You didn’t learn to ride a bicycle on your first attempt, and chances are the first dish you cooked left something to be desired. We all make mistakes when trying new things – and building a business is certainly no exception. But just because mistakes are bound to happen doesn’t mean that you can’t educate yourself on common pitfalls in order to avoid as many of them as possible. Below are 17 common mistakes made by new entrepreneurs, including a few examples from my own experiences. Take these lessons to heart, as applying them to your new business venture can save you time, money and hassle.
Planning instead of acting
I’m not saying that you should dive into a new business without a clear plan of action. But planning without acting can be just as problematic as having no game plan at all. When I first started Single Grain, I made it my mission to talk to as many experienced entrepreneurs and successful people as possible. I spent about 5-6 months asking these contacts for advice, thinking that I needed to know everything possible to validate my ideas before I began taking action. After so much time spent learning and planning, I was surprised to find out that, once I started taking action, I pretty much validated my ideas and goals within a month or two. Eventually, I came to realize that taking action and testing as you go validates your ideas much faster than just asking for advice – so learn from my mistakes! Spend a small amount of time planning if you must, but then shift to action as soon as possible.
Not validating ideas
So it took me a while to validate my idea for Single Grain, but what if I never took the time to do this? What if, instead of making sure people would buy the services I envisioned at the price I planned to charge, I just went ahead, rented an office space and started hiring employees? This “if you build it, they will come” approach rarely works out. So don’t invest thousands of dollars or hundreds of hours of your time into an idea you haven’t validated. Start small and test extensively. Only after you’ve validated your product-market fit should you move forward with your business idea.
Ignoring your weaknesses
Once I got things going at Single Grain, I fell into another major trap: thinking I could do everything for myself. For about two years, I pounded away on my own until I met my business partner AJ and we merged our companies together. In less than a year, we were doing 4x the business, we doubled our prices and we increased our close rate by 63%. Why? The thing is, I’m not a sales guy – I’m a strategy guy. AJ was more of a people person, so putting him in charge of Single Grain’s Sales & Marketing helped compensate for my weaknesses by finding somebody with complementary strengths. Realistically, you’re probably not an expert at every aspect of business operation. Instead of feeling bad about it, free up your time to focus on the tasks where you excel by shoring up your weaknesses with business partners, employees or outsourced workers.
Having unrealistic expectations
Your “million dollar idea” might be a million dollar idea right away. Or it might be a million dollar idea… someday. Or it might never get to that point. Whatever your business’s ultimate trajectory is, it’s important to keep your expectations realistic from the start. What does realistic mean? Well, it’s different things for different people. It means that, if you’re starting from scratch, with no finished product, no funding and no employees, it’s pretty unlikely that you’re going to hit seven figures in sales during your first year. Or, say your target market is small. Even if you’re selling a high-dollar item, you’ll need to be reasonable about your potential income, since it’s unlikely that any product will capture 100% of its market. Dreaming big is fine, but you’ve got to be realistic about your growth potential as well in order to make the decisions that are best for your company. If, for example, you’re confident that you’ll be making millions within the year – even though it’s unrealistic that you’ll actually do so – you risk making unsound financial decisions, like taking on debt you can’t afford, in the name of expected future profits that won’t actually materialize. Think big, but base your business decisions on actual data and realistic plans.
Moving too slow
If my experiences have taught me anything, it’s that there’s plenty of truth behind the statement “Fortune favors the bold.” As I said before, it’s easier to validate your ideas by taking action, rather than by endlessly planning. But there’s another downside to getting caught up in the planning loop. Sometimes, opportunities present themselves, and it’s up to you to either take advantage of them in the moment or to let them pass you by. I’m certainly not advocating jumping on every potential opportunity that passes you by, as many of the options you encounter will take you further and further away from your business goals. But if you know what you’re trying to accomplish and what you need to do to get there, you can quickly evaluate whether the opportunities you encounter will help you in this mission. When it seems like you’ve found an opportunity that’s the right fit, don’t squander it by moving too slow. Jump on it and see where the opportunity takes you.
Being “busy,” not “effective”
I wish I could say that I’m exaggerating when I say that it took me nearly 3 years to figure out the difference between these two. So if this sounds too simple to be serious, trust me when I say that mastering this one mistake can save you hours of productivity and plenty of income. Tell me if you’ve ever had a day like this… You start your day by running a few errands – already, you’ve got a few things checked off your to-do list. You feel energized and sit down to your computer to get to work. A reminder on your phone lets you know to place a reservation for your upcoming anniversary dinner, which reminds you that you need to order a gift for your niece’s birthday. These two tasks completed, you shoot out a few email messages to friends, clean out your inbox and read through the new blog posts in your Feedly account. Before you know it, it’s noon and although you’ve been plenty busy, you haven’t actually done anything that will help grow your business! That’s the difference between being busy and being effective. Being busy is getting things done, but being effective is getting the right things done. And the only way to differentiate between the two in your work is to know – beyond a doubt – which activities are “needle movers” for your business. Think about the difference between the activities listed above and actually placing a call to a potential investor. Or sitting down and coding for an hour. In these latter two cases, you’re substantively contributing to your business’s success. In the other examples, you’re getting things done, but you’re not doing anything that will produce a meaningful impact to your bottom line. But effectiveness isn’t the only reason to avoid busyness in your life. There’s a quote from Tim Kreider’s New York Times article, “The ‘Busy’ Trap” that I love:
“Idleness is not just a vacation, an indulgence or a vice; it is as indispensable to the brain as vitamin D is to the body, and deprived of it we suffer a mental affliction as disfiguring as rickets. The space and quiet that idleness provides is a necessary condition for standing back from life and seeing it whole, for making unexpected connections and waiting for the wild summer lightning strikes of inspiration – it is, paradoxically, necessary to getting any work done.”
