The Entrepreneurial Life Is Rife With Potential Pitfalls
Managers and company owners are far from immune to missteps in their approach to operating their businesses. A management expert reveals how to overcome the most common mistakes that entrepreneurs make today.
The entrepreneurial life is rife with potential pitfalls. You can pour your heart and soul (and life savings) into a venture, do all your due diligence, toil 80- and 90-hour weeks, and just when you’re on the verge of a breakthrough, a dark horse competitor sweeps in and decimates your market share. Or a key vendor declares bankruptcy. Or a partner defects with your top client. Or a new law undermines your viability.
So yeah… a lot can go wrong. And that’s why the least you can do is avoid the not-so-obvious mistakes that have derailed so many of your brethren. Call it the “best odds” strategy for entrepreneurial success.
There are certain predictable mistakes that will derail a new company. A lot of them have to do with misguided attempts to minimize risk. Others are based on misconceptions about how the business world works and what motivates customers. Many of them seem perfectly harmless, even smart, on the surface.
Yet when evidence shows something is a mistake – a proven mistake – you must avoid it. Don’t assume that because it doesn’t feel like a mistake that it isn’t. And don’t believe that your case is somehow different or special. It isn’t.
Here are 12 of the most common mistakes that entrepreneurs make right now, along with strategies for how you can avoid them.
Playing it Too Safe
Yes, risk is scary. But the truth is, unless you continually embrace risk, your business will never emerge from mediocrity. Risk is the only thing that can give you the edge you need to distinguish yourself from the competition and reach your full potential – and that’s worth making a few mistakes along the way.
Ultimately, some of the biggest mistakes you can make are the result of overly cautious decision making. You might think that you’re covering your bases, or taking the prudent path forward, but in reality you’re sabotaging yourself. Sometimes that sabotage might cost you “only” a customer or a sale, but over time, a few customers here and a few dollars there can lead to closing your doors forever.
Too Big of a Rainy Day Fund
Putting it all on the line is a frightening prospect. That’s why most entrepreneurs (understandably) want to keep some cash in reserve. And yes, giving up your hard-earned money is the ultimate risk. To pour your life savings into an entrepreneurial pursuit is like walking the tightrope without the benefit of a safety net. But even though the commitment is substantial, you need to find the courage to take that first step into the void.
Likewise, don’t skimp on the time and energy you pour into your business. They are even more precious than money and even more costly to waste. Never forget that a successful entrepreneur’s commitment is personal; it includes an investment of money, time and loss of opportunity from forgoing other opportunities. The life of an entrepreneur is not glamorous; it can be stressful, and you probably won’t be as successful as you’d like if you try to hold back, hedge your bets and settle for “good enough.” Unless you’re willing to go all-in with your resources, you are placing limits on your fledgling business that could keep it from staying afloat.
Not Allocating a Marketing Budget
Yes, it’s hard to know what customers think and what their day-to-day needs are, but a business void of a long-term and consistent marketing effort is doomed. Especially in a global economy that is becoming flatter and more competitive by the day, skimping on marketing is not the way to save money, because you’ll quickly find yourself out-publicized and out-advertised by the competition.
The best entrepreneurial companies today actually use marketing risk as a competitive edge. Why? Anyone wanting to become a potential competitor has to be willing to match that type of marketing investment and commitment – just doing the bare minimum wouldn’t have been enough. As a result, competitors are forced to divert resources from other areas of their business to keep up with an aggressive marketing strategy.
Of course, accepting marketing risk also means recognizing that some degree of failure is both inherent and necessary to find your right path. When you invest heavily in marketing, you should realize that your message is probably going to be received by some who aren’t ready to buy. Therefore, it’s vital that you commit to a consistent, ongoing strategy to ensure that your message got in front of prospects when they were ready to buy. You can’t accomplish this by sending a single message and hoping prospects individually remember you and then respond months later. Consistency in marketing is what matters most.
