I welcome my guest blogger today, Heather Johnson, on the topic of the top 5 mistakes people make when they start a business. Heather is a regular commentator on the subject of small business. Heather welcomes your feedback at heatherjohnson2323 at gmail.com. Thanks for the contribution Heather!
One-third of all start-up businesses ultimately fail. This is a scary fact for people that are just getting started to face. For these people it is a dream come true to be their own boss and develop their business ideas. While this fact isn’t meant to deter people from creating their own business, it’s important to know how dangerous and risky this proposition is. The key is to know what mistakes are commonly made and avoid those. Without further ado here are five mistakes people make when starting a business:
- Not enough money. This is the most common mistake the small business owner makes. Financial advisors recommend that you start with three times the amount of money you feel you’ll need to start your business. This may sound outrageous but it’s to protect you from an unexpected downturn in the economy.
- Shying away from technology. It can be worrisome to consider the costs of technology and what you should and shouldn’t buy for your company. However, if you make the initial purchases you’ll see dividends down the line. Blackberries, laptops, etc. allow your employees to accomplish more work in a shorter amount of time. It allows them to get in touch with customers in a timely manner.
- Size doesn’t matter. If you are constantly stating that you’re a small business then people are only going to look at you as such and respect you less. It’s just human nature for people to expect less from less. As long as you can accomplish your goals and meet your customers’ needs then you’re going to be a success. There’s no need to broadcast how small you are.
- Losing sight of what you envisioned. It’s important you maintain a focus on what your business model is and stick to it. As the boss it can be easy to let your dreams run rampant and you may start to lose the vision you had when you first embarked on this path. Stick to your guns and you’ll be just fine. It’s when you stray and start thinking about all the things you aren’t doing that you’ll find yourself in trouble.
- Not paying attention to sales. Sales ultimately drive your revenue stream. It’s important that you stick to this edict. If you’re making enough sales then your finances will be in decent shape. This is important at all times but shouldn’t be overlooked when you’re just getting started. A dedicated sales representative is the most important, first hire you’ll make.
This ends my entrepreneurship and personal finance mini-series. If you would like another theme week, email me suggestions and I will see what I can do! Hope you enjoyed the series. If you are interested in reading more about entrepreneurship, Four Pillars runs a series on wacky business ideas (which are really not so wacky) and I will continue to comment from time to time.
June 12th, 2008 at 10:04 am
Technology can be a great investment if you choose wisely – I recently bought the largest LCD I could fit on my desk and attached it to my laptop; normally I wouldn’t do something like that but it makes a big difference in my efficiency.
The idea that your first hire has to be in sales seems a bit unusual though… I haven’t heard that before. If you take the example of an E-myth type businesses, someone who’s building a business around a specific skill and hiring a sales person is just turning it into a job with uneven income! There may be specific parts of the business you like doing but (initial) hiring seems like a way to remove yourself from the daily activities of the business. Whether you start out with help for administrative tasks or by training someone to do the core work of the business, I don’t think hiring someone to sell is the automatic first choice. I know that’s what I’ll be doing more once I get a little help.
June 13th, 2008 at 12:35 am
Interesting ideas, Heather. Combining #2 and #4, there are small businesses without a website or proper email addresses. You look puny if your email address is yourname@hotmail.com or yourname@gmail.com.
Silicon Prairie: In “How To Be A Rainmaker”, Jeffrey Fox describes these steps
1. Sell it
2. Make it
3. Ship it
4. Bill it
Timothy Ferriss sold the idea of “The Four-Hour Workweek” before writing the book. This turned out better than an earlier initiative in which he wrote something that didn’t sell.
Selling does seem to be the highest priority and that requires a salesperson.
June 13th, 2008 at 11:56 am
I guess it depends on your approach and preferences – based on your comments here and on the other post in this series it sounds like marketability is very important to you, whereas I would rather make sure I’m selling the right thing (for me and for the customers) first. Either approach – selling something and trying to make it as good as you promised, or finding the right thing to sell and trying to get it to sell as well as it should – can work depending on the situation, so I still wouldn’t say that nothing but sales matters… Then again, the original post might just be talking about retail start-ups where more sales don’t directly increase the amount of work you have to do.
I know I’ve put in a lot less effort than I should in sales and marketing, but then again one of the reasons is that my existing customers (people who know that I’m selling something good) are keeping me too busy
June 13th, 2008 at 4:45 pm
This is a great article and wish I had read it when I first started my business. The problem I had was that I did not set myself a budget and wasted a lot of money listening to other people and spending money on things which were not necessary such as advertising at the wrong market etc. However, had I not learnt these lessons the hard way I may not have learnt it as quickly.
June 13th, 2008 at 5:34 pm
To address both Riscario and Silicon Prairie’s points indirectly, venture capitalist ideally look for the following before investing in a business:
1. Someone who knows the product/service backwards and forwards (the tech person)
2. Someone who can sell it (the sales person)
3. Someone who knows how to build a business (the business master).
I have rarely seen a salesperson without the other two build a sustainable business as I have yet to see a tech person build a good business without a sales person and a business master and how does a business master ply its skills without a product or sales revenue?
Sales brings in money but you need a product to sell before you can sell and you need someone who knows what to do with the money that sales brings in and you need tech to continue to refine the product so all three are interdependent on one another.
If you are a salesperson then the first person you hire is the business master. Salespeople hate the paperwork involved in administration and operations.
The hardest to find is always the business master in my experience. It really requires the right combination of life and business experience meets someone young enough to work hard at building a business.