Karim Abouelnaga is one of the brightest and most inspiring entrepreneurs I have ever known. We met at the Atlanta-based Points of Light Civic Accelerator, CivicX, which is in the shadow of the Georgia Tech campus. After my presentation on angel investing, I talked with several of the accelerator’s participating entrepreneurs, including Karim.
Karim’s company is Practice Makes Perfect.
It is an education company based in Manhattan. PMP serves the low-income scholars in New York City during the “summer slide” months. PMP gives these children access to the same learning the economically advantaged have always enjoyed during the crucial summer learning months.
When we met, PMP was a nonprofit. Even though he is located in NYC, I was excited about Karim and his vision, so I began to support him. This led to a long-distance friendship. Since that time, he has converted PMP to a for-profit company.
PMP hit a market need, and I wasn’t the only person who caught Karim’s vision. He grew by over 300 percent from 2015 to 2016. In the midst of all this success, Karim and his team were about to get slammed and not in a good way.
The 2018 CEO’s Letter to Shareholders and Friends
Here is Karim’s CEO update on all that happened in 2017. One sentence in the letter says it all, “I lost control of my business.”
I appreciate his transparency.
There are so many lessons for early-stage entrepreneurs to learn from his experience. He gave me permission to share this with you, my reader.
Here is my summary of lessons learned from a gifted entrepreneur with a rocket ship business.
- Overconfidence leads to independence. He refused other people’s money and the wisdom and commitment which would have come with it. He decided he didn’t need investors.
- He was so sure of PMP’s future success, he believed he could make up cash needs with borrowing versus selling equity. This put the burden of cash shortfalls on him as CEO which left no room for execution misses or bad decisions.
- A million dollars, when it magically appears in the bank account, can lead to bad spending decisions.
- Hiring people is the fastest way to spend your cash. Once you hire someone, they get paid every month like clockwork. Salary expense is easy to add and very difficult to shut off.
- Early success can lead to overconfidence. His early success had Karim believing he had it all figured out…market, sales, and delivery. He didn’t. He began spending money as if he had already hit his goals. You don’t spend the big money until you know you have it all figured out.
- Lack of market knowledge leads to poor cash flow decisions. Implementation was failing with some customers, so he gave them their money back. Later he admitted he should have simply given the customers a credit on future contracts. In his market, it wasn’t necessary to refund the cash, but this speaks volumes of Karim’s integrity.
- Running out of money leads to desperate decisions. He was getting down to his last bit of cash so Karim had to factor his receivables and max out his personal credit. This was done at a 40% APR. Worse yet, it caused an audit by the original lender, which led to the cancellation of his credit line.
- Vultures can smell death, and they see it as an opportunity. The business scavengers start showing up when an entrepreneur is desperate. They have no conscience. They don’t care what you or your business does to serve others. They don’t want to hear about your vision. They will take your last dollar, and you’ll give it to them if you think it will keep you in business.
- Layoffs always happen too late. Laying off the employees is never done until it is too late. These are the same people the entrepreneur spent so much time hiring, training, promising, and befriending. They are the heart of the company. The entrepreneur only decides to fire everyone when there is no money left to pay anyone. With qualified outside investors, the layoffs would have probably happened sooner, which would have avoided some of the other cash issues outlined in this list.
- There is a time for vision casting and a time for executing. Karim is a great speaker with an electric personality. He was in demand worldwide in the market of low-income education. He traveled everywhere and touched thousands of people. What he wasn’t doing was minding the store.
- A $3 million business requires different leadership and management skills than a $500k business.
- Your relationships and your integrity can save you. A great entrepreneur with fantastic relationships plus a business which solves a real problem can be saved. His friends came through in the end so Karim lives to fight another day.
Karim is now talking about achieving profitability. He learned the greatest lesson in business: Make money every month. Then being in business is a whole lot of fun. Running out of money is the most stressful experience in an entrepreneur’s life.