There are certain mistakes that are hard to avoid, especially when faced with the situation for the first time. Many of these mistakes are even harder to avoid even when you are a past master. Although, you do not expect a CEO to make these types of mistakes, they are the common ones to be seen around.
Following are given ten entrepreneurial blunders that you are likely to make:
1. Problem with one big customer
If you find that over 50 percent of your revenues originate from a single customer, it could be suggestive of a meltdown. It must be realized that it is easier and profitable in dealing with a small number of big customers, while you become quite vulnerable if a single customer becomes the main source of cash flow. You start providing silly concessions to keep up their business. Their special requirements necessitate you to make special investments. In the deal, you become busy servicing that particular customer and fail to generate additional customers as well as revenue streams. And, when for some reason, that particular customer leaves you, your business teeters on the rocks.
Hence, any such burgeoning account should be a reason for both celebration and a danger signal. To avert this kind of situation, always be on the search for new business. And diversify your sources of revenue.
2. Do not create products in a vacuum
You may have a brilliant idea on which you spent months, and even years to implement it. But when it finally materializes in the market, you find there are no takers of it. It is because you were in so much love of the idea that you never cared to find out if someone would be interested to put money on the idea.
Make a market research up front, instead of searching for a product. Put your idea to test. Talk to at least a dozen potential customers about your idea. Find out, if anyone is interested to buy your product. This should be done before you do anything else. If there are a good number of votes for “yes”, you should go ahead to build it. You would do well to sell the product at pre-release prices. Put fund in it in advance and if the response is not quite enough, go for your next idea.
3. Be careful about providing equal partnerships
You must be cautious on having equal sharing of rights of the company with your partner. You are working as a salesman and looking for someone to look after your operations back at your office. Else, you are working as a technical man and looking for a person to find work for you. Or else, it could be that both you and your friend are planning to venture out for a company together. In each case, you may find it right to split the company into halves among both of you. Although, it seems right and fair at the start, but with the difference of personal and professional interests, the situation is sure to head for a disaster. Anyone of you can use their veto power to stall the growth and development of the company. This is because none of you has more votes to counter the situation. Equally worse, is the split of ownership equally among a large number of partners, more so among friends. Everyone has an equal voting right with own decisions. Getting a consensus or a unanimous decision becomes really a worrying factor as no one has the final say and any decision, however little, turns out to be debate, resulting in the bogging down of the plan quickly.
Make sure that someone is in charge. Be sure to make that person CEO while providing them with the largest stake of ownership, even if that means only a little more. If both you and your partner have equal power, then give a one percent share to an outside advisor to break the tie.
4. Keeping low price of products
A wrong notion among some entrepreneurs is that by keeping their products or services at low prices, they would make huge profits on the total volume of sale. You certainly do not like to work for low wages? Then, why do you like to sell at low prices? Always, remember that gross margin is better and pays for marketing and product developments. Low margins means low profits that leads to no future.
Set the prices as high as the market can bear. Although, you could sell more number of units and bring in greater dollar volume by keeping the price low (which may not be true always), you may not be in a better position in the end. Hence, it very important to do all the calculations before going in for low price strategy. Take into account all the extra stress that could come while running your business. If it is a service industry, low price is almost a no-no. How to decide the high limit of price? Keep raising your prices. When you find customers or clients have stopped buying, you have crossed your limit.
5. Keep check on your capital
Check out your business assumptions. Optimistic sales projections, unrealistically low expense forecast or short timeframes for product development are the norms. Weak competitors must not be forgotten. Again, there are many businesses that are simply under-capitalized. Even well-established companies often have cash reserves that are not enough to weather a downturn.
You must make a conservative estimate in all your projections. Make sure that you have the minimum capital required to make it through the complete sales cycle or till the next planned round of funding comes into effect. Or else, lower your expenses to complete the cycle.
6. Be focussed
This world is filled with many good ideas and your job is to select the ones that are in your focus areas and which provide high returns. Do not try to seize every possible business that comes your way. By spreading yourself thin causes below par performances.
If you concentrate your attention in a focus area, you can expect better than average results. You get profits more than that resulting from diversification. Make yourself in your niche for what you do best and complete the job exceedingly well.
7. Keep your overhead low
Make sure that your digs are humble while your furniture is cheap. The management team should earn most of their compensation when the profits come in copiously, not before. The best entrepreneurs always try to stretch their cash to use for key business building requirements like product developments, sales and marketing. See that you phone system brings in more sales and not become a fancy item. Make sure that all the necessary money is used to achieve its desired objectives. Before making any expenditure, make sure that the money really brings in sufficient returns. Otherwise it is an overhead.
8. Perfection is unattainable
Accept the fact that it is difficult to attain perfection and it is very costly too. The disease of perfection is often found among engineers who try to be absolutely perfect before releasing their products. The 80 / 20 rule says that if you try to finish the last 20 percent of the last 20 percent, the cost involved could be more than what you spent on the rest part of the project. Also, as you are trying to get the project right, the market is also changing right from under you. And to top it all, as you are busy perfecting, the customer is putting off purchasing the existing product, as they wait for the next new thing to arrive in the market.
Hence, your focus should be to create a market beating product within the time that is allotted for it. To go about it, set a deadline and build a product development plan that matches the deadline. Know where to put a stop on your development to make the delivery. As you reach your deadline, your time is up. Release your product in the market.
9. Have clear return on investments
You must do the necessary analysis on your business sales and create case studies. You must be able to quantify the return that comes from buying your product or services. Know the additional business it generates for your customer. How much the customers save. Although, it may seem to be a hard proposition to quantify with many intangibles, you need it to justify the purchase for the customer to do the same. Be sure that sales are a sales dunk if you can provide your return on investment for your product.
10. Admit your mistakes
Not admitting your mistake is the biggest mistake you can do. You realize the truth after some time. Be wise to admit it quickly. Put right the situation. If not addressed, the mistake will keep on increasing which can sometime result in bankruptcy.
Suppose you lose your money in your venture. The good news is that your basis is zero. If from the present scenario, you find investing fresh money into the idea to be not right, leave pursuing it altogether and change course. Never put any good money after bad. Remember everybody makes mistakes. Catching them quickly will be the right action for you before the mistakes kill your company. To avoid making mistakes in future, try to ask questions beforehand.
