Seven common start-up mistakes new business owners regret most, for longest
April 3, 2008
The first year of a business charts a steep learning curve. No matter how careful or how knowledgeable you try to be, mistakes will happen. Get used to the idea.
But if you keep an open mind and heed the voices of experience, you can dodge many common missteps. Here are seven mistakes (and seven often painful lessons) based on the most frequent missteps that newbies make, as well as advice about how to dodge the potholes.
Mistake 1: Driving a fire engine
You often hear that entrepreneurs need determination to succeed - the fire in the belly. But you need more than high energy to fan start-up flames; you need a plan. Thoroughly investigate your market and target customers, the competition, and the other basics, like what makes a sound business model.
Focus on one simple question: how will you make money? Tim Berry, the president of Palo Alto Software, points to the ubiquitous video store on the corner, the one that has open and shut in record time.
Typically, a starry-eyed owner rents the space up front. Now he has fixed monthly overhead costs well before opening. He spends his capital on snazzy design, forgetting about cash registers, software and signage. When it's time to stock the shop, the owner is tapped out.
The store opens with trendy decor, lousy inventory and not one penny for marketing. Before the year is out, it is "picked up by a chain that knows what it's doing", says Berry.
Mistake 2: Selling too cheaply
Ask a child to choose between 12 rhinestones and one diamond; she'll go for the rhinestones every time. Start-up owners are just like that: they figure rock-bottom prices will fuel skyrocketing sales.
But it doesn't work that way. Don't price your product below market value or below your margin profit. If you do, no matter how much you sell, you'll lose money. Calculate fixed and variable costs. Figure the margin you need to put rands in your pocket .
Mistake 3: Desperately seeking adrenaline
Entrepreneurs tend to be visionaries and risk takers. The longer they sweat the details, the jumpier they get. So they often engineer a crisis just to get back in the game and feel the rush of adventure. The purpose of a business is to make money. If you come alive only by jumping off a cliff, take up bungee jumping.
Mistake 4: Clueless on marketing
Start-ups rarely plan or budget for marketing because new owners think it's an unnecessary expense. Or they confuse marketing with sales. A rough definition: marketing builds sales for tomorrow. Sales focus on closing deals immediately.
Entrepreneurs usually hire salespeople first. But the initial hire should be a marketing expert to get out the word. Then bring out the sales force.
At launch, everyone works three or four jobs. Problems are fixed ad hoc. But eventually, systems need to be installed.
You're in charge.
You set the expectations and develop procedures, or appoint someone to do it. Without defined policies for job performance, hiring and firing, holidays, sick leave, benefits, compensation, promotions and the rest, your new company is vulnerable to legal problems and low morale. A company handbook can be as simple as a one-page memo.
Mistake 6: Blowing capital
Most new business owners underestimate financial needs. Typically, they overspend at the outset. Few customers pay promptly. So even when sales are immediate, cash is often tight. After developing budgets to sustain the company for the time you think it will take to break even, add at least 50 percent as a buffer.
Mistake 7: Ignoring loved ones.
Start-up demands long hours. That can put stress on relationships. The commitment isn't yours alone; you need buy-in from friends and family. Make sure your time and money are also spent on loved ones.
This is an excerpt from the Microsoft Small Business Kit, by Joanna L Krotz, John Pierce and Ben Ryan
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