Why my business failed: ex-advertising entrepreneur offers a first-person account of the demise of his New York agency.

WHEN CHARLES N. JAMISON Jr. started his own advertising agency with a partner in 1987, it seemed like a sure-fire formula for success. He launched his business in the same industry where he'd planted his roots. An ad man for more than 10 years, first with BBDO (Batten, Barton, Durstine & Osborn Inc.) and then with Ted Bates Advertising Inc., Jamison had been the first African-American vice president at Bates. His partner, Kathryn Leary, was the second black up there.

He capitalized on a solid relationship with his former employer by starting a business that was a natural offshoot of work Bates was already doing, and he and his partner landed Bates as their first big backer.

Jamison and Leary had all the right contacts and built a business with a diverse mix of some of the biggest corporate clients in the country. In its heyday, their agency produced the equivalent of $5 million worth of billings, successfully juggling six or seven clients at a time, and employed 12 full- and part-time people.

Despite all that, by the beginning of l992, the agency had gone belly up. What went wrong? Let Charles Jamison tell you in his own words about the mistakes he made along the way. You may well learn how to prevent the same thing from happening to you.

For nearly five years I ran an advertising agency, Jamison & Associates Advertising Inc. (originally Jamison & Leary Advertising).

Starting out, I believed that I knew a lot about making advertising work. I proved to myself that I was right.

During our glory years, we did work for such large clients as Bacardi, General Foods, PepsiCo., TIAA-CREF, NYNEX, Dow Jones & Co. Inc., and M&M/ MARS, as well as for black clients like Emerge magazine, Yaska Shoes Ltd. and the Alvin Ailey American Dance Theater. We did video, television, radio and print. We sold a lot of goods, services and tickets. We even won a CEBA (Communication Excellence in Black Advertising) our second year out.

The agency is closed now. A victim of the most recent recession. Bankrupt. Chapter 7. History. Past tense.

What I learned, somewhat painfully, was that knowing how to create effective advertising doesn't necessarily mean that you're going to know how to run an advertising business. During a recession, which is what we ran into, it's easy to say that the economic climate is the cause of a business, demise. But there is usually more to the story than the most obvious answer. Along the way, I learned some things that I wish I had known before I got started. If you're thinking about running a business, I've got 10 tips to consider that may prove helpful to you along the way.

1. Be sure to have more than one major backer. When we started the agency, we put all our chips in the same basket. We launched the business as an arm of Bates, our employer at the time. We capitalized on Bates, entry into strategically focused market research. Bates already had a Hispanic ad agency. So, it seemed natural to build a business that offered psychosocial data on African-Americans. This information would give Bates clear-cut ways to predict how cultural differences among blacks affect the buying habits of different segments of the market.

Ironically, just as our agency was about to turn profitable, Bates dissolved the relationship. The reason was no one's fault and had nothing to do with either side's respect for the other. I still do business with Bates (now Backer Spielvogel & Bates). It was simply that Saatchi and Saatchi, which had purchased Bates, had a different set of business priorities.

Despite all this, our agency survived for four more years. But the loss of that early backing definitely affected our ability to weather the financial storms to come.

The motto of all this? Never assume that all the business givens will stay that way, and be sure to line up a diverse set of backers early on in starting your firm.

2. Sell something people want to buy. When I went into business, I believed that my agency would provide a necessary and potentially profitable service in the marketplace.

I spent nearly a decade in large general market advertising agencies learning how to develop award-winning strategic advertising. I also have a Ph.D. in psychology, where my primary research had been on black culture. Furthermore, I had sole access to a large database on black consumer preferences, attitudes and media behavior.

I was convinced that if I had an opportunity to present a story to a client about their product or service, then they would have to give us the business. I had been on enough new-business pitches to know how this works. How could we miss? It didn't work. We made pitch after pitch presenting data to marketing managers about the black consumer presence within their brand products. Instead of giving me the business, they would (a) praise me for giving them better insight into and a more sophisticated understanding of the black consumer market, and (b) tell me that despite this compelling story, they didn't feel the need to target this consumer base.

For instance, one packaged-goods marketing manager told us our presentation made a lot of sense. But when we tried to follow up, we were told that the company had "other priorities."

