In the last couple of days, I’ve been doing some research on the challenges typically faced by new businesses. It turns out there are plenty throughout the early stages. Starting and growing a new successful business is a skilful balance between talent, timing and luck. Mostly though, I believe it is about recognising common mistakes and avoiding them.
This is a list of what I consider are the top 14 stumbling blocks for new businesses. Most of these stumbling blocks seem obvious on the surface. However, from what I have read, many businesses fail to avoid them nonetheless. This may serve as a timely reminder to the budding Entrepreneurs out there.
1. Bad initial concept.
At the core, I believe all businesses need to create value. Although the implementation is key, it wouldn’t hurt to start with a good idea. A good idea is one which fulfills a genuine need and has a unique selling proposition.
2. Inadequate planning.
I believe having a business plan really helps, even if it is sketchy. Firstly, the act of writing the plan forces the founding team to think through the steps and map out the landscape they will be operating in. Secondly, the plan can be a good communication tool between the parties involved.
3. Failure to do proper research.
Starting a new business takes time, money and commitment. I believe it really pays in the long run to research the opportunity, industry, domain specifics and competition before jumping in. A bit of work in the beginning can save you a lot of grief later.
In addition, some find professional help and mentors useful. I think it depends a lot on who is providing the help and in what form the help comes. However, anything you can do to avoid the same mistakes others have made has got to be a good thing.
4. Insufficient capital.
Many businesses fail because they under capitalise. The level of funding required depends largely on the type of business, barriers to entry and the skills composition of the founding team. Some industries just takes more starting money to create a viable business than others. Whatever your industry, I think it is important to understand what the cost requirements are before you start.
A key question to ask yourself is how long the business can survive before making that first sale. As a general rule, err on the conservative side – it tends to take longer and cost more than what you think.
5. Poor cash management.
Having sufficient funds is essential for any business to stay alive and grow. There’s no doubt about that. It doesn’t really matter how brilliant an idea is or how clever the founders are. If there isn’t sufficient cash in the bank to pay the suppliers, employees or monthly bills, a business cannot remain operating for long.
Apart from ensuring the ongoing survival of a business, I think cashflow management can enable a business to capitalise on opportunities as they arise. Why else do you think Microsoft has $50 billion in the bank for?
6. Lack of business domain specific knowledge.
Every industry operates in different ways. I believe having a good understanding of the market dynamics is important. It isn’t enough to just be an expert in your particular product or service. The deciding factor between success and failure could be a business’ ability to recognise and respond to changes in the market place. Having domain specific knowledge and a solid understanding of what customers need are essential ingredients.
7. Chasing any potential sale.
Some projects and customers have less strategic value than others yet may require the same if not more effort to work with. I’ve found this to be the case in my professional work as a Software Engineer for hire. There are clients who just don’t understand technology and it can be an uphill battle working with them.
In a small (but busy) business, the resources tend to already be stretched, so chasing all sales opportunities can be time consuming and wasteful. I believe it is more important to focus on the quality and not the quantity of a sale. As the saying goes, if you try to catch all the rabbits, you’ll catch none of them.
8. Late billing and collections.
I think this goes hand in hand with cash management. Concentrating on the product or service a business produces is important but being able to recover the costs and make a profit is essential. After all, cashflow is the life blood of a business. For new businesses especially, I think they have to be extra careful and ensure they are charged correctly, billing cycles aren’t too long and customers pay on time.
9. Lack of focus.
A new business can go through several iterations before its form and shape is finalised. In some instances, the part of a business that finally takes off may not even be something the founders had originally envisioned. I read this all the time. To me this is fine, as businesses must adapt as they learn more about the customers’ needs and usage patterns. However, I believe a business must focus at some point to turn a plan into action and actions into results.
10. Lack of internal control systems.
Running a business well is about having the right operational procedures. Internal control systems play a key role in ensuring that the right procedures are followed. To me, this is pretty important – without the right systems, how can you possibly manage the cost, ensure financial compliancy, timely invoicing, accurate product dispatches etc?
One thing I didn’t find much information about though is the fact that the type of systems put in place should probably match the size and complexity of the business. A simple business is unlikely to need a powerful reporting solution for example.
11. Hiring the wrong people.
Although I believe in being a generalist, I also believe when the time requires, hiring the right people can be beneficial for a growing company. A common mistake Entrepreneurs tend to make is not hiring the right skills when needed especially when they have solely been responsible for getting the business to its current successful state.
