Starting a new business.
It is exciting. Scary. Fun. Hard Work. You name it. All wrapped into one bundle of joy/pain.
So as a newbie entrepreneur, what pitfalls do I need to avoid?
Here are 10 gotchas you need to watch out for…
1. The Perfection Trap
You have a great idea for a new product or service. You work on it night and day. Craft it carefully. Making sure it is just right. A little tweak here, a touch-up there. Almost ready to go to market. But not quite. Is the pricing right? The color. The texture. Placement on the shelf.
You could go on for days, weeks, months…even years before you’re satisfied with it.
You will never make any money doing this. You need to launch. Things will never be perfect. You need to get your product or service in front of prospects. You can adjust and improve your offering based on the results you get from TESTING in front of live customers. Don’t try to make it perfect.
2. Cash Demands
Cash, cash, cash. The lifeblood of your business. Without cash you’ll be back looking through the help wanted adds and tossing your business into the scrap-heap of other failed business ventures.
Sales is not cash.
Credit is not cash.
Growth sucks cash.
Overhead eats cash.
Everywhere you turn your business is temped with the siren song of offers to take your hard-earned cash.
So what do you do? Carefully monitor your cash needs. Make sure you know where your money is going. Sometimes the old fashioned budget is just what you need.
Also look at your conversion of sales to cash. Good old accounts receivable. Do your customers pay cash at point of sale? Or do they pay at 30 days, 60 days, or whenever they get around to it.
Also look at your margins. When you make a sale, what percentage of it is profit after you back out the cost of the product or service delivered to your customer. This doesn’t include overhead costs of your office or staff not contributing to the direct delivery of your offering. The bigger the margin, the less impact sales on credit has on your cash needs. The tighter the margins or the faster your growth, the more you need to keep tight tabs on things.
3. Overboard on Overhead
Oh, overhead. The shiny, cushy, so-called necessities, that make your work easier. But do they actually contribute to increased sales and profits? And do those increases more than justify your overhead costs? If you’re not getting at least 2 or 3 times the profits on your increased overhead costs, then suffer and put it off til you’re able to make it work for you.
Too many people think they need an office (and a nice one) to show clients through. But I can’t count the number of times a client actually comes to most service business offices. If they don’t visit, why not have a minimal office that does the job rather than have something that costs twice as much and doesn’t add anything to the bottom line of your company?
Now that doesn’t mean you can’t outsource certain things like accounting to keep you focused on your highest value tasks. It also doesn’t mean you couldn’t look at an office sharing arrangement (I can’t count the number of businesses who are only using a fraction of their office space and would love to sublease a portion to someone with a similar business profile). So think outside the box a little and don’t just spend on overhead unless it really does justify the expense.
4. Being a Commodity
I’m a real estate agent. Or a marketing company. Or a clothing store. If you are referred to that way then you are likely a commodity in your customer’s and prospect’s eyes.
Being a commodity means all the prospect hears is price. They don’t see you as distinctive, proprietary, unique, different from all your competitors.
You can’t remain in that role or you’ll soon find yourself scraping by on the scraps left over by your competitors.
You need to look hard at where you are and what the possibilities are. Look at each of your key competitors. What are they best at? What are they promoting as their competitive advantage on their website? To their clients? Where are the holes in their offerings? Where are the opportunities you can capitalizing by promoting yourself as the best in the world in that micro-niche? Dig deep. By doing so you have the potential to drag yourself out of that hole and move to the top of the pile. Become the top dog among your competitors.
5. Not Starting
The greatest ideas of all time. The greatest products and services. All will be worthless if their originators never take them to market. And think of what a shame that would be. Your greatest ideas sitting on the cutting room floor because you lacked the courage or money or initiative to proceed.
Don’t let that happen to you and your ideas. Action is critical. And no one but you, the one who cares most to make your ideas a reality, can push them across the finish line.
So get started and make a difference in the world. You do matter. So make it happen.
6. Not Testing the Market
As in the perfection trap, not testing will eat up your money and your potential success. The market will tell you if something works. It will define success. It will point out to you what is effective and what is not.
Whether it is a headline (testing different headlines can increase results 2, 3, 100, 1000 times) or a product color or placement or advertising source. You name it, test it.
7. Not Learning From Your Mistakes
We all make mistakes. But the biggest mistake is not learning from them. Entrepreneurialism is often about making thousands of mistakes and adjusting based on the results you get. As you must test, you must constantly learn from those tests.
You need to take notes. Write down your assumptions and expectations, note your approach and implementation details, and then review and assess the results. Keeping a journal or notebook will help you leapfrog the competition who just coasts along.
8. Trying to do Everything Yourself
When you’re starting out it is often necessary to do most everything yourself. However I’d caution you that that can be the biggest trap of them all. None of us are experts at everything. We don’t have all the answers. We don’t have endless amounts of time or money to hope we get things right.
There are reasons successful people don’t mow their own lawns, clean their houses, or wash their cars themselves. For these people time is money. They recognize that freeing up their time for what they see as the most impactful use of their time helps them achieve their goals.
Now that’s not to say you go out and outsource everything if your time is not generating more than the outsourcing cost. But if it is then jealously guard your time and go outsource crazy. For salespeople this means hiring someone to handle the paperwork so you can spend time in front of customers selling.
9. Not Preparing for Time Demands
Starting and running businesses suck your time. That is why relationships often take a back seat when running a small business. That doesn’t have to be the case if you prioritize appropriately. But it does mean you must protect your time. You’ won’t likely be watching much TV. You won’t be going out with friends all the time (unless you can convert that to marketing time and sales results).
Don’t underestimate the time required. But if you prepare and understand that, then you can take on the world.
10. Not Planning for Problems
Problems are life. You make great plans and goals. And as soon as you start they’re now obsolete. You need to plan for the problems, have backup plans to backup plans. You can’t dwell on that and let them drag you down. But you can’t have a Pollyanna attitude about it either. Problems will come. And over time you will get better and better at dealing with those problems. And the problems you though we’re like climbing Mt. Everest in a few years start to look like speedbumps you laugh at as you hardly slow down for them.
So take charge. And avoid these 10 blunders. And you’ll see success come faster than you ever thought possible.