Jeff Elvin | Crain's Twin Cities

In this ongoing series, we ask executives, entrepreneurs and business leaders about mistakes that have shaped their business philosophy.

Jeff Elvin

Background:  

Jeff Elvin is the founder and president of Edina-based Dakota Stones, a wholesaler, supplier and brand of semi-precious gemstone beads. Since its launch in 2001, the company has sold its products mainly to retail outlets and jewelry designers. In recent years Dakota Stones has turned its attention to consumers through the retail site RoundBeads.com and the acquisition of GoodyBeads, a full-service online bead retailer.

The Mistake:

I made the ongoing mistake of being a bit too cautious. When you’re a smaller company, it can be a good thing to grow things organically while paying for things as you go. In the beginning, we basically financed our inventory and growth through sales. And in many ways, that meant taking less money as an owner and financing the whole thing.

What we did, though, was limit our ability to grow. That approach then affects other aspects of the business, such as the type of employees you can hire. I couldn’t go out and hire that high-end employee with a lot of experience because this was all I could afford to pay them.

The approach we took was to hire employees from within. With that the case, many of the evaluations I made were about things such as not putting my employees at risk; it's always good to have strong employee retention.

We've had a lot of success with that approach, but at the same time, we could have maybe seen more growth by hiring professionals who were stronger in areas where we may have been lacking.

So the mistake was not taking that risk in the form of an up-front investment, whether it was in people or technology or inventory. If we had invested more in the beginning, it might have been a little easier to scale up.

We learned that not taking risk with an up-front investment limited our ability to grow.

The Lesson:

The risk-reward does need to be weighed out, but as we moved this year into leveraging another company [GoodyBeads], it has come down to gauging that risk and making the investment.

You hear stories about how many small and medium businesses don't make it. You go through cycles, and you can grow it to be a nice secure "lifestyle" business, but you may have to go through those growing pains to go from, say, 10 to 20 employees.

The hard part of it all is you have to factor in the recession. Just as Dakota Stones was hitting its growth pattern, our entire business model had to change. Of the 5,000 bead stores that existed in the U.S. — the pool of potential customers from which we drew — about 4,000 of them went away. So we had to change our business to more of an online model. It’s almost reinventing yourself.

Acquiring GoodyBeads gives us a bigger platform to sell and control our product line from the mines and the manufacturing aspect all the way to the end user. It also allows us to control the brand and the message all the way through.

It's still a calculated risk, but the benefit is the experience of the people who came along with the company we acquired. They bring with them a certain level of professionalism, so in a way, you're leveraging talent and experience, as well.

Follow Dakota Stones on Twitter at @DakotaStones.