It Was Our Biggest Week Ever. Yet We Nearly Went Bankrupt. Here’s What You Can Learn From Our Mistake.
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Precision Nutrition is the world’s largest nutrition coaching, education, and software company and is now valued at over 200 million dollars. But few people know it almost went bankrupt in its first week of existence. Here’s what happened, as well as the valuable lesson you can learn from it.
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From $12,000 Per Month To $140,000 In A Week
Prior to starting Precision Nutrition—which has gone on to become the world’s largest nutrition coaching, education, and software company and is now valued at over 200 million dollars—my business partner and I ran a small company called Science Link.
Through Science Link we did some online coaching and sold a few information products. Our total revenue was about $12,000 a month. But our biggest asset was our mailing list of about 30,000 subscribers.
In late 2006 we decided to package the best of our articles, audio, and video files into a comprehensive nutrition program called “The Precision Nutrition System” and offer it to our list of subscribers.
We intended on promoting this new information product over the holidays, offering a special discount to folks who purchased before January 1. At the same time we’d be rolling Science Link into a new organization we were hoping to start called Precision Nutrition. If all went well we’d be set.
We spent a tremendous amount of time getting the product right and building a launch plan. Amazingly, it worked!
The product took off and, during the week-long discount period, we sold $140,000 worth of our nutrition program. Sales weren’t slowing down either. For the next six months we averaged around $60,000 a month in revenue, up from $12,000 just a few months’ back.
If you’re wondering when the other shoe is going to drop, it’s about to.
Our Biggest Success Was Also Our Biggest Crisis
Unfortunately, our merchant services company, without any advance notice, withheld every penny we billed during that period–including income from other products and services—because of this rapid increase in sales.
(We learned that online health and fitness companies have some of the largest credit card chargeback rates of any industry. So merchant processing companies, when seeing big jumps like this, hold the money.)
So, while Precision Nutrition made $500,000 in sales over the first six months, we didn’t see a single dime.
This was particularly difficult because we didn’t print any of the products in advance. Rather, we planned on printing on demand, a strategy you use when you’re not quite sure how well a product will do and/or you don’t have the money up front for an inventory buy.
Bottom line: While we saw great success with our product launch, increasing our 6-month sales revenue from $72,000 to $500,000, our collected revenue dropped down to $0.
We had to fulfill thousands of orders with no product and no income.
To make ends meet during those 6 months, our staff had to work for free. I had to sell my apartment and borrow money from friends and family. It was one of the most stressful periods of my life.
Our Biggest Crisis Became My Biggest Lesson
As difficult as it was, the whole situation turned out to be a blessing in disguise. Because it helped shape a philosophy I’ve come to call “giving yourself the opportunity to continue”.
You see, I love what I do. And I want to be able to keep doing it regardless of the many unexpected things that can happen in business and life.
So, if I don’t set things up so that I can stay afloat, to continue doing the things I’m passionate and excited about doing, it can all go away. Not only because of low sales or too high expenses or general failure. It could even happen while I’m succeeding.
This lesson has been woven into the fabric of all my decision-making. And, in practice, it’s meant spending well below my means in business and life, even to the point of people noticing it.
I remember in 2009 a colleague visited us at home and commented on how people would be shocked to know that “the John Berardi” drove a 1996 Ford F150 pick-up truck and lived in such a modest 1,800 square foot house.
“I’m just giving myself the opportunity to continue doing what I love to do,” I told him.
I went on to explain that, as business owners, Phil and I took a small salaries compared to Precision Nutrition’s total earnings. With the remaining profits we created two pools of money.
The first was a “rainy day” fund that could pay for one to two full years of company expenses if any number of mishaps—from sales crashing to expenses exploding—took place. This fund would give us the necessary time to fix things.
The second was an “investment” pool that we spent only if projects came up that Phil and I agreed had a very high probability of returning high margins.
“Is this a million dollar project?” is a question we asked a lot.
In other words, will the investment of time and money in this project or resource turn into sales exceeding a million dollars? If not, we’d consider other ideas.
Are You Giving Yourself The Opportunity To Continue?
This lesson has served me well over the years. And I’m lucky enough to have learned it in, what was essentially, our first week in business.
If you want to continue doing work that you love, think about whether (or not) you’re giving yourself a buffer for when times get difficult.
Here are some things to consider:
1. What really matters to you and what do you really need in your life to be happy and content. Sure, that fancy car and house sound nice, but are they really in line with your values? (I talk more about values in this article)
2. If you’re running a business, set aside enough for a modest salary, one that covers your basic needs and still allows for money to stay in business.
3. Look at your total earnings and split your profits into two pools – a rainy-day fund and an investment fund.
4. Calculate your total annual expenses and, assuming all of your debt is paid off, keep saving until you have 1-2 years of operating expenses put away in a fully-funded emergency fund.
5. Once you have your rainy-day fund established, start to build your investment fund.
6. Before you invest your money in a project, ask yourself if there is a high probability of high margins return. If it truly worth investing in, go for it. If not, hold onto your cash until a better opportunity comes up.
7. Continue to build your rainy-day fund and investment fund over time. Keep in mind, as your company grows, so will your annual expenses.
Down the road, sure, you can pay yourself more. But first, give yourself the opportunity to continue. Because being paid to do what you love is one of life’s greatest gifts and worth more than any short term financial gain.
Want to learn more?
Then check out Dr John Berardi’s one-of-a-kind book – winner of the 2021 Axiom Business Book of the Year – Change Maker: Turn Your Passion For Health and Fitness into a Powerful Purpose and a Wildly Successful Career.
The health and fitness industry is huge, highly competitive, and often confusing to navigate. Dr. Berardi helps you make sense of the chaos, laying out a clear roadmap to help you achieve both personal and professional success.