Enthusiasm can float a startup at the start. But then that realization kicks in: oh crap, this is a growing business.
Museum Hack had humble roots, starting from a founder doing fun tours for his friends, before expanding the concept out with more staff. Eventually, the company, now led by CEO Tasia Duske, learned one danger of scaling up: People who are suited for on-the-ground jobs during the early days of a company may not excel behind desks as it grows larger. It was an error that almost bankrupted the company, Duske tells Inverse in the Q&A below, but some hard decisions and raising prices turned things around.
Tell us what your company does.
Museum Hack leads renegade tours of the world’s best museums. Our standard tour is called Un-Highlights and includes stories about the art and artists, secrets and gossip about the museum, games in the galleries and sometimes wine. We also have themed tours like Badass [B*tches], which is a positive feminism tour, and Drag Tours where part of the tour is run by a drag queen. We run our museum tours in Chicago, Los Angeles, New York City, San Francisco, and Washington D.C. We also consult for museums on how to attract and engage audiences.
At what point did you scale up, and what did that growth look like?
We are a fully bootstrapped company, so in a way, we were scaling up since day one. In 2013 our founder, Nick Gray, went on a date to the museum that inspired the company. After leading some free tours for friends, Nick charged $20 for the first ticket sale and then reinvested that money back into the company. In 2019, Museum Hack did $2.8 million in revenue, enough to join the Inc. 5000 as one of the fastest-growing private companies in America.
What went wrong when you scaled up?
The early team at Museum Hack was a group of smart, creative people who were highly motivated to create a new kind of experience in the museum. These team members came from backgrounds like acting, theater, and music, which was a perfect match for the design and performance of tours.
As we attempted to scale, we promoted these team members to operation roles within the company. For example, sales reps and managers. To their credit, the team was generally enthusiastic about these roles and to continue contributing to the company. The change also came with the stability and benefits of a full-time job.
It took months, and in some cases years, to realize that these full-time roles weren’t the right fit for many of the people in them. We had ongoing issues with performance, productivity, morale, and retention. There were also challenges with individuals managing their former peers. The reality was that these team members didn’t want to work behind a computer and in some cases preferred the flexibility of part-time roles.
In order to scale, we needed to replace these roles, but didn’t have the margins or budget to do it because we were already paying full-time salaries.
How bad did things get?
At the beginning of 2018, we were near bankruptcy. We averaged over $200,000 in monthly revenue and had cash-flow positive months, but also months that were deep in the red. This financial strain was quickly burning through our financial buffer.
How did you fix the issue?
We made a number of changes that allowed us to fix the issue. First, we made the hard decisions and had the hard conversations to end employment for some of the early team members. This process included restructuring and eliminating roles for an entire department.
Second, we raised our prices for our tours by as much as 40 percent. Raising prices often has a negative impact on conversion rates (the percentage of people that buy), so this was a balancing act as we figured out the best price along with making sure we had enough guests on tour.
Third, we did a “chopping block” exercise where we eliminated projects, tools, and other expenses. Our goal was to run as lean as possible so we could recover.
Those three initiatives allowed us to implement stronger budgets and rebuild a financial buffer. We then hired new team members with experience and goals for specific roles. For example, we hired experienced sales reps and marketing people. The result was much stronger employee-role fits across the company.
Where did you get the idea for the fix?
Ending employment for team members was a necessity and we couldn’t have continued with the overhead expenses we had. It did take a thorough analysis of each department to really understand what was going on, and what wasn’t working.
That departmental analysis also led to raising our prices. We knew our overall margin for the year, but no one had ever calculated what we earn for each tour, or how it changes by city, museum and number of guests. Once we had this data, we could act on it.
The chopping block was an idea our marketing director had. It was an exercise at one of our leadership meetings and proved to be very effective.
What do things look like now that you’ve corrected the problem?
Instead of fearing bankruptcy, we have a healthy business that has earned a profit every month since the change. We are also growing, and expect to earn $3.5 million or more in 2020. As we’ve scaled up, we’ve been able to offer career growth and higher pay to our team members. We’ve also been able to add benefits like paid time off, health insurance and bonuses. We will never have the scale revenue of a big tech company, but we have a medium-sized business that is continuing to grow and that we are proud of.
What did you learn from this experience that other business leaders need to know?
There are a lot of case studies about how businesses become more successful after raising their prices. We could have and should have raised prices sooner, but I’m happy that we eventually made that change.
Second, review your employees and make decisions on what is best for the business now. It is possible that someone was a great fit when you hired them, but as the business grows and priorities change, they are no longer a fit. Depending on your goals, you may not need to change anything, but if you want to scale then you may need to make those difficult decisions.
I also believe growing and scaling a business can be planned, but is very much aided by being open to serendipity. Take small risks, make investments and double down over and over until you see real growth.
Scaled Up is a weekly interview series by Inverse with entrepreneurs. They share how almost everything went wrong while growing their business — and how they fixed it.