Five Common Blunders That Stop Startup Businesses in Their Tracks
Being self-employed is the dream of many. But as one self-employed person quipped, “I used to work for a boss; now I work for a tyrant.” You’re the first hired, and the last to get paid. Undaunted, people launch themselves in various self-employment projects.
But having found themselves on the self-employed merry-go-round, many people find the journey tougher going than they anticipated. For a lot of people it results in early retirement from self-employment and a loss of confidence in entrepreneurial activity.
The blunders people make, however, are readily overcome with a little planning and thought.
I’ve identified five common blunders, any one of which can bring a business crashing down around the owner’s head.
1. Lack of funds
Business needs money. You soon find it does little else but consume funds — lots of it.
If nothing else, the business needs to provide a source of income for the business owner, not as profits to the owner but as a wage or salary to an employee. Nearly every small business I have been in (including my own in the early days) fails to pay the business owner a market wage. Not paying these kinds of expenses hides the true cost of running a business.
While owners may forgo income in the short term to get the business rolling, most business people do this because they don’t have the funds. If they don’t have funds to pay appropriate wages to the workers (themselves), then they probably don’t have adequate funds for sales and marketing of the business. Or perhaps they don’t carry some of the insurances a business really needs to protect it from disaster.
Lack of funds, however, is a symptom, not the problem. The problem here is either poor sales, or poor expenditure control — or both.
2. Too Much Debt
To solve the funding problem many business owners borrow to get the business going. But borrowing money can lead to some unexpected results.
Borrowing large sums of money when you have not learned to manage such amounts can easily lead to disaster. One business I know exhibited this problem. The new owners obtained a $50,000 loan to get the business going, and spent a huge portion of it leasing prime office space and furnishing it to a very high standard. Rather than apply the funds to marketing and sales, they spent it on appearances. They lasted about three months before they shut the door.
3. Poor Pricing
The way many businesses get started is by pricing themselves at the lower end of the market. This pricing strategy has nothing to do with pricing for results. It is just that the business owner really does not have the courage to ask the higher prices that established businesses are charging.
The under-priced business owner soon finds that his customers really don’t appreciate him or the fact that he’s so cheap. He finds that his customers soon drift off to do business with the higher priced people in town, leaving him to find a new customer to replace the one he has lost.
It takes a year or so (sometimes a lot longer) of operating like this before the business owner decides he has little to lose if he puts up his prices. So he timidly asks the next customer to pay more, finds he gets no rejection on the basis of price, and finds now he can afford to offer a better quality service or product to the customer.
Since people do not buy on price but on value, the business owner is beginning to learn that his price is not as important as the value he brings to his customer.
4. Poor Sales and Marketing
Business takes place only when a sale has been made. Yet many attempt business without the skills of finding customers or making a sale. Somehow they believe that customers will walk in the door and all will be well. But too many startup business owners are weak in the these areas. Therefore, the business suffers.
Often the lack of marketing skills is tied with the lack of funds. Somehow business owners have to find a way to tell people the business exists and why they should do business with it. This might be done through radio, TV or newspaper, or internet advertising, telephone calls, direct mail, or personal calls. But however, it is done, it will cost money – lots of it.
5. Poor Management and Leadership
The common mistakes listed above all fall under a general heading: poor management and leadership. This, above all determines the success of the business. And while it is not necessary to get every step in business right, you have to do enough right things to make the business work properly.
Startup businesses are driven by a vision of the business owner. Too often that vision cannot be articulated clearly and translated into economic results (profits) for the business. Unless that vision is translated into goals and activities in the business, failure looms higher on the horizon. Good management practices are needed to bring the vision to fruition.
Being self-employed is the dream of many. But as one self-employed person quipped, “I used to work for a boss; now I work for a tyrant.” You’re the first hired, and the last to get paid. Undaunted, people launch themselves in various self-employment projects. But having found themselves on the self-employed merry-go-round, many people find…