By Nic Perry, last updated August 16, 2021
What are the top ten mistakes new business owners make that can kill your business before it starts? Pretty much every major problem is either a lack of knowledge or a lack of longevity, with a dash of anxiety holding you back. Mauve Morpho can help you avoid these 10 and more with weekly calls to help make sure your business is on the right track.
In a hurry? Jump to the ones you are most worried about below:
If the ladder is not leaning against the right wall, every step we take just gets us to the wrong place faster – Stephen Covey
When you have a great idea, it can be tempting to think it’s a million-dollar idea, but making the best product no one wants, a product that solves a problem so small most people didn’t even realize they had it, or a solution too expensive or cumbersome – none of these are likely to work out well for you. No one is worried about a more ergonomic sledgehammer, or an automated $1500 trash cart that remembers to take itself to the curb. Make sure your idea is solving the right problem in a truly great way. Merlin Mann, of the podcast Back to Work, likes to say that in the 1980s, a better fax machine to most people probably would have looked like more fax machines. The answer obviously wasn’t more fax machines, it was coming up with what was next. Fax machines were a problem that needed a solution, but an elevating solution. Stephen Covey wrote “If the ladder is not leaning against the right wall, every step we take just gets us to the wrong place faster.”
Make sure your product or service is going to legitimately solve a problem in a way people truly want and will be happy to pay for. Even if that problem is just boredom, that’s still something people want help with and will be willing to pay you to solve.
If someone is likely to sue your business, make sure they can’t sue you too.
For some businesses, a sole proprietorship is enough – if you sell oil paintings at farmer’s markets and craft sales, you probably aren’t going to be sued, and even if you were, it would probably be just for another painting. But if you make soaps and lotions, even just to sell at a farmers market, someone could have a severe reaction to an allergen that made it into your soap and want to sue you for everything you have. If there is any chance of a big lawsuit, a properly formed and maintained LLC or other corporation can give you the cover you need to do your job without worrying about the small chance something goes wrong.
An important part of this is “properly maintained.” If you co-mingle your funds or don’t have quite all the paperwork in order, then the person suing your company may be able to say you and your company are the same thing and still sue for everything. Barely related, but while we are talking about liability, business is risky enough, don’t risk your personal assets if there is another way. You may inevitably have to sign some personal guarantees for things like renting space, but choosing the right legal entity can protect you from a lot of these.
If you aren’t first, you should be different
Sometimes you can have a great product, but if you can’t sell why you are the better choice, it might still not go anywhere. If you made a new video platform like Zoom with all the same features, but better reliability, you would have trouble getting anywhere with it, because people wouldn’t want to risk a new software with such a half hearted upside. If instead, your version used a device to make a hologram so it felt like you were all in the room together, or you found a way to make calls completely and utterly secure, bot of those would find at least a small market, even if they were more expensive and less reliable.
Now, this doesn’t mean blowing off core features – a car that doesn’t move isn’t going to replace other cars, no matter how well it puts babies to sleep. This gets a little bit back to having your ladder against the wrong wall in a different way – if you made a car that isn’t a good car but helps babies sleep, maybe what you made is the prototype of a new crib and you just need to scale it down to fit in a nursery.
If you are similar to your competition, why would their customers go through the hassle of switching to you?
Without profit, is your business a charity?
Some of the big tech firms are notorious for not turning a profit as they worry about user base and sell their customers later. If that’s your business model, and you have a line on good funding, you might be able to ignore this part. For most businesses though, a solid way to make money is essential to still having a business next year.
Make sure you understand the cost of what you do. If you mow lawns, it might feel like your costs are only your time and your gas, because you already have the mower right? Except your mower blade is going to need sharpened, the oil and air filter changed, and every hour you spend mowing is another hour closer to the motor on your mower dying of old age. Even if your mower could run for 10,000 hours before it broke, that’s still less than 5 years using it full time. Most mowers last more like 1,000 hours, so you might need to buy a new mower once or twice a year. Just to finish guiding you, if you bought a $5000 mower you expect to last 1,000 hours, and need $20 of maintenance every 20 hrs, that’s an extra $6 of cost for every hour you spend mowing.
