6 Common Traps
Have you ever met a new entrepreneur? Passion and determination just oozes out of them, along with a “no one can stop me” attitude.
I love their energy and excitement, but I enjoy their giddiness with a grain of salt. I’ve worked with new entrepreneurs for over a decade, and it can be heartbreaking to watch them struggle — and sometimes fail.
Whether you have been in business for a decade, or plan on starting a new venture tomorrow, a key indicator of your success will be your ability to research, absorb information and have the skill to pivot and change course at the drop of a hat. The first part is relatively easy; the second part can be a real challenge, especially for those of us who are stubborn or convinced our perfect business idea is “the next big thing.”
When I coach new business owners, I always share with them one piece of advice: It is often more important to know what you are bad at than to know what you are good at. It’s those blind spots that often trip you up as you’re building your business. Not sure what yours are? Here are six common traps — and how to successfully maneuver your way around them.
You Put Passion Over Profits
Why You Fail:
It doesn’t matter if you are a one woman army, or you are building the next major multinational corporation, if you don’t have a concrete/figure-it-out-on-the-back-of-a-cocktail-napkin profit model don’t make another move.
Too often entrepreneurs believe in their idea so much they fall into the trap of thinking their passion and love is enough to make the business succeed. It’s just not true. Businesses need money — e.g. a revenue model — to survive, grow and thrive, and so do you.
How to Succeed:
Figure out how you will make money. It sounds simple, but it’s not always. Are you going to bill by the hour or by project? Are you going to move a large quantity of lower priced items, or are you selling high-end items which will require specialized marketing? If you are manufacturing a product, calculate the cost of making the good (cost of goods sold in accounting speak), figure out how much you will sell it for and then make sure there is enough left over to pay yourself and cover general business expenses and taxes.
It’s also important to be flexible and listen to your market. Sometimes what you are passionate about isn’t the same as what your customer wants. And sometimes your customers can clue you in to other business ideas.
Passionate about her skincare products, Om Aroma & Co, Angela Jia Kim opened a beautiful little shop in the West Village of New York City. Shortly after opening she heard her clients asking for facials and spa services, which she didn’t offer at the time. Angela listened, pivoted and responded by giving her customers an entire menu of spa services using her exclusive products. Had her business plan dictated she only sell her skincare line, she might have failed. Instead? She created a franchise model for Savor Spa, and her first franchise recently opened up a new spa location in Tribeca NYC.
You Love Cash But Hate Accounting
Why You Fail
Entrepreneurs love making money, yet they often hate accounting. But if you are in business there is no running away from money issues or addressing your finances on regular basis. The average “non-employee business” (the academic term for solopreneur) only earns $45,300 annually, which is hardly a fortune. If you are leaving your cushy corporate job to pursue the life of an entrepreneur, make sure you (and perhaps your family) can weather major financial ups and downs.
As women, many of us are all too familiar with gender discrimination in the workplace, but the sad reality is you will likely face similar challenges as an entrepreneur. According to the Department of Labor’s “Women in Business in the 21st Century” study, “women-owned firms have lower levels of financial capital both at start-up and at later stages.” This may explain why women owned businesses had a survival rate of 66 percent compared to 72 percent of male-owned companies (when observed during a four-year period from 2002 to 2006).
How to Succeed
Getting most entrepreneurs excited about spreadsheets, accounting software and systems and setting financial goals is about as easy as getting toddlers excited to eat spinach. But if you are serious about your business, and your financial growth, you will quickly realize that by not mastering this skillset you are putting your business, and your dream, at risk.
There are many ways you can learn these skills online — from webinars to workshops. Your local community college may also offer entrepreneurship and accounting classes.
At best, you need to learn basic financial vocabulary and how to read the financial-success trifecta of reports: the profit and loss, balance sheet and cashflow statement. Also, it’s crucial you pow wow with your accountant early on to learn how to plan for and pay estimated taxes. A large tax bill, or poor tax planning, can be a financial sucker punch to your business.
You Bite Off More Than You Can Chew
Why You Fail
Everybody wants to see you reach for the stars and setting high expectations and goals for your business is important. However, we all know how it feels when our expectations aren’t met, or we fail at something big — it stinks and it can lead to inaction and depression. Not only that, science indicates our brains like small, measurable, achievable goals. Every time we “score” a point, we get a little shot of dopamine — the brain chemical responsible for things like creativity and decision making.
Setting realistic goals, and attaining them consistently, is crucial to slowly growing your business and fostering your professional self-esteem. In fact, it’s in your interest to climb slowly towards your business goals.The U.S. Small Business Administration cites about half of all new establishments survive five years or more and about one-third survive 10 years or more, adding, “As one would expect, the probability of survival increases with a firm’s age.” In other words, the longer your business is in business, the higher the chances of its survival. So you need to set it up to be sustainable.
How to Succeed
Set yourself up for success by creating strong habits, rituals and systems in your business right from the beginning. In my office, I practice Money Mondays, which is when I get all of my money work done, look at my sales reports, invoice clients and handle all my finances. I also practice the “hour of power” on Sundays where I write out my major “to dos” that must get accomplished. Feeling organized and starting the week off with clear objectives is an incredible brain boost.
Set realistic, specific and measurable goals for yourself, and then reverse engineer how you are going to get there. If you want 10 new clients in the next year, which networking events are you attending? How are you marketing yourself? Do you have a contract in place? What are your customer service policies in order to retain clients? Where do you see yourself at the end of this quarter? This year? Five years? Map it out, and then check where you are on your course often so you can make adjustments as needed.
