6 Common Mistakes People Make When Starting a Business

Expensive mistake #1: Wrong Team

The wrong team Bill Aulet, managing director of the Martin Trust Center for MIT Entrepreneurship and author of Disciplined Entrepreneurship, says choosing the wrong team is the single costliest error entrepreneurs make, resulting in not only lost income and time but depleted morale.

“Choosing who to hire and work with in a startup is like playing basketball in the schoolyard; you can pick your friends and play for them, but if youwant to be good and continue to be on the court, you have to carefully pick your team,” he explains.

It’s crucial to choose people with varying skill sets. However, Aulet says, “much like a great sports team, they must also share some common values and the ability to trust each other in tough situations. That’s why past experience working with your co-founders and early employees in stressful times is much more important than being friends.”

Expensive mistake #2: Bad pricing

“My single biggest mistake with my first business–a handbag company–was in pricing,” says Sarah Shaw, CEO of Entreprenette, a consulting firm in Durango, Colo. Hers is a common misstep for product manufacturers.

“I didn’t understand that with any kind of clothing or accessories, you have to calculate the square footage of fabric, including the wasted fabric,” Shaw explains. Without an accurate understanding of her costs, she couldn’t price her products correctly.

“I thought you sort of doubled everything, but that’s not correct,” she says. “It’s a 2.5-times markup from cost to wholesale, which covers marketing, the showroom fee, all your expenses.”

By the end of her first two years in business, Shaw had put in more than $100,000 of her own money. Thanks to perseverance and media buzz (celebrities loved her bags), she ended up with $1 million in annual revenue and attracted investors, but she couldn’t recover from the downturn after 9/11 and closed the business in 2002.

Entreprenette’s Sarah Shaw (left) misunderstood costs in her first startup, a handbag company.

Like Shaw, Tobin Booth, CEO of Blue Oak Energy, paid dearly for a pricing mistake. It occurred in 2010 when the California-based company, which engineers and constructs solar photovoltaic power systems, took on a contract to install solar units for a retail chain with stores in eight states.

“That was a level of complexity we had zero experience with, in a very competitive market,” he says. “What we didn’t understand across all these states were the tax consequences and how much variation there was in labor rates. Then there were delays because of weather and shipping.”

The company, which also hadn’t planned for project delays that led to incurring storage fees, lost about $500,000 in 2011. Booth says the miscalculation was one of the worst experiences he has been through as a business owner, but there were some positives: “The cliché is absolutely correct. The painful experiences are the ones you learn best from.”

Expensive mistake #3: Waiting for perfect when good will do

When you’ve got a killer idea, it’s natural to want to introduce it to the world in a fully formed state. But it doesn’t take a CPA to figure out that the longer you take to launch, the longer you go without money coming in.

“This is a common mistake, especially for tech people,” says Drew Williams, co-author of Feed the Startup Beast. “Many want to build an app and won’t let it go until it’s perfect, but then you take too long and spend too much.” Specifically, this error will likely leave you with no “runway”–the cash you’ll need to sustain you as you’re trying to get your product off the ground once it’s ready, but before you have customers.

“You need to come up with the simplest, basic version of your product that gets the idea across and try to find someone you can sell it to,” Williams says. “Find one or two clients who are willing to do a pilot where you build, test and iterate it. Inevitably, your product will be different than what you expect, and then you build it. If you get a real, live client, you create a better product in a very cost-effective way.”

Expensive mistake #4: Not understanding technology

Mary Juetten was no Luddite when she launched Traklight, a software company that helps individuals and businesses identify and protect intellectual property, but she didn’t know everything. “I understood how to lay out what our software would do … but I didn’t know anything about coding software or web development,” says Juetten, a CPA and Canadian chartered accountant.

She relied on a co-founder with that expertise, but when that relationship ended, she floundered. “This is where I made my biggest mistake: I looked for the best deal, and I didn’t educate myself about different programming languages or bring someone else into the mix.”

The team she hired to create Traklight’s software told her that it “couldn’t” be built in one programming language and “had” to be built in another. “If someone designing my website came up to me and said, ‘You should use this color instead of that color,’ I’d be asking 17 questions about why,” Juetten says. “But I never asked why about this, because it was technology.”

The four-month window for software development turned into eight months, then nine more. “With technology, it’s all about time to market,” she says. “So entrepreneurs who are not technical should educate themselves.”

Eventually Juetten took a “tech speak for entrepreneurs” class. She suggests other startup founders who need more expertise find similar instruction at Codecademy or General Assembly.

Expensive mistake #5: Skimping on attorneys

Booth of Blue Oak Energy might like a do-over on pricing that multistate order, but he’s also sorry about skimping on legal fees in his company’s infancy.

“If I could do some of the early stuff over, it would have been to pay a few thousand dollars to have an attorney write up a proper contract,” he says. “I didn’t have the right attorney who really understood my business.”

