Now more than ever, more and more people are owning and operating their own businesses. They become “entrepreneurs” – sometimes by choice, sometimes out of necessity. So you think you have a great idea? It seems simple enough and you believe, in your heart of hearts, that people will love your idea, flock to your store, gobble up your product on the internet. Then why do so many businesses fail? As you might have guessed, it’s not that easy. It takes careful planning, calculated risk taking, and a lot of plain, old hard work. This article is designed to guide you down proper path to hopefully help you minimize a lot of the mistakes and risks the impetuous entrepreneur often makes.
- WRITE A BUSINESS PLAN. First and foremost, you must write a business plan. Many people avoid this crucial step, thinking they know better. But this is where the rubber meets the road. This is how you research and test your idea. Is it good? Can I make money? How many sales do I need to make a profit? What competition exists? The plan should describe your idea, service, product, etc… in detail. You should include market analysis, demographic information, competition research. You should include a SWOT analysis: strengths, weaknesses, opportunities and threats. Writing an in-depth business plan allows you to thoroughly research and analyze your idea. Maybe it’s a bad idea or maybe it just needs some adjustments. Either way, a good business plan will help you avoid the most common mistake entrepreneurs make – they “wing” it! You should consult both your accountant and attorney when preparing this. In addition, there are a number of non-profit organizations that can assist you in preparing a business plan such as the Small Business Administration (SBA), your particular State’s local SBA office or SCORE. You can learn about more resources from this article on ShopKeep.com.
- TEST YOUR IDEA. Now that your idea is in writing, are there ways to test the business and launch with limited capital? Can you sell on the internet for minimal cost or network with groups or organizations to sell your product or service? You always want to try things without investing a lot of start-up capital. If your business will ultimately require a storefront or a brick and mortar location, are there ways to reach your target market and see how the business will be received? Perhaps you are opening a bakery or restaurant. Are there ways to sell your products through other businesses or at farmers markets to test and earn some money in the process? Second most common mistake – no testing. People just jump in head first and many fail soon thereafter.
- DETERMINE REALISTIC CAPITAL NEEDS. Now that you have a business plan (which should include very detailed financial costs and projections) and you are testing your idea, you need to figure out how much money you will need to launch the business. Ideally, you should have enough money (“working capital”) to run the business for at least a year. It often takes several months to get the word out and to start having significant sales. I see a lot of businesses close several months after they opened and I always wonder how they could not have prepared for their first 6 months of operation. Also, pay yourself first! Yes, I know everyone says that, but its true (not always easy though). If you get in the habit of putting money aside each month, you won’t find yourself wondering where the “extra” money is, waiting for profits to magically materialize. My favorite book on cash flow “engineering” is Profit First by Mike Michalowicz. It’s a must read and a must DO!
- BUILD AWARENESS. You will promote your business more through your personal contacts and PR, than paid-for traditional advertising. Learn about Facebook, LinkedIn, Pinterest, Twitter, Instagram, etc… While you can hire someone to help you with all this (and they are well worth the time it will save you), you might not be able to afford their services yet. There’s a lot of information on the internet to help you get started. As part of this, create an electronic mailing list to keep regular connections with any contacts you have. When you meet someone, add them to your mailing list and send out information about your product or service on an on-going basis. You can use MailChimp, Constant Contact or others. I like MailChimp, because you can build a list of 2,000 names for little or no cost. We run our entire “keep in touch” philosophy from a book – “The Referral of a Lifetime”, one of the Ken Blanchard Series. It is a must read for referral prospecting.
- BUILD THE BUSINESS AS SALES COME IN. Build your business into a company. Do it carefully and methodically. Don’t spend a lot of money without profits to support it. Many people have taken the field of dreams “build it and they will come” approach. That usually doesn’t work. So, if you need an office, rent less space then you need – perhaps with an option to take additional space. Or rent shared or co-office spaces from companies like WeWork or Regus. If you need staff, hire part-timers until you have the cash flow to support it. Or use outside, contracted services – then you pay for what you need while this person works for others when you do not need their services. Ultimately, you want to build an infrastructure that will run the business and free you up to develop sales. Your goal should be to arrange things so you can operate the company from afar. I know some business owners that rent a separate office for themselves that is not even in the same building as the business itself.
- UPDATE YOUR PLAN, MONITOR PROGRESS AND REVIEW YOUR GOALS REGULARLY. I find the next mistake business owners make is that once things get going, they forget what got them to that point. Your business plan should be your operational bible. You should review and update it often – especially when you learn something about the business, marketplace, what is working, what is not, … Create regular financial reports from your accounting system (like QuickBooks) to compare your projections to the actual results. Get a good goal setting system – there are many out there. We use the book Traction by Gino Wickman, which I highly recommend, but there are many others.
- HIRE A GOOD BUSINESS LAW FIRM. Another mistake? Not working with a good law firm. Business owners who go at it on their own might be exposing themselves to a tremendous amount of risk by not getting the best protections under their leases. They may not be handling employee issues correctly or negotiating contracts effectively. If you hire an attorney once a problem has already occurred, they may be able to help you, but it will cost you a lot more than if they worked with you from the outset. They can help you write a business plan, set up companies, seek financing, review leases and contracts, etc.… Even if your budget is tight, there are a lot of self-help materials out there. You will find a ton of stuff on Pinterest for entrepreneurs. We’ve started “pinning” a lot of stuff up; follow us so you can stay in touch (same thing through LinkedIn and Facebook). Having said that, feel free to contact us with an email question or for a consultation in our office. The first hour is always on us.