After a while, I realized that I was trying to sell a very good product that, for whatever reason, few people wanted. Sure, I got some business, but nowhere near the amount I had expected. My advice to you is to realize the real potential for what it is you have to offer and adjust your actions and perceptions accordingly. In other words, do the same kind of in-depth research on your marketplace and industry as you would on the clients you want to land.

We looked at the tremendous growth in targeted black advertising and assumed we could expand the marketplace even further. What we failed to see was that most of the African-American ad agencies were not growing much. There was a ceiling on the amount of total business out there. Rather than relying solely on breaking new ground with companies that did not yet have carefully targeted black ad campaigns, we should have been trying to take existing business away from other black ad agencies.

3. Pick your partner carefully, and be sure you both have a similar approach to doing business. This one should come as no surprise given that my agency changed from a two-person firm into a one-person operation. But what I have to say may be a surprise.

Business isn't about making money. Oh yes, that's part of it, but not even the most important part. No, business is about power, decision-making power, control-over-your-destiny power.

If you take on a partner or are invited to be one. make sure that you have a clear understanding of the power relationship between you.

Those businesses where the power definitions are clear between the partners have a better chance of maximizing those partners, efforts to ensure the survival of the business, instead of continually putting the business through internecine bouts.

What happened to me and my partner? We had the same goals for the agency, but two radically different approaches to running an agency.

For example, we had different philosophies about landing new business. My partner believed that to get business one had to socialize and make contacts. It was something she did very well. In contrast, I believed, during the formal presentation process, you had to create a legitimate reason for the company to need your services. This was something I did very well.

What we encountered in working together was simply a clash in styles. Plus, we both believed strongly that our individual approach to landing clients was the right way.

Of course, successful agencies have been built on both approaches to landing new business. But because we had a new business with limited resources, it was difficult to try to take the agency in two different directions at the same time.

The problem here is that it's not easy to discover beforehand what control your potential partner really wants over the direction of the business. Ordinary conversation may give you some clues about how each of you views the process of doing business and a feel for one another's goals and values. But coming to a clear understanding of the issues of power and control requires straightforward discussion. You need to be direct with each other before you form a partnership.

To understand what someone wants out of a business you must really get to know a potential partner. Details about his or her upbringing, family life, social style, fears, expectations, business philosophy and priorities are all key.

The success of your venture will require a productive balance of powers--and way of doing things--between the two of you.

4. Never stop marketing your business. The breakup in our partnership happened during 1990 and 1991, just before the recession and the really tough times hit. Nonetheless, my partner and I were so distracted dealing with interpersonal issues that we had no time for marketing to new clients.

The result was that during the year the partnership was splitting up, I managed to pitch only two pieces of major business, instead of the 12 pitches I had been making before. Needless to say, this had a big impact on total billings.

My advice to you: Market, market, market. No matter how well you've done before or how well you're doing now, keep that new business coming in the door.

5. Don't hire your friends to work for you. Boy, that sounds cold. But does it sound less cold to lay off, or even worse, fire a friend?

When you hire a friend, you are less likely to make strictly business decisions about that person, and any time this happens, you've put yourself in a compromising situation.

Objectivity helps an effective boss get his employees to produce great work, but there is nothing objective about friendship. For instance, I should have laid people off at the first stroke of losing business. But because I had personal ties with some friends I had hired, I kept them on payroll even during tough times.

And speaking about being a boss...

6. Don't be a manager. Be a boss. I was a very good people person when I worked in corporate America. I helped a lot of coworkers get through problems and issues in their lives and they liked working with me. So, naturally, I thought those skills were necessary when I started doing my own thing.

Yes. And no.

Being a good capitalist means keeping your eyes on the prize. How is what I am doing today going to help the business be more profitable tomorrow than it was yesterday?

In any business dealings, there will be distractions that can keep you from focusing on that prize.

As a boss with a small business to run, you have no one to fall back on if someone has problems, plus you can't afford the time to support someone emotionally. Trying to be a "good guy" also breaks down your authority, and it wastes energy you could be putting into running your company better.

