Common mistakes of a first time entrepreneur
Being an entrepreneur is facing risks at every step, be it in developing a new product/service or successfully bringing that product/service to the market. This article deals with some of the major mistakes that new entrepreneurs make which result in their cherished business venture turning into a failure.
The thin line between success and failure
Annually countless energetic, smart and positive minded entrepreneurs take the leap of faith and open their new businesses with the hope, that their product/service would help in bringing a small change to the world, and in the process turn their businesses into successes. But sadly, most of these entrepreneurs face failure; some even before their venture takes off. Agreed even after taking every possible precaution, the outcome of any new venture cannot be guaranteed. Still, the following are some of the major mistakes that first time entrepreneurs commit. Let’s look into one at a time.
No formal business plan
There is an important saying ‘when you fail to plan, you are planning to fail.’ Many new entrepreneurs avoid making a business plan as they find it time consuming and requiring a lot of research. But remember going ahead with one’s venture without a proper business plan is a sure recipe for failure. Creating a business plan need not be complicated – the critical thing is to include a description of goals and action in terms of who, what, where and why. The business plan can be focused on one’s business in general or about any specific aspect of business.
Capital, also called ‘money’, is what one’s partners, shareholders or business members contribute in exchange for ownership in business. Some businesses are capital intensive, while others are capital efficient. A lack of capital is one of the major causes of a business’s failure.
Rushing into a location
Choosing a poor location could hinder one’s venture before even opening the door. Some of the factors that contribute towards one’s failure because of a poorly selected location are: one’s rent to revenue ratio; if one’s anticipatory spending is more than 8% of one’s monthly revenue on rent then the location is outside the price range, accessibility; ponder on the thought – will one’s clients think it is easy to get to the location of business, and the building or shop; look up the title to see how often the building has changed hands and look up construction mortgages to check if and when the building has been renovated
Failure to grasp the difference between profit and cash flow
While ‘profit’ is the difference between revenue and all of one’s business expenses, on the other hand, ‘cash flow’ is the net cash in-flow or out-flow, that end up in or out of, the bank account for a particular period of time. A wise entrepreneur will dedicate the required attention to maximum cash flow in addition to the planning devoted to improving profitability. It is true that profits are important, but it is also important to have the ability to access these profits with a robust cash flow so one can do what one’s business needs at that time.
Fighting on prices and failing on value
Reducing prices is not always a great way to doing business, because the negative impact that price discounting can have on growth is huge. New entrepreneurs need to grasp that consumers make their purchasing decisions based on many factors and price isn’t the primary reason. So the important thing is to focus on the actual value of their product/service to the consumer.
Not hiring the right people
Many new entrepreneurs go into business for themselves; to be their own boss. This doesn’t mean that one has to be the smartest person in the room. However, the smartest person is actually the one who brought/ hired all the smart people together for the business venture. It is always good to remember that hiring wrong people create losses, and conversely, if one succeeds in hiring the right people, then be sure that they will have experience for the job and take responsibility to get things done. When one has hired all the right people for specific jobs then motivating employees which is one of the most difficult things for any entrepreneur, becomes a cake walk. For short cut remember – ‘hire someone for what they can make you and not for what they cost you.’
A business thrives when discussions are based on accurate facts and it is here that bookkeeping comes into effect. Many first time entrepreneurs settle for doing their own bookkeeping – which is the wrong thing to do, unless one is the competent at it. A competent bookkeeper can provide one with accurate/timely books that will become a compass to help one navigate through difficult business decisions.
Lack of systems
A mistake that new entrepreneurs make is that they don’t see their business as a series of processes and systems. One needs to have systems in place for everything that happens in one’s business – from production to market to finance to sales. The point is that if one doesn’t do a project exactly the same way every time, one can’t standardize it/delegate it, so one will end up doing it differently every time, which means one will end you wasting a lot of time. One’s goal as an entrepreneur should be to work on business, not in it.
Failure to invest in marketing
Many new entrepreneurs view marketing as an expense and try to avoid it. As a result, they never build brand awareness, generate leads or create buzz, then wonder why their business is failing to pick up. First time entrepreneurs need to treat marketing as an investment that will help them in growing their business.
Blaming poor performance to external factors
The unwillingness to take full ownership of poor performance is a human tendency. Yes, there are certain elements that will always be outside one’s control, but to be a truly capable entrepreneur one needs to identify these ‘elements’ and develop business strategies to compensate for them.
Not having a clear vision
One’s business vision simply means: where one is trying to take one’s business. This is because if one’s vision is blurry then how will one know whether one has achieved one’s goal or not. By clearly defining one’s business vision one can build measurable meters – financial, operational and interpersonal functions. A concrete business vision will help one to guide the business well and keep him/her focused throughout the weeks, months, years and decades as business grows. This also helps in ensuring that one’s team understands the vision and work accordingly.
History tells us that great entrepreneurs are neither smarter, nor better educated, but what distinguishes one from the other is that a successful entrepreneur takes the same twenty four hours a day, seven days a week and three hundred and sixty five days a year and use them with greater efficiency. No doubt an entrepreneur’s life is a roller coaster ride, but a bit of planning and the wise wisdom to learn from the advice of others, can help one in committing fewer mistakes.