They say experience is the best teacher, but in entrepreneurship, making your own mistakes could mean financial and emotional ruin. If you’re just starting out in the world of business, it pays to learn from the mistakes of others so that you can focus on achievement and progress rather than re-living the failure of those before you. Today we explore the 7 most common mistakes made young entrepreneurs, and offer advice on how to avoid making them at your new start up.
Trying to do it All
When many young entrepreneurs start out, they assume that because they are good at the one central function of the company (such as developing mobile apps, or performing marketing consulting), they are well-qualified to run an entire business. As these entrepreneurs soon learn, a business is a multifaceted machine consisting of much more than a particular skill. An especially gifted designer may not know the first thing about accounting, marketing, networking, or any of the other crucial tasks needed to keep a business afloat.
Partly because of a lack of resources and partly because of pride, many new business owners charge forward and attempt to shoulder all corporate responsibility themselves. This is a mistake that entrepreneurial resources like BusinessKnowHow.com cautions against. “New business owners frequently lack relevant business and management expertise in areas such as finance, purchasing, selling…” they remind us. “Unless they recognize what they don’t do well, and seek help, business owners may soon face disaster.”
Not Establishing Work Systems
The early days of a company are frantic and busy, and as a result very little time is spent creating work systems to govern how things get done. A work system is nothing more than a set of steps that are to be carried out verbatim every time a recurring task comes up. If you are a graphic design firm, as an example, a frequently recurring task might be to design a website for a new client. Having a system in place for this task tells your lead designer everything that is involved in completing it, including adding analytics code, uploading it to the correct server, etc.
When you don’t establish specific systems to govern how work gets done at your organization, you leave room for error. Without step by step instructions for how every important recurring task is to be completed, your partners and workers will improv — they will fill in the blanks that not having an explicit system creates. Forgetting to carry out any one of the crucial steps involved in successfully completing a job can create big problems down the line, costing the company time and money to track down and fix.
Expecting Too Much Right Away
There are plenty of good reasons for wanting to go into business, the most popular of which include professional acclaim and financial independence. It is vitally important to your morale as an entrepreneur that you realize these successes will not come fast. Often, the first year of a start up is a topsy-turvy roller coaster ride that can both delight and terrify those in the driver’s seat. Paul Graham, a venture capitalist for the seed funding group Y Combinator, has has had the chance to work with hundreds of young founders and found that many founders have a problem with this.
In an interview with one new team, Graham quotes the founder as saying, “The emotional ups and downs were the biggest surprise for me. One day, we’d think of ourselves as the next Google and dream of buying islands; the next, we’d be pondering how to let our loved ones know of our utter failure; and on and on…” It’s easy to get demoralized by the uncertainty of success in the early days, but try to keep a level head and realize that dreams like yours take time to build, and ages to sustain.
Spending Too Much
In the early days of your company, capital is king. Whatever financial resources you manage to pull together to fund the company are precious assets that are hard to get back once they are spent. Some new business owners who have little experience managing money unwittingly spend capital on unnecessary expenses, such as designer office furniture, cable TV for the break room, and other frivolous purchases. Remember, frugality is the winning mindset when you start out. Your capital is only to be spent on crucial business resources that have the potential to generate more revenue and build the business out.
Not Spending Enough
You might think this a curious mistake to include — after all, if capital is king and frugality is the winning mindset early on, how could not spending enough be a problem? Just as there are managers who are loose with the corporate checkbook, there are also those who are afraid to spend any money, even on things that truly matter. A $100/hour consulting fee might seem like a lot to pay, but if the advice this consultant gives has the potential to solve your most vexing business problems and set you on course to tripling your revenue next month, it is a worthwhile investment.
The key to not to be penny-wise and pound-foolish. If you’re going to spend a significant amount of money, you must evaluate how likely it is that your business will be better off for the investment. Hiring the programmer who will create your flagship product is an example of a time when it doesn’t pay to pinch pennies. You need top-notch talent, and if you’re serious about being the best out there, you’ll need to pay for it.
Not Defining Your Market
Your target market is the group of people who are most likely to buy what your company offers. You’ve got a great new product that “lots of people” will want to use — okay, great, but who are these “people?” Are they teenagers, middle-aged women, sports fans, doctors, college grads, auto mechanics, pilots, etc? Dig even deeper and determine what specific problems these people have that your product will solve. Knowing your target market allows you to spend your advertising money wisely and target only these people, rather than wasting money trying to appeal to “everyone.”
Though this is a common mistake for early entrepreneurs to make, it is amazing to see how many seasoned businessmen still disregard their precise target market. Take fast food chain White Castle, for example, who was recently seen advertising pork sandwiches on a jewish news website. Such an egregious oversight could only be made by a marketer struggling to reach absolutely everyone with his or her ads, which almost always a losing strategy.
Not Being Flexible
There are some dreams in life that you can attain by following a specific plan of action and refusing to deviate from it in any way. Success in sports is like this, because the goal is very clear and there are only a few known ways to attain it (training, diet, discipline, etc). Start ups are the opposite. In business, you must be willing to change, evolve, and even completely discard your plans at any time. It all depends on the demand for your product — simply because you think you have a revolutionary product in mind, and build it exactly as you envision it, does not mean you will become a success unless there is high demand for it.
Paul Graham, our venture capitalist from earlier, explains that inflexibility is one of the most poisonous mindsets a founder can have. “If you want a recipe for a startup that’s going to die, here it is: a couple of founders who have some great idea they know everyone is going to love, and that’s what they’re going to build, no matter what,” he explains. This is because success in business is not entirely dependent on you, you also must answer to your customers. If your market is demanding X and you give them Y, you won’t make it out of quarter 1.
Guest Author – Carla Sanchez is a freelance writer for Omniture. Omniture is the world leader at website tracking and website search. Software that enables you to better understand your customers and increase your sales.