If someone has a personal problem, don't make it your problem. If the problem is affecting productivity and there is a work-related solution to it, implement it. If someone's problems interfere with his or her getting the job done and there is no way that the job can be restructured to provide a solution, replace that person as quickly as possible.

7. Charge what you are worth. This primarily concerns those in the service industry where pricing can be somewhat variable.

Calculate what your contribution is to your client's bottom line and then charge accordingly. Many people will want your services at reduced fee because they perceive you as hungry or as offering a service that can be derived from other sources. This perception may also be influenced negatively if you are black.

If our agency had charged our clients what the value of our services were really worth, we would have been profitable before the tough times hit. You also need to charge a rate that takes into consideration what it costs you to service a particular client. Some accounts required so many agency man hours that we wound up not getting paid for the actual amount of overhead we were investing.

In other words, set your fees high enough to reflect what those services really cost you to provide. Be prepared to make a case for why your charges are what they are, and stick to it. Obviously, I am not suggesting inflexibility. You should make adjustments in what you would charge a Fortune 500 company, compared with a mom-and-pop store. But keep in mind, all clients will demand your best work, no matter what price you agree on.

8. Turn down bad clients. You won't know whether someone is going to be a good or bad client until you start working with them. However, as soon as you recognize that you've landed a bad client, get rid of them--no matter how much cash you are letting walk out the door.

Recognizing them is a lot easier when you're supplying goods and products as opposed to services. In the product industries, a bad client is someone who doesn't pay within 30 days.

In the service industry, someone who's paying within 30 days could still create havoc in your business. How? By placing demands on the business that, in the process of fulfilling the work requirements, end up poisoning your work environment.

This poison can take a variety of forms, but let me mention one example so you get the flavor. We had a packaged-goods client with top executives who had a need for control. Every time we would work on this client's account, these executives would pit one of our staffers against another. Each person who was working on the account would end up getting criticized to another staffer working on the account. The result was that they were demoralizing my people.

Everyone in your company can get tangled up in it when there is a client who is consciously trying to manipulate egos.

All the usual ways of stopping any intentional miscommunications are done routinely in large companies through written reports. In a small business, few have the time to write "CYA" memos.

Why would any client try to undermine your business in this way? The worst clients create trouble so that they either can get more services for free or can justify not paying for services already rendered.

If you want to learn from my experience, save yourself the mental anguish. Resign the account and keep your sanity.

9. Make sure you save for a rainy day. The advice here is tricky. Once you start a business, you must realize that the business is not you, and that as soon as you bring other people into the venture, it takes on a life all its own. Like any newborn, it has an insatiable appetite and will take all the nurturing you have to offer. That nurturance comes in two forms: capital and psychic energy.

You run a significant risk of losing your shirt when you start a business, and it's essential never to forget that. However, as I learned the hard way, taking all of your personal cash and pouring it into your business is ill-advised, no matter how much you are on the verge of making it. Just as ill-advised is pouring so much of yourself into the enterprise that you have no life outside the office.

Therefore, prepare for every contingency, even failure. That's not a defeatist attitude; it's a realistic strategy. Even generals preparing for battle leave themselves a way out so that they can fight again another day. Making sure that you can play the game another day--by having some money put away as well as by keeping your emotional options open--means that a failed business can be thought of as a single chapter in your life, rather than your entire story.

10. Know what you want to do with your life the day after. The day after what?

The day after you realize that your business is either a success or a failure. If the business is a true success, then for all intents and purposes, it can run without you, which means you'll need something else to do next. If it's a failure, then you don't have to worry about it anymore, which could leave a big hole in your day-to-day life.

Either way, you'll have time on your hands. I know because I had prepared no contingency plans in case something happened to my business. As a result of my lack of personal disaster planning, despite all the setbacks, I kept automatically looking for more business for our agency to do, rather than heading out to hunt for a marketing job on someone else's payroll.

The moral of this story is: If you know what you want to do the day after, you're giving yourself an alternative that will have meaning over and above what you derive from being associated with your business.

Trust me. That's a good idea.

These 10 confessions represent the personal knowledge I gained from being an entrepreneur. Now that I know them, I am ready to write a happier ending to the book of my business life. Hopefully, you can learn something from them, too.