All Business, All the time
Many protective business owners live by the mantra “It’s not personal; it’s business” because they assume that customers have unreasonable expectations, or that their demands will increase once you open the door of a relationship. After all, what if you start talking to them and they start wanting better pricing, extended credit or other special considerations? That might happen with a few individuals, but for the most part “getting personal” is actually one of the most effective ways to earn your customers’ long-term loyalty.
To a small-business owner who has a small number of customers, losing just one customer has a significant impact on organizational health. If you lose a customer due to price or other circumstances beyond your control, then fine. However, losing a customer because they felt unappreciated or underserved is inexcusable; it indicates serious flaws in your internal business processes.
The easiest way to avoid customer churn is by continuously reaching out and communicating. In other words, make sure – at all times – that your customers feel like more than a number. The best news is, getting personal doesn’t have to be time consuming or expensive. A short thank-you note after a customer places an order, or sending birthday or holiday cards, can go a long way.
Refusing to Hire People Smarter Than You
Should you hire people who are smarter than you? Wouldn't that undermine your authority and make you seem redundant in your own organization where you are the boss? Not so. Yes, an employee might know more than you about a particular aspect of your business, but that doesn’t mean she and the rest of the team won’t respect you as a leader (as long as you earn their respect, that is).
Just like in sports, your ability to win depends on surrounding yourself with a solid, capable team who can perform without your constant oversight. By spreading the workload among team members who, yes, might be smarter or more accomplished than you in some areas, you can maximize strengths, reduce weakness and minimize stress. So stop worrying about your ego and look for people whose talent and expertise complement your passion and goals.
Being Cheap About the Wrong Things
As a small-business owner, you’re going to try to cut costs and stretch the budget wherever possible. And for each dollar you save, you justifiably pat yourself on the back. But if you get too carried away with saving money, you might end up losing opportunities and customers. To put it another way: You can’t save your way to greatness.
Naturally, you shouldn’t waste money or go into more debt than necessary; just don’t be cheap about the wrong things. When you’re mulling over how much money to spend, think about how your decision might affect the customer. For instance, it’s fine to fly economy and stay in a budget hotel on a business trip, but don’t take the client you’re meeting out to a cheap chain restaurant. Likewise, you can furnish your back office with the bare minimum, but make sure your meeting space or showroom is attractive and comfortable.
In particular, don’t be cheap with your people. You have to be willing to pay for top talent, and don’t skimp on training. Never forget that your employees – especially those on the front lines with customers – can make or break your business, so investing in their development is always the right decision.
Treating Technology as a Cure-All
In so many ways, technology has made it easier to connect with customers. Used wisely, it can draw in potential buyers, cement the loyalty of existing customers, facilitate referrals and solve problems. So it’s understandable that many business owners automatically assume that more technology is always better. But if you’re not careful, technology can also be used as a barrier that keeps customers at arm’s length. Or, on the opposite end of the spectrum, it can allow you to get too cozy with customers: an inbox or newsfeed dominated by unwanted promotions, anyone?
Again, the measuring stick here is simple: If it improves the customer’s experience, use it. If it doesn’t, save your time and money. Be careful not to make the mistake of believing that all technological advances will work for your business. The fact that a gadget, app or upgrade exists doesn’t automatically make it better than what you’re currently using.
Not Anticipating Problems
When you’re facing a crisis that could damage or even sink your business, it’s fairly easy to take risks. After all, if you don’t act, you’re doomed – and in that situation, there’s probably not much to gain by holding back. But what about the times when things are going smoothly, when you may have more to lose by going out on a limb? Well, then it’s much easier to convince yourself that there’s no need to tamper with the status quo.
When nothing is actively going wrong, it’s easy to tell yourself that things are fine, that the future is rosy, and that you don’t need to put yourself out there to improve. However, that kind of thinking is a good way to be left behind or to become irrelevant. Customers don’t always leave because they had a bad experience with your company. The reason is often that they simply had a better one with someone else. Remember, risks need to be taken when business is good and bad if you want to stay cutting-edge and competitive.
