Starting a business can hold within it excitement and possibilities.
Often when an entrepreneur first formulates a business idea there’s usually a sense of passion and the belief that the business will grow linearly. The truth is that rarely, if ever, does a business look the same way at its start than what it matures into. Given the fact that the business (and even the original concept) will change, there are five potential mistakes that a new business can make that could be the death of the new venture.
1. Not forming the right team
When entrepreneurs develop the idea of starting a business it’s not uncommon to pick from friends and family to create the foundation of the new business team. After all, we may feel comfortable with our friends and family members, especially if we explored our business idea with them. However, more important than feeling comfortable with the people we will work with, is making sure to find people with the right skill sets and right background that will benefit the company at that time.
The people that make up your start-up team need to posses those skills and temperament associated with the struggles and challenges of a new business. This also means that as the company matures and changes, new people with different backgrounds and skills sets will need to be brought in. Often the original crew will either quit or need to be removed for the growth and ultimate benefit of the business. Hiring friends and family may hamper an entrepreneur from having to make the necessary tough decisions when change is needed.
Lastly, keep in mind most new ventures encounter periods of high stress. Remember that people under stressful situations exhibit more of who they really are when stressed. In some cases, this means that short tempered individuals may become even more hostile, and those with anxious behaviors will become more neurotic. Therefore, it is vastly important that your initial team (and perhaps the on-going team members) be composed of people who can think clearly and not breakdown under stressful conditions.
2. Knowing your numbers
Many new businesses begin with great new ideas and launch simply on the power of those ideas, with little regard for the profit potential of the business. Although this works with some of the high tech companies, they represent the exception and not the rule. All businesses have to be able to create a profit and a return on investment, or there is no real reason for the business to exist.
This is why it’s very important that from the very beginning an entrepreneur knows the key numbers of the business such as: gross margins, return on investment, cash flow projections, marketing costs, selling costs, and operating costs – just to name a few. Having a firm grasp on these parameters will help avoid financial disasters caused by over zealous and passionate idealism concerning the business idea. The bottom line is that in the end, the business needs to produce a ongoing profit to be a viable business.
3. Death by perfection
Rarely if ever does the initial business idea or concept end up being the final product. Instead what we often witness is one idea that morphs into a completely different idea as the product or service goes to market. A case in point is YouTube, which initially was conceived to be a dating site. Or Twitter, who’s current main platform was an afterthought of their initial business concept.
As a result of these realities, a new business should set a goal of developing their product/service as quickly as possible and introduce it to the market just as quickly. Once it hits the market the business is in a better position to notice what improvements need to be made or where other opportunities may be possible. It is a tremendous waste of time focusing on perfecting a product before launching it into the marketplace. Just remember, good enough is often good enough.
4. Avoiding hiring an attorney
Quite a few business owners try to avoid using attorneys because of the costs associated. Instead they either decide to do the legal work themselves, or rely on free information off the web. You really don’t know how exposed your business is until something goes wrong and you’re facing a complex and expensive law suit. In some cases these legal problems could end up destroying your company even before the business begins to develop.
Some of the common areas where an attorney can help a new business include:
- hiring practices and employment agreements
- incorporating advice
- buy-out agreements
- partnership agreements
- vendor agreements
- licensing and regulatory issues
- tax planning aspects of the business
Obtaining legal help with these items is more than just having the proper paperwork and contracts. It also involves being given advice on how the courts and regulatory bodies will administer and rule in these matters. Having a good attorney on your side can mean peace of mind for you and your business. Now, this does not mean that you have to go out and hire the biggest law firm to assist you with your legal work. You can find fee-based firms and smaller firms that have the competence to assist you with these matters and provide you with the level of customer service to meet your personal financial needs.
5. Social media will provide all the leads the business needs
There is a prevailing myth among a lot of small business owners that their business will rely solely on social media to build a viral following and attract customers for free. This myth also follows the fallacy that social media marketing is simple and only involves setting up the social media sites once to be effective. The fact is that social media, like most of marketing, is not a magic pill. In most cases social media can take up to 6 to 9 months before any viable amount of business will be drawn from it. At the very least it requires a concerted effort and consistency in order to be effective as a lead generation method.
This means that should a business decide to use social media they will either have to hire a person to manage their social media campaigns, or hire an outside firm to do it for them. There are no short cuts. Anything less will usually cause this to fail miserably.
As we have discussed above these five aspects are extremely important for any new business to consider and address appropriately. Failing to take the time to invest the effort addressing these issues could result in the early demise of a great potential company. As a part of the Bay Area Mastermind Group, you can tap into a source to support you in navigating these key issues for your business. You do not need to go it alone. Check out our “Test Drive” page to see how to get started.