Part 1: Best Practices
1) Believe in Your Business
It sounds obvious, but you know what we’re talking about here. You have that fabulous idea— something you really think could work— but somehow you just aren’t confident. You want to get your business started… but you think you should finish your degree just in case, or you don’t want to quit your job until you’ve really gotten things off the ground. While it’s perfectly fine to be cautious if your circumstances require it, be sure you’re making a calculated decision, not one based on fear.
When Mark Zuckerberg dropped out of Harvard, he took a leap of faith to prove how much he believed Facebook would take off. He also turned down several buyout proposals from major corporations including Google, The Washington Post, Yahoo, AOL, and Viacom.
If you don’t trust in your business 100%, who will?
2) The Power of Reflection
On the importance of reflection in pursuit of business opportunities, social entrepreneur Vusi Kweyama shared the following:
“My mentor used to draw these different circles and they would represent different aspects of my life. We would look at where and how far they connected. For example, I would look at the connection between my studies and my social justice projects. Then we would work out how does one contribute to the other?
Then it’s about examining what I need to do to make sure each aspect complements another in my life. This is important, it’s important to sit down and step outside of your ideas. Look at your life from an outside perspective, think about what you need to do to achieve what you want. We live in a fast-paced world that doesn’t allow time for reflection, so take a moment and sit and think.”
Everyone could benefit from taking some deep breaths and reflecting on their intentions— but it’s especially important if you’re in the midst of a significant life-transition like starting a business.
3) Have a Ready-to-Adopt Plan
Listen, not every big, successful company started out with a detailed business plan and a 20-year vision. But all of them had some kind of plan, even if it was never formally written down. The founders of these companies knew what they wanted to do and how they wanted to achieve it, and yet they were prepared to reinvent their plans as soon as they noticed something wasn’t working.
Fred DeLuca and Peter Buck of Subway, for instance, had a goal to open 32 stores in 10 years. They eventually realized that they couldn’t make it happen on their own, so they adopted the franchising model, which made it possible for Subway to have 45,000 locations in 111 countries across the world today. Follow their example and keep adaptability in mind when you’re in pursuit of your dream!
4) Leverage Mentors
As Neil Patel said:
“Have multiple business mentors. I started off my journey with one mentor — but as I got deeper into being an entrepreneur I realized I needed to learn many other aspects of business. Management, finance and negotiations were some major gaps that I had to fill. I reached out to business people that I knew and they guided me along the way.”
Take Patel’s advice and gather a diverse range of experience and expertise to fill in the gaps of your own knowledge. Every entrepreneur’s path is unique, so don’t take one business mentor’s opinion as gospel truth!
5) Understand Your Business
This should be the motto of any prospective entrepreneur: you can’t sell what you don’t understand. For some reason many people think if they’re just the retailer or middleman, they don’t need to know the details of the product or service they provide. This is not the case.
Regardless of your role, you should understand every part of the process— administrative and financial operations included. Otherwise, you won’t be able to plan or delegate tasks wisely. Your customer service will be a mess, you’ll end up spending valuable resources on things you don’t need, etc.
6) Give, Don’t Just Take
According to Oli Monks, another champion social entrepreneur,
“I’ve been in a couple of difficult situations at various startups before and I always remember some advice my Dad gave me. He said: ‘Oli, you can’t work with vampires.’ It took me ages to work out what he meant. But he was spot on. He was referring to the fact that a relationship, and a business, can’t be just ‘take, take, take’; there’s got to be some give. You don’t want to work with people like that or be involved in a business that just takes.”
You can’t forget the human element in business. There needs to be mutual benefit in all of your business relationships—take Monks’ advice and don’t be a vampire!
7) Understand Your Target Audience
Knowing your target audience is the key to your company’s success. You need to understand and pamper them to ensure that they’ll not only buy your product/service, but come back for more. It’s crucial that you spend as much time as possible researching what your public wants and expects from your business.
YouTube was basically crafted from scratch based on their audience’s needs. Founders Chad Hurley, Jawed Karim, and Steve Chen were initially trying to create a video-dating website called “Tune In, Hook Up”, but nobody actually uploaded any video there. So, they decided to revamp the site and let people upload any kind of video they wanted—and the rest is history.
8) Believe in Plan A
Actor Ryan Irving once shared some pretty stellar, albeit bold, business advice:
“Someone once told me not to have a plan B at the beginning. I think it’s good advice. Anybody who has a plan B doesn’t believe enough in plan A. If you don’t believe in what you’re doing, you’re not going to succeed. Don’t dilute plan A, put all your effort into it and you might just succeed.”
