Many businesses fail for the same reasons; avoiding simple but very common business mistakes can not only teach entrepreneurs valuable lessons but help them get through the initial hurdle of building a business. Here are ten of the most common early years business strategy mistakes and how to avoid them.
Focusing on processes above sales
First-time entrepreneurs often spend too much time on the ‘exciting’ and easier parts of running a business, such as developing a website, designing a logo, streamlining processes and organising events. These are important parts of running a business, but should always be secondary to making sales. Sales are essential in a business’ early years; without sales, no money will be coming in, and if no money is coming in the business will not survive. Entrepreneurs must prioritise sales over the ‘cooler’ aspects of being in business, at least until the company has sufficient liquidity to allow time to be spent on tasks that don’t directly impact revenue.
Favouring areas of personal proficiency
Most entrepreneurs have identifiable strengths and weaknesses. They may have a head for figures but be under-confident in sales. Humans naturally gravitate to tasks in which they show proficiency because it feels good to be successful at tasks, while trying to succeed at something difficult can be disheartening. However, this can lead to neglect of key business areas, which can spell disaster for revenue. Entrepreneurs must ensure they give sufficient attention to all core aspects of the business, including sales, marketing, book-keeping. Weak areas should be improved through research and practice, or by hiring a partner with complementary skills.
Not charging enough
Businesses must turn a profit to survive, but first-time entrepreneurs often suffer from impostor syndrome and question whether they are ‘worth’ the prices they want/need to charge. But all businesses must charge enough so that, after tax and other deductions, there is enough profit to pay a salary and keep the business going. This is why sound financial management is important; entrepreneurs can work out how much they must charge to cover costs, and can then set their prices accordingly. Fighting against impostor syndrome is very important; it can cause discomfort for a while, but every business needs to survive.
Being scared of sound business practice
The inferiority complex mentioned above can wiggle its way into other areas of business strategy aside from basic pricing. For example, first-time entrepreneurs are often so scared of annoying clients (particularly major ones) that they will do just about anything to maintain the peace, even if this involves considerable extra work for little or no payment. Business people must learn to be strong in response to unreasonable customer demands, and to remember that inefficient use of time can quickly stifle a company’s cashflow. Being reasonable and firm is important in business, otherwise people can and will take advantage.
Most humans have perfectionistic tendencies and these are magnified in business because of pride and the perceived intrinsic link between a company’s output and the owner’s integrity. Perfectionism can quickly derail a business if allowed to spiral unchecked, as it can cause overspend on cost-effective projects, in effect losing the business money. Managing customer expectations is key to avoiding slipping into perfectionism; if they know what you will do, and when you will do it by, there will be no need for you to ‘go the extra mile.’ The other problem with over-delivering is that it can set the standard too high, making it difficult to maintain customer satisfaction in the long term.
Allowing personal feelings to influence output
Most entrepreneurs are passionate about their industry, and this passion brings with it a host of strong opinions about what’s important and how things should be done. These opinions can bring them into conflict with clients, particularly if these clients have a very tight brief. Entrepreneurs will often try to put their personal mark on projects, which inevitably eats into the project’s ability to meet client wishes, and this can lead to dissatisfaction. Gaining a strong commercial awareness, and the ability to fully meet a client’s brief while also feeling creative, are skills that will come in time. However, entrepreneurs must ensure they recognise any strong opinions from the start and temper these accordingly.
All eggs in a single basket
Businesses winning a large order often think they can sit back and relax, particularly if the order significantly bumps revenue. This is a very dangerous strategy, particularly if the company needs to take on additional resources/workers. If the client doesn’t renew their contract, the company is left with a revenue hole, but with the same overheads. This is a common cause of businesses going under.
This error also applies to specific business tasks. There many ways to do any single task, and this is true of many of the core aspects of running a business, such as marketing. First-time entrepreneurs often focus on specific (often easiest or cheapest) strands of marketing, to the detriment of others. This can be dangerous. Word-of-mouth marketing, for example, is a common form of winning new business but there are no guarantees, and the speed at which new business is won inevitably slows down.
Over-estimation and under-estimation
Over-estimation and under-estimation are common errors of first-time entrepreneurs, and can pervade all aspects of the business. They’re probably most dangerous when applied to a company’s finances, as overestimation of revenue and profits can be lethal, particularly when combined with under-estimating overheads. There’s a well-known slogan in business: “Double all your costs and halve all your revenue.” This is applied to financial projections and although it may seem pessimistic, this type of careful planning can prevent businesses from going under.
Over-estimation and under-estimation are also found in other areas of business including expected returns from marketing, expected size of orders, expected order value, etc. Entrepreneurs must quickly learn to temper these tendencies.
Failing to learn
In America, it’s considered a source of pride for successful entrepreneurs to have had businesses fail in the past. Everyone makes mistakes in business – it’s part of the learning process. But the real mistake is to learn no lessons, and to make the same errors in the future. Entrepreneurs must have open minds in order to augment their strengths by improving on their weaknesses. However, it’s easy for first-time entrepreneurs to think that making mistakes, and admitting weaknesses, is a sign of incompetence. This is far from the case – make mistakes, hedge your bets, learn from errors and emerge stronger and more proficient. It’s a cycle that all business people must go through.
Recruiting the wrong people
Experienced entrepreneurs often say that building the right team is the biggest challenge in business, harder than creating a great product or making sales. All owners will eventually need to hire staff, but many will hire the wrong people. They may select the people they personally like, or the people who are least passionate out of a misguided fear that passion will cause conflict. Of course, it’s difficult to know who is right for the business unless you understand the business, so all entrepreneurs should unsure they understand their brand, company processes and values before taking on staff. Hiring the wrong people can be very damaging; it’s difficult to get rid of people unless there’s a very good reason, and any confrontation can lead to reputational damage and tribunals. Meanwhile productivity and morale can be stifled as the employee fails to tessellate with the rest of the workforce.