In addition, I think it depends a lot also on hiring the right people – not just people with the right skills but people who are best for the company. Ill fitted people on a team can adversely affect the productivity of the entire team as a whole. Choosing the wrong people can change a company’s dynamics and destroy whatever it is that made it unique and successful.
12. Reliance on few suppliers or customers.
Running a business is about managing risks. To me, businesses that rely on a few suppliers or customers are operating under risky conditions. Any change in the relationship or circumstances can significantly affect such a business. For example, how would a business cope if their primary supplier decides to increase the cost of all products by 5%? Or what impact does it have on a business when its only major customer decides to move their business elsewhere?
13. Not having enough perseverance and resilience.
It’s hard for me to say for sure, but it seems to me some businesses fail because they do not persevere long enough. There could be several reasons for this. Perhaps the founding team underestimated the timelines. Or the enthusiasm and passion have dried up. Whatever the reason, sometimes building in the redundancy and resilience is enough for a business to weather the storm and emerge victorious at the other end.
14. Insufficient performance metrics.
It’s pretty important to have metrics you can use to measure how you are progressing. It doesn’t matter in what area the business operates in, metrics that identify cost to produce goods, sales, productivity etc is essential. Sometimes what you think is happening can be completely out of synch with reality. Without timely metrics, management cannot make informed decisions.
Running a new business on your own can be trying and stressful. However, the rewards can be fantastic too. How successful you are is only limited by your own creativity and hard work. If you run a relatively new business, ask yourself how many of these common stumbling blocks have you encountered? Perhaps more importantly, think about the mitigating actions you can put in place before they occur. Avoiding some or all of these common stumbling blocks could be the difference between your business surviving or otherwise.
In my research, I found the following resources useful and inspirational:
- 10 stupid mistakes made by the newly self-employed
- Ready to start your own business?
- 7 biggest mistakes of business startups
- 12 most common mistakes new entrepreneurs make
- 10 mistakes new design businesses make
- Top 10 mistakes that entrepreneurs make
Related Posts
My old boss back at TelstraClear (the second largest telco in New Zealand) posed an excellent question for me. In an email, he asks “What is an Entrepreneur and how do you know if you have become one?“.
At first I thought, that’s simple. I’ve been thinking about being an Entrepreneur forever. It wouldn’t be too hard to come up with an answer. Now, upon reflection, I believe the answer is much harder. After all, how does one describe passion and measure happiness? As I write this post, I see the importance and value in that seemingly simple yet complex question.
Let me begin by addressing why this is an important question. Simply, it is important because it is about goal setting. Goal setting is key in any undertaking. Without goals, not only does it become difficult to channel your time and energy constructively, it is also impossible to measure success and failure. How can you possibly know if you have done something when you haven’t defined what it is you want to do and what criteria marks it as done?
Goal setting however is not simply about wanting to do something, it is also about being able to articulate what the goal is about, realistic in whether you can accomplish it or not and what yard stick you can measure your progress against. When applied to your personal and professional life, goal setting is about taking control of how your life evolves. It is about exercising your freedom to choose. It is about being proactive about your happiness.
So what makes a good goal? Here are a few simple guidelines for determining what a goal should be:
- Conceivable. That is, you must be able to articulate what it is about and describe it to your family and friends. The more vividly you can visualise your goal, the more committed you will be. For example, if your goal is to lose weight, can you visualise what you’d look like in that nice new suit or dress?
- Achievable. Do not set yourself unrealistic goals. Not only is it a waste of time (because they are unattainable), it is also damaging to your confidence and well being. How would you feel if you set yourself an unrealistic goal of losing 20kgs overnight, be totally committed to it and then failing to do so miserably?
- Measurable. You must be able to track your progress and definitively say if you have attained a goal or not. Generally, the more worthwhile the goal, the more difficult it is and the more time it will take. Especially for these goals, it is important to have a yard stick to measure progress against. An example of a measurable goal is losing 20kgs in 6 months.
- Aligned. Every goal you set for yourself must be consistent with your overall objectives, desires, expectations and beliefs. You cannot set yourself conflicting or contradictory goals. For example, losing weight is probably in contradiction to a goal to sample the best cuisines around the world.
- Worthwhile. Although not completely mandatory, I believe a goal should be challenging and worthwhile. Life is too short doing unimportant things. If you genuinely wish to improve your personal or professional life, set yourself worthwhile goals. Losing weight is a worthwhile goal – it can improve your health and overall standard of living.