Although it’s important to be cautious, calculated and adaptable in your business choices, it’s also important to give it all you’ve got. Don’t give up on plan A until you’re really sure it’s not working!
9) Avoid Unnecessary Expenses
If you really want to make things happen, you need to avoid unnecessary expenses. It’s all too easy to get excited about all the things you can buy, build, or otherwise invest in to make it look or feel like your dream is coming to fruition. But try your best to hold off!
The idea here is to only invest in what’s essential at the beginning, and go the for extras as they become necessary or financially feasible over time.
Also, consider outsourcing when you can, at least at the beginning. Find a list of writing services and virtual assistants—it’ll make your life much easier, and cut down on expenses too.
10) Hire Smart Folks
“Hire people who are smarter than you. At first I thought this was a condescending remark, but in reality it is the golden rule of management. As a business leader you need to surround yourself with the very best, and if you are it then your team will always be beholden to you. That only creates a stagnant company afraid to innovate, change or keep pursuing excellence. Plus, what happens to a company if the leader gets hit by a bus? If the leader is the driving force and he is gone, the company dies and everything you worked for is of no value.”
- Tom Panaggio, Founder of The Risk Advantage
Don’t fear the overqualified. Aim for the best of the best when selecting people to contribute to your vision!
Part 2: Costly Mistakes
1) Shaky Cash Flow
The survival of any business is dependent on consistent cash flow. While slow cash flow is expected in the beginning, if it continues to be a problem past the initial launch period, the business will struggle until the situation is corrected— or the venture fails.
There’s a famous line from the 1989 movie Field of Dreams: “If you build it, they will come.” The line has gained traction in the years since, but this thinking can’t be applied to a business startup. Here are a couple reasons why:
- In order for a business to be successful, there has to be a demonstrated market for the product or service.
- If you don’t test-market your product or service before formally rolling out your business, you’ll have no idea if it will even work beforehand.
If market-testing proves the existence of a customer base that’s willing to pay for your product or service, then the likelihood of success will be much higher. It’d then be a matter of scaling up your operations when the business is formally launched. The alternative would be to launch your business at full throttle while simultaneously trying to identify and sell to a certain market segment (not ideal).
Other times cash flow problems are the result of a weak marketing program. Ideally your marketing and your products/services will be test-marketed at the same time. However, one of the problems with marketing is that it can be high-cost and unsupported by ROI in the beginning— and the only way to deal with that is to have enough available capital to fund your marketing operations.
2) Excessive Overhead
When it comes to operating expenses, employing a healthy amount of minimalism is essential. However, it’s certainly not the reality of many startups. You’ve heard the famous saying: “If you want to make money, you have to spend money.”
While there’s truth to that saying, many new businesses get too carried away. Keeping your expenses at an absolute minimum is an important strategy for ensuring the survival of your business. Optimally, your startup expenses will only be the bare-bones minimum needed to get the doors open.
The idea isn’t so much to hit the ground running right at the start, but rather to grow into the business as cash flow expands and justifies a higher budget. The emphasis should be on directing capital into marketing and preserving cash for future growth. If you’re paying too much for rent, salaries, debt service, and equipment leases, you may have created a structural overhead your startup can’t support.
Instead, launch your business from home or look into office space sharing. Hire outside contractors on an as-needed basis rather than hiring employees. Purchase furniture and equipment secondhand. Basically, avoid debt at all costs!
3) You’ve Got a “Me Too” Product/Service
Another reason many startups continue to struggle is because the product or service lacks a unique selling point (USP). And unfortunately, this problem is often insurmountable.
In order to fill a profitable niche, your product must either be better than the competition’s, or just as good but less expensive. If you can’t prevail on either front, then you’re providing a “me too” product/service. Unless you’re able to improve quality or lower your prices, future prospects are dim— you may have to go back to the drawing board and create a new product/service based on a compelling USP.
4) No Viable Processes or Systems in Place
Because your business is new, you might not even know what processes or systems you need. However, their absence can leave gaping holes in your business plan, and won’t go unnoticed by your clientele. For example, maybe you lack a coherent accounts-receivable function which results in a significant lag between payment collection and product delivery.
As a startup, you can study related businesses and see what processes and systems they have in place. You can also consider going directly to your clients and asking them what improvements could be made!
You’ll need to address these as early in the startup process as possible. The smallest of problems have a way of becoming chronic as the business matures— at which point implementing new systems can become prohibitively expensive, completely disruptive, or both.
