Starting a new business venture is always a trial and error process – even for experienced entrepreneurs. After all, there is no playbook or game plan out there that will ensure a start-up’s success.
Hence, a recent article by Rosalind Resnick, the founder and CEO and Axxess Business Consulting (a New York consulting firm that develops business plans and financial projections for start-ups and early-stage companies), for the Wall Street Journal about the top 10 mistakes entrepreneurs make is well worth reading. These mistakes included:
1. Going it alone. In Rosalind’s opinion, it’s difficult to build a scalable business if there is only one person involved. Hence and even if you are running a solo shop, you must ensure that there is enough margin in your pricing to allow you to bring in more people when you need to.
2. Asking too many people for advice. Rosalind wrote that while it’s always good to get input from other experts, getting too many people’s opinions may in fact delay your decision making abilities. He advises that you assemble a solid advisory board but leave the day-to-day running of the business to yourself.
3. Spending too much time on product development, not enough on sales. Rosalind conceded that while it’s difficult to build a great company without a great product, a competitor with a stronger sales organisation can still grab your customers. In other words, keep one eye focused on sales so that you don’t run out of both energy and money before your product reaches the market.
4. Targeting too small a market. Rosalind pointed out that while cornering a market or niche may be tempting, your growth may quickly hit a wall if your target market or niche is too tiny. In other words, try to pick a bigger market where you can grab a bigger slice of the pie.
5. Entering a market with no distribution partner. Rosalind noted that a market that already has a good network of agents, brokers, manufacturers’ reps and other resellers will be easier to break into while service businesses tend to alternate between “feast and famine” or just plain struggle to survive. Hence, Rosalind suggested that you make a list of potential referral sources who you can then ask to send business in your direction.
6. Overpaying for customers. Rosalind wrote that while advertising spending may bring in plenty of new customers, you will ultimately lose money if you can’t convert those dollars into “life-time customer value.” Rosalind’s solution: “Test, measure, then test again.”
7. Raising too little capital. Rosalind noted that many entrepreneurs assume that all they need is money to rent space and buy the necessary equipment while forgetting that they will also need to pay for things like salaries, utilities, insurance and other overhead expenses plus themselves until the venture becomes profitable. Rosalind’s point was that you will need to calculate your start-up cost before you start your business – not afterwards.
8. Raising too much capital. On the other hand, Rosalind wrote that raising too much money can also be a problem as over-funded ventures tend to get big and bloated – until they run out of cash (like during the dot.com era). Hence, Rosalind wrote that no matter how much cash you are able to raise, you will still need bank some for a rainy day.
9. Not having a business plan. Rosalind pointed out that not every company needs a formal business plan, but one that requires significant capital to grow and more than a year to become profitable will need a roadmap that also thinks through key business metrics.
10. Over-thinking your business plan. On the other hand, Rosalind noted that some entrepreneurs or potential entrepreneurs are afraid to pull the trigger until they are 100% certain that their business plan will succeed. In other words, there is a certain point when you have to “close your eyes and take the leap of faith.”
Rosalind ended her article by noting that it’s probably not possible to start a company without making at least a few mistakes along the way. However, you will need to try to avoid making any mistake “so large that your company can’t get back on its feet to fight another day.”