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Six startup mistakes that will damage your profits


All entrepreneurs make at least one expensive mistake when setting up a new business, says Lorie A. Parch writing for Entrepreneur.com. It’s “the Murphy’s Law of startups”, she explains.

But some mistakes are so costly they can sink a cash-strapped new company. The author talks to entrepreneurs and experts about the most common startup errors.

1) Choosing the wrong team. This is the most expensive startup mistake, claims Bill Aulet, managing director of the Martin Trust Center for MIT Entrepreneurship and author of Disciplined Entrepreneurship.

Pick your team carefully and base your choices on the skills you need, common values and trust. Don’t let friendship cloud your judgement, Aulet advises.

2) Getting the pricing wrong. It is important to base your pricing on informed calculations rather than guesswork.

Sarah Shaw, CEO of consulting firm Entreprenette, guessed at pricing for her first startup – a handbag company – and consequently undersold her product. The mistake cost her more than $100,000 in her first two years of trading.

3) Holding out for perfect. This is a common mistake for tech startups, says Drew Williams, co-author of Feed the Startup Beast. If you won’t let go of your product until it’s just right you will be wasting time and losing money.

“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 advises.
Finding clients who will help fund a pilot project will allow you to create a better product and save money.

4) Techno-dazzle. Mary Juetten of software company, Traklight, was left in the lurch when her techie co-founder left the business. Lacking technical knowledge and confidence she went with whatever her new programmers told her she needed. And her techno-dazzle cost her valuable time and money. The moral of Juetten’s story is educate yourself to protect your investment.

5) Scrimping on lawyers. It’s essential to find a lawyer who understands your business and can protect you from damaging mistakes. Tobin Booth, CEO of Blue Oak Energy, didn’t get the right help when drawing up his first sales contract. Booth discovered the contract did not allow him to collect on attorneys’ fees only when he hired a collections agency to deal with bad debtors.

6) Cutting costs on marketing. Startups need to be spending 10% to 20% of gross revenue on marketing, advises Drew Williams. But some entrepreneurs think their product or service is so great that they can afford to skimp on marketing. Don’t believe the social media myth, he adds – it is not free marketing, nor is it a quick fix. You will need to dedicate six months to a year and a lot of legwork to see results.

Parch concludes that the best way to avoid expensive mistakes is also the most obvious: “Save and spend wisely.”

Source Article: Six Common Mistakes People Make When Starting a Business
Author(s): Lorie A. Parch
Publisher: Entrepreneur.com