A few early customers simply didn’t pay up, so Booth tried to move matters to a collections agency. “I found out that there were some clauses [in the contract] that didn’t allow me to collect on attorneys’ fees,” says Booth, whose company now does nearly $20 million in annual revenue.

Shaw, meanwhile, unknowingly signed a contract that gave her handbag company the trademark to her name, so when investors came in, her name belonged to them. “I can’t use my own name in business again,” she says. “I wish I had hired an attorney to watch out for me.”

Expensive mistake #6: Being cheap about marketing

“People think, everyone else has to market their product or service, but I don’t because this is so good,” says author Williams. The related myth is that you can rely on social media to build virality and attract customers for free. “Social media is not free,” he says. “To do it properly takes unbelievable amounts of time, and it’ll typically take six months to a year before you’ve got even slight momentum–it’s not fast.”

If you’re not sure how much money to budget for marketing, Williams suggests aiming for 10 to 20 percent of your targeted gross revenue. “As you become a more established business, that drops to 5 percent to 10 percent of gross revenue, and for the largest businesses it’s typically 5 percent or a bit less,” he says.

After launching Traklight, Juetten found that her website wasn’t indexed properly for search engines. “No one was finding us,” she recalls. So she decided to invest in an inbound marketing program. “That initial payment is scary for a small company, but we don’t have to pay developers to make changes to our site, and they do e-mail marketing and CRM,” she explains. So far it’s working: In April 2013 the Traklight site recorded just 100 visits per month; by the end of the year it was getting 2,800.

How much does Juetten estimate she lost early on between the missteps in software development and inbound marketing? “As far as dollars thrown away–actual checks written for useless things–that would be in the tens of thousands,” she admits. “As far as lost time [and] products not developed on time, it’s in the hundreds of thousands. We would be much further ahead now.”

In the end, the best way to avoid costly mistakes is obvious: Save and spend wisely. “Keep spending really, really tight,” Williams advises. “Leverage everything you can and give yourself as long a runway as possible. You’re going to need it.” SOURCE 

 Facebook   Twitter   LinkedIn   Website

8 Things Truly Outstanding Leaders Do Without Thinking

 

Once in a while you meet a leader who stands out–even in a room filled with skilled, experienced, successful people. She isn’t just remarkably charismatic. He isn’t just remarkably likeable.

You can tell, in an instant, they simply think and act and lead differently than most people.

But those rare individuals don’t become outstanding leaders overnight. While some are born with an aptitude for leadership, truly outstanding leaders are made. Through training, experience, and a healthy dose of introspection they learn how to make quick decisions. They learn to work with different personalities. They learn to nurture, motivate, and inspire.

They learn to truly lead.

And in time those skills become automatic and reflexive. While great leaders do a tremendous amount of thinking, that thinking happens behind the scenes. In the moment, in the trenches, when people look to them and need them most, they act: swiftly, decisively, and confidently.

Want to become a truly outstanding leader? Work hard to do these eight things naturally, automatically, and instinctively:

1. Praise

It’s easy to tell when employee recognition is simply one entry on a very long to-do list. We’ve all been around people who occasionally–and awkwardly–shake a few hands and pat a few backs. No matter how hard they try to fake it, their insincerity is evident.

No one gets enough praise, so truly outstanding leaders see expressing thanks, giving praise, and providing recognition as one gift that can never be given often enough.

Praise is almost like breathing to a truly outstanding leader: natural, automatic, frequent, and most of all, genuine and sincere.

2. Decide

Ideas are great but implementation is everything. Outstanding leaders quickly weigh, assess, decide, and then immediately act–because decisiveness and action build confidence and momentum.

That’s why making a poor decision is often better than making no decision at all. Mistakes can almost always be corrected. Even though you should always try, rarely must you be right the first time. Adapting and learning and revising so you get it right in the end matters a lot more.

Especially when you…

3. Take responsibility

We all make bad decisions. What matters is what we do after we make those mistakes.

Outstanding leaders are the first to say, “I was wrong.” Outstanding leaders are the first to say, “I made the wrong choice. We need to change course.”

Outstanding leaders instinctively admit their mistakes early and often because they’re quick to take responsibility and because they desperately want to build a culture where mistakes are simply challenges to overcome, not opportunities to point fingers and assign blame.

4. Communicate

 Business is filled with what: What to execute, what to implement, what to say, and sometimes even what to feel.

What’s often missing is the why.

That’s why so many projects, processes, and tasks fail. Tell me what to do and I’ll try to do it; tell me why, help me understand why, help me believe and make that why my mission too…and I’ll run through proverbial brick walls to do the impossible.

Managers stipulate. Outstanding leaders explain. And then they listen–because the most effective communication involves way more listening than talking.

5. Set the example

Say you’re walking through a factory with the plant manager and you see a piece of trash on the floor. There are two types of people when that happens:

One spots it, stops, struts over, snatches it up, crumples it like a beer can, and strides 20 feet to a trashcan to slam it home. He’s picked up the trash, but he’s also making a statement.