If you fill your mind with busy work, you won’t have space left over for the flashes of inspiration that will show you how to move forward with your business. So put down your phone, say no to requests that don’t serve your business and turn off the TV from time to time – your success may be depending on it!
Overspending on unnecessary purchases
As a new business owner, you’ll find yourself tempted by any number of unnecessary purchases. Wouldn’t you be so much more productive if you had a nicer office chair? And wouldn’t the connections you’d make at your industry’s hot conference be worth the amount of money you’d spend to get there? I’m not here to tell you what’s right or wrong for your business. For all I know, that conference could land you enough new clients to keep your company going for years. But what I am asking you to do is to carefully evaluate every purchase you make as a new entrepreneur – especially if any of your proposed purchases would require you going into debt or giving up equity. These days, you can bootstrap just about anything. If your default reaction is to reach into your wallet to make a purchase, make it a challenge to see if you can cut your expenses by bartering, finding cheaper alternatives or going without.
Underspending when spending is called for
At the same time, don’t become so cheap that your reluctance to spend prevents your business from growing. I don’t necessarily agree with the phrase, “You have to spend money to make money,” but I will say that there are some times when it makes sense to invest capital in your business in order to protect your fledgling company or to drive growth. Take the example of professional photo lab Group Photographers Association (GPA), which lost a terabyte’s worth of RAID storage data in early 2012 and wound up spending around $15,000 to have a data recovery firm get it back. A second catastrophic failure wiped out 2.7TB of data later in the year – but fortunately, the company had begun using a cloud backup storage service that was able to recover all the missing information. I don’t know about you, but I’m guessing that GPA found the cost of data backup to be pretty worth it! So how will you recognize these spending opportunities when you see them? Ask yourself the following questions:
What exactly will this purchase do for my company?
If I make this purchase, how certain am I that I’ll be able to recoup my costs?
Is this purchase necessary to protect some aspect of my business’s operation?
Is there a free alternative that will provide some or all of the functionality I need?
Are there other areas where I can cut back on spending in order to afford this purchase?
Sucking at finances
It’s every business owner’s dream to crack the 7-figure level, but can I be honest with you for a second? When Single Grain hit that magical number, it was more money than I’ve ever experienced before in my life. And instead of bringing on a qualified person to help manage it right away, I hesitated and wound up doing a pretty lousy job with the company’s finances. I’m not saying that you need to be an accountant or a financial genius to run a successful business. But if you aren’t strong when it comes to managing money, you need to acknowledge this weakness and get somebody else on board. The longevity and stability of your company depends on it.
Making the wrong decision on fundraising
One final financial mistake new entrepreneurs must be aware of comes from the subject of financing. It’s easy to get caught up in stories of upstart entrepreneurs closing million dollar fundraising rounds and to waste time imagining exactly how you’d spend all that money on your own business. But despite this excitement, fundraising isn’t for every young business. Giving up an equity stake isn’t a decision that should be made lightly – even if you’ve found investors ready to make it rain on your business. According to venture capitalist Guy Turner of Hyde Park Venture Partners, quoted in Inc.:
“It’s much easier to fail, learn and adjust when you don’t have investors. You can move faster, and there are fewer people to explain things to.”
The same article also shares a few examples of startups that learned this lesson the hard way:
Pixelon, whose 1999 launch party featured KISS and the WHO before going bankrupt in 2000.
Flooz.com, who paid $8 million to feature celebrity spokesperson Whoopi Goldberg in an ad campaign before going out of business two and a half years later.
Kozmo.com, whose free one-hour delivery service burned through over $280 million in less than three years.
At the end of the day, the lesson here is that money isn’t everything. If you don’t have a solid business model with a proven product-market fit and good internal practices, no amount of fundraising capital is going to save your business.
