thorough understanding of financial strategy and the changes during different stages of the process. When we sold Xebec, it took six months and we had to think about whether we had enough money left over. If you run out of cash, you might find yourself falling into the arms of the purchaser at a bargain basement price. Ironically, we now have an interactive programme teaching financial strategy to MBA level, so we now have quite some authority.

Interview by Rachelle Thackray

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