The other veers over without breaking stride, picks it up, crumples it up, keeps talking, and doesn’t throw it away until he comes across a convenient trashcan. He’s not thinking about making a statement. He just saw a little trash and picked it up without thinking.

Simple example? Sure. But extremely telling–especially to employees.

Why? Employees notice what you do. When you’re in charge, everyone watches what you do. The difference lies in how you do what you do… and what that says about you.

Outstanding leaders do what they do simply because it’s important to them. It’s part of who they are. They care about go, not show–and, in time, so do they people they work with.

6. Give feedback

We all want to improve: to be more skilled, more polished, more successful. That’s why we all need constructive feedback.

Because they care about their employees, not just as workers but as people, outstanding leaders instinctively go to the person struggling and say, “I know you can do this. And I’m going to help you.”

Think about a time when a person told you what you least wanted to hear and yet most needed to hear. They changed your life. Outstanding leaders naturally try to change people’s lives. Even if it’s uncomfortable. Because they care.

7. Seek help

At some point, most people in leadership positions begin to avoid displaying signs of vulnerability. After all, you’re in charge of everything, so you’re supposed to know everything. Of course that’s impossible. You can’t know everything about your job. Your employees can’t know everything about their jobs, either.

Outstanding leaders don’t pretend to know everything. (In fact, they purposely hire people who know more than they do.) So they naturally ask questions. They automatically ask for help.

And in the process they show vulnerability, respect for the knowledge and skills of others, and a willingness to listen–all of which are qualities of outstanding leaders.

8. Challenge 

Most leaders implement their ideas by enforcing processes and procedures that support those ideas.

For employees, though, engagement and satisfaction are largely based on autonomy and independence. I care a lot more when it’s mine: my idea, my process, my responsibility. I care the most when I feel I am depended on–and given the authority–to make important decisions and do what’s right.

Outstanding leaders create broad standards and guidelines and then challenge their employees by giving them the autonomy and independence to work the way they work best. They allow employees to turn “yours” into “ours,” transforming work into an outward expression of each person’s unique skills, talents, and experiences.

That’s a challenge every employee wants to face–and one that outstanding leaders instinctively provide . SOURCE

 Facebook   Twitter   LinkedIn   Website

Prices Going Up? How to Tell Your Customers

Chalk it up to inflation. Or maybe increased competition has left you with no other option. Whatever your reason–and we’re sure it’s a damn good one–you have to raise your prices. Just don’t share the whole truth with your customers.

That’s the advice of Grant Cardone, serial entrepreneur and best-selling author. In an article for Entrepreneur.com, Cardone says customers will accept price increases, but they don’t want to hear excuses.

So how do you tell customers that they will have to pay more for your products or services, without sheepishly pointing at economic or industrial data they just don’t care about? Here are four rules of thumb:

1. Tell them what they stand to gain.
“Explain the reasons that [the increase will] benefit the customer: added content, additional service, or support,” Cardone writes. “It could be something new or something you haven’t been telling your clients you do for them.”

In an interview with us, Cardone offers up Kraft Foods as an example of a business that does this well. Kraft has raised prices on Nabisco Oreo cookies several times, but it has also added products, such as the Double Stuf variety, he says. Customers are less likely to complain when they’re getting twice as much of the product’s signature cream filling.

2. Show your worth.
Along similar lines, pricing-strategy expert Rafi Mohammed writes in an HBR Blog Network post: “Make it a point to reinforce that even with the price increase, your product or service is still a great deal. Even with a higher price, for instance, Netflix is usually cheaper and arguably a more robust service than HBO.”

3. Play favorites.
In an Inc column, sales consultant Tom Searcy suggests that it’s important to let your biggest clients and customers know about the increase early to soften the blow. “It’s a mistake to let them get the news through an email or a salesperson,” Searcy writes. “A price increase, even if understandable, is still going to be seen as bad news–so it should be communicated executive to executive, not couriered by frontline people.”

4. Be flexible.
“No one likes being cornered with a ‘take it or leave it’ ultimatum,” Mohammed writes. “A price increase is more palatable if there is an option to save money. Even if you don’t expect anyone to take the cheaper option, offer it anyway. Consumers appreciate choices.” Mohammed goes on to suggest that offering “silver” or “gold” product packages with increased offerings to the customer may work better than offering an across-the-board price hike.

Meanwhile, Cardone suggests that businesses that sell on a contract basis may find it advantageous to let customers pay the existing price–if they agree to a longer-term commitment. “The only clients you need to be concerned about are those who object to the higher prices,” he says. “For example, we heard: ‘Last year I paid only $1,500 and signed for only 12 months.’ Our response? ‘Great, and that is why we are still offering that pricing to you while increasing new content and additional support. By going with the 24 months, you can maintain your old pricing.’

SOURCE

 Facebook   Twitter   LinkedIn   Website