XChange 2014: 6 Lessons One Solution Provider Learned From Almost Going Bankrupt

From The Brink

After almost going bankrupt a few years ago, Pete Zarras, CEO of Morristown, N.J.-based CloudStrategies, has managed to build a very successful solution provider business. But looking back at the beginning of his business and the investment and financing along the way, there were a lot of things he would have done differently.

At a breakout session at XChange 2014 in San Antonio, Zarras revealed the six lessons he learned about investing and financing to help other solution providers avoid making the same mistakes.

All Money Is Not Good Money

This is the No. 1 takeaway from the business turmoil he went through, Zarras said.

"When I started early on, you think everyone with money is a good thing," Zarras said. "The strings that can come with it or headaches that can come with it just isn’t worth it," he said.

Making sure to carefully evaluate investors instead of just jumping at the investment is incredibly important, he said. As he looked to get investments to set his business right, he said the amount of previous investments made new money sources wary and complicated fixing the business.

Make Sure Investors Know The Industry

The channel and its vendors can be very complicated, Zarras said, and it's important to make sure the investors understand all of the business models involved. Some of his investors had deep pockets but beyond that added no value because they didn't understand the industry, he said.

"They don't know channels. They don't know Microsoft, in my case. They don't know vendors and relationships and how to get the customers," Zarras said. "That was a major mistake."

Know An Investor Profile

There are different types of investors with different attitudes toward measuring success, and it's important to choose one in line with your business, Zarras said. For example, West Coast investors measure success as rapid growth and East Coast investors tend to measure based on whether the company is profitable at that moment. Zarras quipped that his business was a "West Coast company in the East Coast with East Coast money."

"They're not right or wrong, they're just different," Zarras said.

Don't Let An Investor Buy A Job

While it might be tempting to have an employee with money invest in the company, Zarras said he did this in a couple of cases and one ended horribly. In this instance, the employee ended up not being able to do the job required and removing the employee from the team became difficult and complicated. While the investment and the job are legally distinct, few people are able to separate them mentally.

"It's a hard thing to go through," Zarras said.

Board Structure

Zarras developed a three-member board structure for his company, with an A round investor holding a seat, a B round investor holding a seat and controlling a seat himself. However, Zarras said he wished he had put more thought into the structure. Looking back now, he said that he would have composed a five-person board, with a balance between investors and independent industry advisers.

It's also important that the board understand the difference between an external focus and internal execution, he said.

Raising Money Is A Massive Distraction

Raising money and investor management is a massive distraction, Zarras said, adding that he spent most of 2012 doing just that instead of focusing on sales, delivery and business development. However, he said it is important to remember that "sales is raising money." Looking back, Zarras said that he would have ignored investor activities and flipped his focus to the business and selling.

"I'd be in a different place today," Zarras said.