Note that you should also apply the “fix things even when they aren’t broken” concept to your employees. Don’t allow them to settle for “good enough.” Even if their performance is perfectly adequate, encourage them to learn more and to hone their expertise – and give them the tools to do so.
Waiting for “The Right Time”
In every industry right now, there are entrepreneurs who are waiting for “the right time” to make their big move. They’re waiting for funding, free time, better economic conditions, etc. No doubt these business owners believe they’re being smart by waiting for the stars to perfectly align, but all too often, they’re only stagnating.
Too many businesses remain less successful than their owners would like because those very same owners were hoping that conditions tomorrow would be just a little bit better for advancing their goals. Lose that approach – immediately.
An imperfect action taken today is better than a perfect action taken tomorrow. Also, keep in mind that being a “prisoner of hope” doesn’t just apply to your company’s growth. Besides forgoing an opportunity for success because they are waiting for ideal conditions, many leaders fail to solve problems or correct mistakes because, in their minds, the timing wasn’t right. And when you’re bootstrapping a business, a mistake can be even more costly than not leveraging a chance for advancement.
Abandoning a Failed Strategy
It’s a fair bet that at some point in time, you’ve employed a business tactic that just didn’t work. Maybe you allocated a large part of your budget to producing a television commercial, for instance, but barely noticed any increase in your business. Or, maybe you offered an online deal to new customers, only to realize that the discount you advertised was a little too generous and wouldn’t allow you to make any profits. So now, if you’re like many business owners, you’ve vowed never to try again.
Business is far from certain, and sometimes even the best ideas don’t have the desired results, but that doesn’t mean they don’t have merit. Just because you weren’t able to break into a new market the first time around doesn’t mean that you’ll never attract those new customers, for example. Don’t let stubbornness or an inaccurate risk-assessment place limits on your potential. If you know a tactic or idea is fundamentally a good one, learn what you can from your first failure, figure out how to make improvements and try again.
Confusing Invention with Innovation
Many business owners lie awake at night worrying that their businesses will become obsolete if they don’t innovate. So they bang their heads against their desks each day, driving themselves crazy trying to build a new mousetrap. What they don’t realize is that all they need to do is take the existing operation and make it better.
Yes, “invention” and “innovation” sound similar, but they’re two distinct concepts. Invention involves creating something totally new from scratch – you’re probably not doing that. Meanwhile, innovation takes preexisting products, processes, services, technologies and ideas and makes them better. Think of companies like Netflix, which took our culture’s thoroughly established love of renting movies and brought the process online, or Amazon, which “techified” the millennia-old tradition of reading books with the introduction of its e-reader. Focus on innovating your business operations and go-to market strategies, rather than trying to invent new procedures and products.
Requiring Hard Evidence
Sometimes, identifying the right decision is clear as day: All of your mentors and team members are in agreement. The numbers indisputably point in a single direction. You receive an opportunity you know the competition would kill for. But other times, the right decision is murkier than the liquid in a Magic 8 Ball. How do you proceed?
Many business leaders simply avoid making a decision at all if the information they have isn’t pointing clearly in one direction. That’s a mistake. You have to keep your business moving forward regardless of whether you have the hard evidence you’d prefer. Sometimes, you’ll have to bring intuition into the equation, make a gut call and then embrace the risks that come with that move. If your gut call turns out to be the wrong one, it doesn’t mean you’re defeated – it’s simply a part of leadership.
Ultimately, a willingness to seek out opportunity and accept responsibility for all outcomes – including mistakes – is the mark of a true leader. If you can learn to live with risk and even use it to your advantage, you’ll be setting yourself up for entrepreneurial success.
– Tom Panaggio is a management consultant and author of The Risk Advantage: Embracing the Entrepreneur’s Unexpected Edge. For more information, visit www.TheRiskAdvantage.com.