The experience of bringing a business idea to life and ensuring its longevity is full of learning curves. Some slip-ups are par for the course, trial-and-error, and can be happy accidents in the end. Others, however, can be fatal in the life of a business. Without reason, it’s these fatal mistakes that can be most common among new entrepreneurs. To ‘err is human but why not learn from others and avoid these five mistakes that are sure to kill your business:
Mistake 1 – “The handshake deal”
In any business, making sales or completing deals is difficult. Sometimes out of urgency or fear of the other party changing their mind, we don’t take the time or effort to formalize the deal in writing. Whether it is a sale with a customer or a deal with a vendor or partner, formalizing it in writing is crucial. This provides the clarity of what is expected from both parties, and the comfort that someone didn’t assume certain items incorrectly. If anyone promotes a deal to not being formalized in writing for any “good reason,” consider that deal too expensive for your business. While legal fees are very undesirable, some upfront fees to prepare agreements can save you and your business. Protect yourself and your business and put everything in writing!
Mistake 2 – The false security of social media
While social media is free and SUPER powerful for any company, it has tainted the reality of marketing budgets and given new business owners an incorrect assumption of what vital marketing budgets should be. The average allocation for business’ marketing budgets is 10% of gross sales. While social media is crucial and inexpensive, don’t let it fool you of what you need to allocate towards your marketing budget in order to adequately promote your products or services. It doesn’t matter if you have the best product or services if no one knows about it, and social media is just a small piece of the marketing pie. Get noticed!
Mistake 3 – “The impatient businessman”
Being confident in starting ventures, “proving haters wrong”, and having courage to start something before everything’s “perfect” is commendable, but there is a fine line between confidence and recklessness. A business plan is a bare minimum. Without a business plan, it is very easy to get distracted when different challenges or opportunities arise. The time spent on planning and developing your business plan is a fraction of the time that you will save from being wasted on those distractions. Not only will it give you confidence to endure, it gives the team you are leading the assurance that they’re not following a blind leader.
Mistake 4 – “The desperate hire”
As our companies grow, new needs and positions become important to fill. Many times, this happens quickly so an urgency or desperation occurs to hire someone. Make sure to give yourself enough time to find the right person for the job. Taking the time to find the right person to bring “on the bus” saves so much time, money, and pain getting the wrong person “off the bus”. Never put your company in a position that is so desperate to fill a need or position that you don’t have the time or resources to find the right person to fill the need. Hire slowly and do your best at getting the wrong people off your bus as quickly as possible. Payroll is usually a company’s biggest expense, but it is always a company’s biggest investment. Make sure to invest in the right people.
Mistake 5 – “The Price Beater”
At the beginning, we’re always eager to start claiming our share of the market. We want to show our customers and competitors that our products and services are competitive or superior to the market, and sales never lie. So, to get those sales telling a good story, we try and set our prices below our competitors and hope that our margins are sustainable and that we can keep the lights on. As a new business it is very difficult to be able to operate on the margins that large companies operate on, so to always try and set prices lower than our competitors is a dangerous and grueling game plan. Instead, new or smaller businesses need to focus on why your product or service is worth the little extra, and what only your business can provide. Why are you different?
Harrison Rogers is founder and CEO of HJR Global, a private equity company that has increased at least 200 percent every year for the past four years.