Guest post by Peter Baskerville, an experienced business owner. See the original post on Quora: What are the most common mistakes first-time entrepreneurs make?
What are the most common mistakes first-time entrepreneurs make?
I have more, but here are 10 scars I continue to wear from the 13 different businesses I have started:
- Failing to realize the importance of cashflow not just profit. You need to maintain a moving 10-13 weekly cashflow forecast to survive. Stay liquid with your cash and beware of tying it up because “cashflow is more important than your mother”
- Failing to realize that the world was not starving waiting for you to open. i.e. “You still have to acquire your customer base, one way or another”. Discounts, free trials, promotions are all needed to get a repeating and referring customer base.
- Failing to realize that it is likely to take 18 months to 3 years to break-even on your brilliant idea, let alone make profit. i.e. So you need more capital than just enough to cover infrastructure costs. You also need working capital to fund the losses during this period until your idea is financially sustainable.
- Failing to realize that successful corporate approaches are inappropriate for small business startups. i.e. You are in a fight for survival not just playing your part in a management committee decision making activities. A startup is not just a small version of a corporate enterprise, it requires a completely different approach in development like business modeling not business plans, customer development not product development and entrepreneurial lean management not strategic/corporate management.
- Failing to realize that real margins are not just buy for 1 and sell for 2 (100% mark-up on cost) but rather buy for 1 and sell for 10. i.e. You need greater profit margins than you originally think to cover all the costs required to fund a sustainable business.
- Failing to realize that you need to be very good at everything not just be an expert in one field. i.e. You need to be the generalist rather than the specialist.
- Failing to realize that you need to build a secure ‘beachhead’ in the market before striking out for the main prize. i.e. do everything (compromise) to get traction in the market first – however small.
- Failing to realize that you are more likely to succeed creating an adequate product with brilliant marketing and distribution … rather than the other way round.
- Failing to promote benefits over features. i.e. customers buy what’s beneficial to them and gives them a better life. They are blind to the exotic, outstanding and competitor-beating features that may have become your obsession.
- …. and finally, failing to be lucky when it counted most.