Your Timing (or Product) is Off
Why You Fail
If you want to start a business, the first thing you are often told is “find a need and then fill it.” And while this is of course true, it’s critical for entrepreneurs to remember “You are not your market.” It can be challenging to objectively analyze your market and your potential customers when you are completely in love with your idea. New business owners believe in their dream, and they should, but they should also proceed with caution if they have completed zero market research.
Even if you have a great service or product, timing your launch is incredibly important and can be an indicator of your success, according to a study completed by the Harvard Business School, ”Performance Persistence in Entrepreneurship.” The study’s authors point out, “Entrepreneurs with demonstrated market timing skill are also more likely to outperform industry peers in their subsequent ventures.”
How to Succeed
Get real, get clear and get your tail moving if you know your idea will work! If you are launching a product, talk to potential customers and listen to them carefully. Make sure your brilliant idea is a match for their needs. If you hear only mediocre interest, but they express the desire for a different solution, be flexible and respond to the market’s needs. If your initial market is responsive, expand outwards and gather realistic data for potential customers outside of your first wheelhouse of customers. In order for your business to thrive, you need not only new customers, but repeat customers, or customers you can sell something to over and over again.
If your market data tells you that your idea is hot, has a healthy profit margin and it’s viable, go for it! Chances are another business owner has thought of the idea too and is either hot on your heels, or perhaps even one step ahead of you. Make sure you are moving quickly enough to bring your idea to market at the right time.
You Picked the Wrong Address
Why You Fail
Whether you are an entrepreneur or not, we have all heard to the phrase “Location, location, location!” Choosing the right spot is critical to the success of your business. If you are opening a retail store, it doesn’t take a genius to figure out you are more likely to succeed in an area with heavy foot traffic, near businesses that your products complement or are similar in nature. In the online world, having the right digital address can be just as crucial.
New brick and mortar businesses can make a lethal, first-time mistake by setting up shop in a more remote location in order to save on monthly rent expenses. In the digital world, selecting a URL that is hyphenated, uses a lesser known suffix like .co, .info, .org when it’s a commercial business and not an organization, can cause the death knell to ring early for these ventures.
How to Succeed
If you are opening up a retail store, every time you say “location, location, location” you should follow it up with “research, research, research.” Big box chains hire experts to analyze everything from consumer demographics and highway traffic patterns when selecting where to make their next huge investment. You should put on your sleuthing hat and do the same. If you have had your eye on the “perfect place downtown” that seems to have a high turnover of tenants, be leary and ask questions of neighboring businesses and of your potential customers. Send out a survey to friends and family that live in the area to gauge interest and feedback from your potential customers. Hiring a quality, commercial real estate broker here might be a good investment, especially if they have worked in the area for a long time and can offer insider details and opinions on your business’s potential new home.
There are wide and varying opinions on all things “strategy related” to URL and web addresses. Before you launch your business baby into the digital universe, consider these guidelines. As an internet user myself, I think you will likely do better with a .com than any other suffix on the market, unless you are charity, in which case using .org is appropriate. In fact, a UK-based study found that most internet users find new web suffixes to be suspect. The shorter the URL the better. Although as time passes, users are becoming accustomed to longer, and even hyphenated, URLs. Make sure that your web address at least includes some key words connected to what you sell. For example, if you are copywriter, using “copywriting,” “writer” or “wordsmith” will help your customers easily identify what you do. And before you lay down a large chunk of cash buying a “valuable” URL, make sure it is as valuable as the seller portends. There are consultants out there who can provide you a URLs actual valuation, an often cagey and subjective process.
You Try to Do Everything Yourself
Why You Fail
In order for your business to succeed you have to be brutally honest with yourself. This means you need to take inventory of the skills you have and the ones you lack. It’s critical for your mental and business health to delegate the tasks that aren’t your strong suit to team members more competent than you, or to implement systems to mitigate your shortcomings.
Consider the Target Training International study on the skills needed to be a serial or successful entrepreneur. According to the study, TTI analyzed 23 professional skills using a validation assessment. Most adults have mastery of five or six skills but entrepreneurs racked up a whopping average of 14 out of the 23 skills listed. Some of those skills include leadership, goal orientation, persuasions, futuristic thinking, negotiation, decision making, flexibility and creativity.
How to Succeed
The easiest way to see around a blind spot it to ask others to help you see it. Ask employees, contractors and clients how you can improve. This isn’t an easy conversation to have but it’s a necessary one. It may help to generate a short, anonymous survey if you are the type of person who gets prickly when criticized. If this won’t work for you, look back over the last one to three years and analyze your failures. If you find yourself with a high employee turnover rate, or unable to sustain long-term client and vendor relationships, it means you can’t sustain relationships and some sort of communication training may be in order. If you found yourself in an audit without accurate records, it may be time to delegate the tasks to a professional bookkeeper or accountant. If you spent thousands of dollars on a failed online marketing campaign that you designed, managed and implemented, outsourcing it to a marketing specialist could be a great investment.
The Bottom Line
It’s very hard, from a scientific and statistical standpoint, to determine the exact reasons why certain entrepreneurs and businesses succeed and others fail. While there are some common reasons, research suggests that failure is usually the result of a confluence of issues.
Ultimately, they all boil down to the bottom line. Over and over research indicates that a poor profit model, lack of cash flow management and access to capital are the major causes of a business failure — whatever the reasons behind it. As a responsible business owner, it’s in your best interest to keep a close eye on making sure your business is in the black, or has a solid plan in place to get there. Doing a core competency check-in on what skills you bring to the table, and where your business needs to improve, is also an excellent way to shore up any potential profit pitfalls.