- Desirable. Not only is it important to have worthwhile goals, they must be goals you genuinely desire to attain. A desirable goal will command more commitment, dedication and perseverance from you. This desire will be your motivation. In our example, losing weight is desirable because you can be more alive and energetic, feel more confident, lead a better life, play with your kids etc.
Many people fear setting goals, especially the goals which seem tough and worth achieving. I feel that way for some of my own goals. Ultimately, this fear stems from a fear of failure. We fear setting goals because we are afraid of failing. If I failed, what would my friends think of me?
One effective way I know of to combat this fear is to ask yourself – Why do I have this goal? What do I wish to accomplish? Is the pain to change less than the pain not to change? Do not focus on the fear, focus instead on the positives and your desire to accomplish your goal. Yes, I want to lose that 20kgs. Yes, I want to look good in that new dress. Yes, I want to feel alive!
If you have a goal that is truly desirable, you owe it to yourself to try. There is nothing wrong with failure. There is no shame in failing when you have tried your best. However, you’d regret it for the rest of your life if you have a goal but did not attempt to accomplish it simply because you were paralysed with the fear of failure.
Take a moment to think about what your goals are. Remember, goal setting is a map or process for attaining desired outcomes. It is about identifying where we are now, where we want to be and the steps that can take us there. Follow the simple guidelines I have highlighted above to begin your own journey.
If you think you are up for it, I strongly suggest taking a look at my 5 step framework for accomplishing your goals. It’s easy to follow and provides a very simple and high level overview of the things you need to consider and remember about goal setting and following through.
In my case, what is an Entrepreneur? Why do I want to be one? How do I know if I have become one? Am I already an Entrepreneur? Will I ever be able to become one? These are all great questions and I have dedicated a future post to addressing them.
Related Posts
Let’s face it. Most startups fail. At the start of any venture, it is safe to say the founders are all passionate, committed and believe they have the necessary ingredients to create a successful business. Yet, why do so many fail? Is it the money? Is it the founders? What about their products? Do they add genuine value? Would you pay for it? Are they competing with Google or Microsoft?
The answer of course is it depends. Every startup has a different makeup and DNA. Some start with no money. Others raise multi-million dollars in venture capital. Some start with a single person. Others start with a team of 50. Some begin in a garage. Others on Level 17 of the most expensive skyscraper in the city.
So why do some succeed while others fail? I suspect the answer is different from startup to startup. Many factors, and sometimes several in combination, will contribute to the demise of a once promising business venture.
One thing I do know however, is the difference between the idea and the implementation. A startup can begin with a revolutionary idea but execute dismally. Another startup can begin with a mediocre idea but execute spectacularly. The startup which executes dismally will fail and the one which executes spectacularly will succeed.
It is the implementation not the idea which is important. You may have the best idea but if you cannot reach your customers or you cannot pay your bills, you will fail.
Contrary to what some IT professionals believe however, it is not the technology which ultimately determines the success or failure of a business. Sure, you may need the big machines, clustered application servers, replication, redundancy, security etc. You may also even have a better “framework” or a better “DAO layer”. However, when starting up, these factors are rarely the cause of a business failure. At the start, customers don’t care you can scale to accommodate 1,000,000 concurrent users or that your “framework” is more flexible than the competitor’s. What they do care is how your interface looks, how your product solves a genuine problem they have, how much it cost and whether there are substitutes out there.
Also, if you cannot stay in business long enough to establish yourself and penetrate the market, all the technology in the world isn’t going to save you. You may have the next world shattering idea (like the Browser), but if your competitors out compete you, you will fail (like the Browser wars). It doesn’t matter whether you came up with the idea first, it is how you execute which determines whether you stay in business.
If you are thinking about starting a new business, don’t worry too much about coming up with a unique idea. Unique ideas are hard to come by. It is also harder to convert users with a unique idea – you first have to educate and convince them. Look to existing ideas, observe how they are executed and seek out opportunities to innovate above and beyond what they have done. Remember, it is the implementation not idea which is important.
Kathy Sierra in a recent post talks more about this. In her post, she writes “Our success is not about what we think up, but rather who we think about“. Her dogma is the customer is all important and good usability is king. I agree with her.
In a similar post, Wil Schroter writes “Let your execution speak for itself“. Ultimately, you cannot protect your idea. Concentrate on your execution. You’re already on to a winner if you have an idea worth copying.
Related Posts
