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10 Entrepreneurial Mistakes

10 Entrepreneurial Mistakes

It is difficult to avoid certain mistakes, especially if you face a situation for the first time. In fact, many of the following mistakes are difficult to avoid, even if you are an old hand. Of course, these are not the only mistakes executives make, but they are probably common enough. Take the following self-assessment: Give yourself ten points for each of these entrepreneurial blunders you are making. Pull off five points for those you have avoided now. Of course, your score will be kept confidential, but seek help. Quickly!

  1. Big Client Syndrome

If more than 50 percent of your income comes from any one client, you may be on the road for a crash. While it’s both easier and more profitable to handle a small number of large customers, you become very vulnerable if one of them contributed most of your cash flow. You tend to make dull concessions to keep their business. You make special investments to handle their special requirements. And you’re so busy serving one big account that you fail to develop additional customers and revenue streams. Then suddenly, for some reason, that client goes away and your business grounds collapse.

Use the budding account as a reason for celebration and danger signal. Always look for new business. And always try to diversify your revenue sources.

  1. Create products in a vacuum.

You and your team have a good idea. A brilliant idea. You spend months, even years, implementing that idea. When you finally bring it to market, no one is interested. Unfortunately, you were so in love with your idea that you never took the time to find out if someone else cares enough to pay for it. You built the classic better mousetrap.

Don’t be a product that is looking for a market. Do the “market research”. Test the idea. Talk to potential clients, at least a dozen of them. Find out if anyone wants to buy it. Do this for anything else. If enough people say “yes” go ahead and build it. Better still, sell the product at pre-sale prices. Fund this in advance. If you don’t get a good answer, go to the next idea.


  1. Equal Partnerships

Suppose you are the world’s largest salesman, but you need an operating man to get things back at the office. Or you’re a technical genius, but you need someone to find the customers. Or maybe you start with a friend. Anyway, you and your new partner split the company 50/50. It looks good and fair now, but if your personal and professional interests diverge, it’s a sure recipe for a disaster. The parties’ veto may discontinue the growth and development of your business and do not hold enough votes to change the situation. Almost as bad, ownership is evenly divided among a larger number of partners, or worse, friends. Everyone has an equal voice and decisions are made by consensus. Or, worse still, unanimously. Yikes! No one has the final say, every little decision becomes a debate, and things go down quickly.

To paraphrase Harry Truman, the goat must stop somewhere. Someone needs to be in control. Make that person CEO and give them the biggest ownership interest, even if it’s just a little more. 51/49 works much better than 50/50. If you and your partner need to have total equality, give a one percent share to an out-of-town adviser who becomes your tie.

  1. Low prices

Some entrepreneurs think they can be the low price player in their market and make big profits on the volume. Will you work for low wages? Why do you want to sell at low prices? Remember, gross margins pay for things like marketing and product development (and good holiday trips.) Remember, low margins = no profits = no future. So the bigger the better.

Set your prices as high as your market will carry. Even if you can sell more units and generate higher dollar volume at a lower price (which is not always the case), you can’t be better off. Make sure you do all the math before deciding on a low pricing strategy. Figure all your incremental costs. Figure in the extra stress as well. For service companies, low prices are almost never a good idea. How do you decide how high? Increase prices. Then make them up again. When clients or clients stop buying, you have gone too far.

  1. Not enough capital.

Check your business listings. The norm is optimistic sales prospects, short product development time frames, and unrealistically low cost forecasts. And don’t forget poor competitors. Regardless of the cause, many businesses are simply under-capitalizing. Even mature companies often do not have the cash reserves to withstand a downturn.

Be conservative in all your projections. Make sure you have at least as much capital as you need to make it through the sales cycle or the next planned round of funding. Or lower your burn rate so you do it.

  1. Out of focus

If yours is like most companies, you don’t have the time or the people to pursue every interesting opportunity. But many entrepreneurs – hungry for cash and more thinking are always better – feel the need to curb every piece of business in front of them, instead of focusing on their core product, service, market, distribution channel. To spread yourself too thin leads to sub-par performance.

Focusing your attention in a limited area leads to better than average results, which almost always exceeds the profit from diversification. All Travel, from Positioning Fame, has written a book covering only this topic. This is called Focus.

There are so many good ideas in the world, your job is to choose only those who offer better returns in your focus area. Don’t spread yourself thin. Become known in your niche for the thing you do best and do it very well.

  1. First class and infrastructure crazy

Much of the start dies an untimely death of excessive overhead. Keep your digs humble and your furniture cheap. Your management team needs to make the most of their remuneration when profits soon, not before. The best entrepreneurs know how to stretch their cash and use it for important business building processes such as product development, sales and marketing. Save that fancy phone system unless it really saves time and helps to make more sales. Spend all the money really needed to reach your goals. Ask the question, will there be sufficient return on these expenses? Everything else is overhead.

  1. Perfection ditis

This disease is often found in engineers who will not release products until they are completely perfect. Remember the 80/20 rule? Following this rule to its logical conclusion, rounding off the last 20 percent of the last 20 percent can cost you more than you spent on the rest of the project. As far as product development is concerned, Zeno’s paradox is. Perfection is unreachable and expensive. Plus, while getting it right, the market changes right underneath you. In addition, your customers have purchased the purchase of your existing products and are waiting for the next new thing to roll out your doors.

The antidote? Focus on creating a market-beating product within the allotted time. Set a deadline and build a product development plan to fit. Know when to stop making a delivery date. When your time is up, it’s up. Release your product.

  1. No clear return on investment

Can you articulate the return from the purchase of your product or service? How many additional things will it generate for your client? How much money will they save? What? You say it’s too difficult to quantify? There are too many intangible assets? If it is too difficult to figure out, what do you expect from your prospect? Do the analysis. Talk to your clients, create case studies. Come up with ways to quantify the benefits. If you can’t justify the purchase, don’t expect your client to want it. If you can demonstrate the great return on investment your product provides, sales are thin.

  1. Don’t acknowledge your mistakes.

Of all the errors, it can be the biggest. At one point you realize the terrible truth: you’ve made a mistake. Give it fast. Restore the situation. If not, the error will increase, and bigger, and … Sometimes it’s hard, but believe me, bankruptcy is harder.

Suppose your costs are sunk. Your money is lost. There is good news: your base is zero. From this perspective, would you invest fresh money into this idea? If the answer is no, leave. Change course. Whatever. But don’t throw good money any more.

OK, everyone makes mistakes. Just try to catch them fast before they kill your company.

In order to prevent mistakes in the future, it sometimes helps to ask good questions early. Click the link if you want a copy of my fractal strategic planning questionnaire.

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