5) Assembling The Wrong Team
You undoubtedly bring certain talents to your business, but it’s unlikely that you possess every skill needed to bring your startup to success. For example, maybe you’re the creative marketing genius behind the brand but you lack administrative, customer service, or direct sales skills. You’ll have to hire people with these skills in order for your business to become a full-service provider.
We realize this is a tall order since cash flow is a typical problem among startups. You probably don’t have the resources to hire a full staff that can provide all of the services needed to make your company work, particularly if your employees want full-time employment and employer-provided benefits.
An alternative (at least during the startup phase) is to either subcontract parts of your business to outside providers or to hire workers on a contract basis. This will help you keep your payroll at an absolute minimum, since you’ll only be paying for services on an as-needed basis.
Obviously, neither option is ideal. Outsourcing may result in your business lacking that seamless quality, while contract employees may be unwilling to work part-time or with a variant salary. Still, you’ll have to figure out a combination of the two that best suits your needs until you’re in a position to hire regular employees.
6) Partnering with the Wrong Investor
When you’re launching a startup, it’s tempting to take money from any source willing to give. But by doing so, you may end up in the unfortunate position of dealing with an investor who doesn’t share your vision, or who tries to exert influence in unhelpful ways. This is especially true if the investment contract gives the investor any level of control over daily operations.
7) Lack of Flexibility
Passion and excitement about the service you have to offer the world is essential—but it can result in tunnel vision. Many startups have crashed and burned because their founders were so in love with their own ideas that they refused to see the need for adjustments. Remember, people buy the things they think they need, not the things you think they need.
8) Failing to Identify Customer Persona
Creating an effective marketing plan an essential step for your startup. If it isn’t done right (or done at all), it’ll be impossible to gain an initial customer base. The most effective marketing efforts are those targeted at the group that 1) has the biggest need for your product or service, and 2) is in the best position to purchase it. If you fail to identify an ideal customer persona, your marketing will be too generic, and thus ineffective.
9) The Wrong Location
For most startups, money’s tight, and it can seem smart to launch your store in a location where rent and utility costs are super low. Unfortunately, there’s often a reason why rates are low in an area— poor infrastructure, lack of traffic, lack of incentives from local governments, etc. Make sure you research your targeted geographical location in order to predict whether or not there’s a local market for your product!
10) Completely Refusing Debt
Debt can be scary even when you’re earning a profit, so the idea of accumulating debt when you aren’t making money can be downright panic-inducing. Unfortunately, unless you’re already flush with cash from other ventures, going into debt is simply part of launching your startup.
Getting a good line of credit and a business loan will allow you to purchase inventory, cover monthly expenses, pay slotting fees, and keep you afloat!
11) Giving Away Too Much Equity
While there’s nothing inherently wrong with offering investors an equity stake in return for their funding, giving away too much can cause problems. Giving away equity is giving away control, and even if you’re giving it out in small increments it accumulates across multiple investors. Chaos can ensue if your investors don’t agree about what needs to be done to produce growth, and worse— you might find yourself suddenly having little influence in your own startup.
12) Building a Team Based on Friendship
The idea of teaming up with friends and family members to launch a business is an awesome fantasy. Who wouldn’t want to spend their days working with the people they like/love the most? Unfortunately, the results are often not as rosy as you’d think. It can be difficult to navigate disputes and define people’s roles and responsibilities when dealing with friends and family!
13) Not Enough Investment Funding
Many startups struggle or fail because they only score enough funding to get started— they don’t take growth, market shifts, or potential disasters into consideration. Then when something unexpected happens, they’re too busy scrambling to get the funds they need to focus on what’s more important: marketing, hiring, and product development.
About the Authors
Henry McIntosh is a copywriter at the British Web Design and Digital Marketing firm Ri Web. Ri Web’s eBook will be released in January 2018, and will be free to their newsletter subscribers. Henry is interested in interviewing entrepreneurs from all walks of life, so feel free to contact him!
Norman Arvidsson was born in Sweden and immigrated to the United States with his family. He is a passionate author whose goal is to share his experience with others through blogging. Familiar with web development and design, marketing, blogging, freelancing, startups, small business, self-development, and eLearning, Arvidsson considers personal growth to be his main goal in life. You can contact him through his Facebook or Twitter.
Donny Gamble Jr. is an author, investor, and founder of financial website Personalincome.org. He is a contributor for HuffPost and some other major media publications. Follow him at @donnygamblejr!