Writing for the Wall Street Journal's website, Rosalind Resnick, founder and CEO and Axxess Business Consulting Inc, highlights the mistakes that start-up entrepreneurs make. Resnick admits that "when it comes to starting a successful business, there's no surefire playbook that contains the winning game plan".
But she adds: "On the other hand, there are about as many mistakes to be made as there are entrepreneurs to make them."
She picks out the ten most common errors:
1) Going solo. Resnick explains: "It's difficult to build a scalable business if you're the only person involved."
While she concedes that staff can eat up a chunk of the profits, Resnick says the answer is to ensure there's enough margin in your pricing to allow you to bring in other people.
She also points out that "clients generally don't mind outsourcing as long as they can still get face time with you, the skilled professional who's managing the project".
2) Asking too many people for advice. While input from experts is a good thing, canvassing too many opinions can delay action. So assemble a "solid advisory board" that you can turn to when necessary but take responsibility for running the day-to-day business on your own terms.
PRODUCT vs SALES
3) Concentrating too much on product development rather than sales. Of course, you need a great product but too much time spent tinkering could mean you miss the boat and lose customers. Focus on sales or risk running out of money and energy before going to market.
4) Targeting a market that's too small. Resnick comments: "It's tempting to try to corner a niche, but your company's growth will quickly hit a wall if the market you're targeting is too tiny."
She advises: "Pick a bigger market that gives you the chance to grab a slice of the pie even if your company remains a smaller player."
5) Entering a market without a distribution partner. Breaking into a market is easier when there is a network of agents, brokers and other third-party sellers to move your product through existing distribution channels. Resnick suggests making a list of potential referral sources before you start your business and ask them if they'd be willing to send business your way.
6) Overpaying for customers. A big advertising budget might bring you plenty of customers but the author warns that it will turn out to be a money-losing strategy if you can't convert it into lifetime customer value.
She explains: "A magazine or web site that spends $500 worth of advertising to acquire a customer who pays $20 a month and cancels his or her subscription at the end of the year is simply pouring money down the drain."
The solution is to "test, measure, then test again".
When you've worked out how you can make more money selling your products and services than you actually spend on getting those customers in the first place, then it's time to launch your big marketing campaign.
7) Not raising enough capital. Most entrepreneurs account for the costs of rent, equipment, stock and getting customers through the door, but many forget they will also need funds for paying salaries, utilities and various other overheads that they will struggle with until they start making a profit.
Resnick warns: "Unless you're running the kind of business where everybody's working for sweat equity and deferring compensation, you'll need to raise enough money to tide you over until your revenues can cover your expenses and generate positive cash flow."
8) Raising too much capital. Surprisingly, too much funding can be a problem, as it can lead start-ups to become "big and bloated". With a lot of money to play with, there's a temptation to employ too many people and waste valuable resources on things that are not essential to the business.
Resnick says: "When the money runs out and investors lose patience (which is what happened ten years ago when the dot-com market melted down), start-ups that frittered away their cash will have to close their doors.
"No matter how much money you raise at the outset, remember to bank some for a rainy day."
9) Not having a business plan. If your start-up needs significant capital for growth and is unlikely to turn a profit in a year or less then you need to draw up a plan of how much time and money you are likely to need to get to where you need to be.
Consider the key metrics for your business and build a model accounting for three years of sales, profits and cash-flow projections.
10) Overdoing your business plan. Resnick observes: "While many entrepreneurs I've met engage in seat-of-the-pants decision-making and fail to do their homework, other entrepreneurs are afraid to pull the trigger until they're 100% certain that their plan will succeed."
She adds: "The truth is that a business plan is not a crystal ball that can predict the future. At a certain point, you have to close your eyes and take the leap of faith."
Despite this guidance, Resnick warns that, no matter how hard you try, you are bound to make some wrong moves because it is "just not possible to start a company without making a few mistakes along the way".
However, she urges you to "avoid making any mistake so large that your company can't get back on its feet to fight another day".
10 Mistakes That Start-Up Entrepreneurs Make
Wall Street Journal