Targeting too narrow an audience
This one is a little obvious, but it’s a mistake I still see often enough that it warrants calling out here. Think about a service like Dropbox. One of the beauties of this cloud storage provider’s business model is that it transcends audiences. Entrepreneurs can use it to store business documents, as can soccer moms who need to upload team pictures to share with other parents. Dropbox only has to do the work of building and maintaining the product once – after that, it can be used by a huge number of different groups without extra effort. Obviously, you can be a bit more specialized than this (adventure travel companies come to mind as an example). But if your target audience consists of 25 year old men who have an income of $250k+ a year and who enjoy both playing croquet and watching NASCAR, for example, you’re going to have plenty of trouble finding enough subscribers to generate the profits you’re looking for
Targeting too broad an audience
You’ve probably noticed from reading this article that I’m not too fond of extremes in either direction. So while it’s important that your audience not be too broad, it’s also good to keep in mind that targeting everybody you can think of means that nobody is getting a strong message that really resonates with their needs. In the case of Dropbox, this broad reach works because the company can target its marketing messages to very specific use cases. It can say to startup entrepreneurs, “Here’s how we can help you share and manage documents across your remote team.” But this isn’t the case with all startups I’ve seen targeting a wide audience. In these instances, it’s business owners who are scrambling to appeal to as many people as possible, in the hopes of generating as much revenue as possible. Don’t be that guy! Start by focusing your product so that it appeals strongly to one sufficiently-sized audience. Then, as your reach grows with this group, see if your product lends itself well to other audiences and expand your marketing efforts in a targeted way to reach these new prospects.
Undercharging for products or services
I see this time and time again with the new entrepreneurs I talk to. They have a great product or service, but then they see that there are competitors out there. And instead of taking this as a sign that there’s market demand for their offerings, they get scared. They hedge. And they lower their prices in the hopes of getting some business – any business – to help keep them afloat. Let me tell you, if you know that you’ve got a great product, this is the exact opposite of what you want to do! When you undercharge, you’re telling your potential customers that your product isn’t worth as much as your competitors’ offers. People will pay for a premium product – as long as you can work up the courage to stick to your guns on what you’re worth. That’s not just me blowing smoke – there’s actual science to back this up. Consider the “Managing Price, Gaining Profit” study published in the 1992 Harvard Business Review by Michael Marn and Robert Rosiello, which found that a 1% improvement in price results in an average 11.1% increase in operating profits. Compared with their finding that a 1% improvement in units sold results in only a 3.3% boost in operating profits, it’s clear that pricing right from the start is one of the best things you can do for your growing business.
Failing to monetize effectively
What if you don’t have a product that sells for a defined amount of money? What if, instead, you’ve built a helpful app that provides some useful service to users – something you think has the potential to really revolutionize a particular industry? Unfortunately, Twitter can get away without having an effective monetization strategy. You can’t. If you can’t clearly articulate how your startup will make money, you’ve got a serious problem. Give yourself the “one sentence test” and try to explain in a single statement where your business’s income will come from. If this test doesn’t reveal a reasonable, workable monetization strategy, you’ve got a serious problem that needs to be resolved before you go any further with your business.
Steamrolling customer feedback
If you read my recent article titled, “How I Increased Conversion Rates by 250% By Talking To My Customers,” you won’t be surprised to hear that I think listening to customer feedback is important. But let me make this crystal clear: your customers are one of the most valuable tools you have in growing your business. Not because their purchases pay your bills, but because they’ll tell you exactly what you need to know to be successful – that is, if you listen. I hear a lot of founders who dismiss customer feedback as baseless complaints or who get frustrated with what they see as an inability to recognize the “brilliance” of their creations. If you feel this way from time to time, stop now. Yes, there will be customers with unrealistic expectations. But once you weed them out, you’ll find plenty of actionable advice that’ll give you more insight into the best ways to improve your product than you’ll ever get from focus groups or other validation tests.
Not getting necessary legal advice
There are plenty of things that you can bootstrap in a growing business, but unless you’ve got a law degree, legal advice isn’t one of them. To prevent major issues from popping up down the road and threatening your business, pony up the cash and consult a lawyer on all of the following issues (as well as any others that seem necessary):
Partnership agreements
NDAs/confidentiality agreements
Potential trademark or copyright issues
Distributing company equity
Tax planning
Hiring employees
Plenty of legal resources exist online that make finding the answers to these questions more affordable than ever. Make sure anybody you’re thinking about working with is qualified, but then don’t be afraid to spend money on this incredibly important step.
Being afraid of failure
Finally, if you’re afraid of failure, there’s a decent chance you aren’t cut out for entrepreneurship. Successful business owners know that failure is inevitable. It’s unavoidable and uncomfortable, but it’s also a tremendous source of growth. That is, if you’re able to get past the sting of failure and learn enough from your mistakes to push forward on a more successful trajectory. And don’t think that this is empty advice I’m throwing at you. Before I turned Single Grain into a successful digital marketing agency, I had three failed businesses of my own. Even Single Grain itself came back from the grave twice. Each of these failures hurt like hell, but each of them also taught me the lessons I needed to eventually become successful. So if all of this advice sounds like a lot, don’t worry. These 17 recommendations will get you started off on the right foot (or help you correct course if success hasn’t come as fast as you’d like), but you’re still going to make mistakes. Embrace them, and learn from them. Every roadblock you run into and successfully overcome will take you one step closer to the success you’ve always imagined. Do you have another mistake you’ve experienced that other business owners should watch out for? Share it in the comments section below!