Your time is a cost. This is especially tough to hear for hobby businesses. If you sell soap bars that take an hour to make and $3 of supplies to make a $3.50 bar, you are actually losing money on every bar you sell. Not only could credit card processing eat up that 50 cents all on its own, you aren’t factoring in the time you spent making it, packaging it, coming up with your formula, designing your packaging, driving to the farmers market, getting change from the bank and taking your proceeds back to the bank. Plus buying your supplies, storing your supplies, and even all the time you spend thinking about your product. At the bare minimum, your time needs to be factored in at minimum wage. Even if this is your favorite thing in the world to do, and you are confident you could do it 80hrs/week for the rest of your life and be blissfully happy, you still need to be able to pay yourself at least minimum wage – if you can’t, it isn’t a business and it won’t last.
Now, it is also possible your business is a charity. That’s a business model too, and it isn’t designed to “profit” but you still need to produce enough value for people to see a reason to donate whatever you need to keep the business running. If you can’t consistently keep more money coming in than you spend, you are just a couple bad months (or a COVID) away from not having a business anymore.
Can you afford to get your idea off the ground?
Restaurants are notorious for failing in the first year because they are so expensive to start and tough enough to make money without that debt. You may have a fantastic idea, but you must have enough money to get it going. If you want to get into construction, you don’t just need a ton of tools, you also need to be able to front for the supplies while you wait for the customer checks to clear. Yes, in some industries like construction you can require the clients to pay you ahead of time, but they have to be confident you are going to do a great job, fast, or they will go with the long-standing company down the street that only asks for half up front. In service industries, there may be smaller costs to the business, but you still need enough marketing to get business coming in, and enough in savings to make up for your lost income until the business gets there.
This is why one great plan is to work on your business long before you launch. Instead of giving up your salary, invest it into nights and weekends where you work to build your business ahead of time, first with planning, then marketing, then even doing some of the work on the side before you make the jump. The important part to do this is the motivation to stick with it and keeping the pessimistic version in mind – you might think you only need 3 months to get up to replacement income, but what happens if you are wrong?
Do a Financial Pre-Mortem. Imagine it’s 6 or 9 months from now, your business ran out of money and you had to close up and go back to your old job. What do you think might have gone wrong in the scenario? Thinking through your business like this helps you spot the weak spots before they are problems, you probably even have a couple gut answers, like “Well, it’s probably because I don’t like talking to people and didn’t go to enough events” or “I really should have stayed at my job another quarter so I could start closer to the peak season”. There's a good chance you already know where the weak spots are, you just need to spend a few minutes in hard reflection, then evaluate the risk and decide if that concern is a reason to change any of your plans.
If you hate what you do, you will hate the boss, even if you are the boss.
I frequently see people online ask questions like “What’s a good business I can start for under $5k” If that is your only criteria, you could wind up in a world of depression, feeling trapped in a new business you hate but pays the bills. We all have constraints, but make sure whatever business you start is something you can get behind, and if not love, at least enjoy large chunks of the business. Also keep in mind how you think you will feel about it when it is all you do. There are plenty of people who ruined their favorite hobbies by trying to make them their only job. Fishing for fun is great, but having to catch another 50 fish to make your boat payment and using a net instead of the individual fight of a fish on the line is going to take a chunk of the fun out of it. Make sure the grind version of the business is something you’ll be ok with. Maybe you love knitting, but if you needed to knit 8-10 hours a day to pay the bills, could your hands handle it?
As your business grows, pay attention to what you hate, and do everything you can to get it out of your work load. Sometimes that means hiring someone to do those parts, sometimes it means turning down good paying jobs that you would hate doing, and sometimes it just means diversifying – maybe you can’t knit 8 hrs a day, but maybe you could use an automated embroidery machine to create something you embellish with a little knitting to split up what you work on each day. The only sure thing is that if you hate your job, even if it pays you a ton of money, you aren’t going to be happy.
When are you ready enough? Probably when someone wants to pay you.
Another major mistake businesses can make is trying to create the perfect product. It’s easy to get stuck in your dreams and not want to start until you have everything ready to launch the best widget anyone has ever seen, Here are the two biggest problems with that mentality – there will always be another feature, and someone else could be working on the same thing.
For most businesses, you should launch when you have a minimally viable product (MVP). That means it’s the smallest version that securely, stably, and effectively does the main thing you want it to do. Shipping as soon as you can lets you get feedback from real customers, find out what they value, and even helps give you motivation since now you aren’t building it for some hypothetical users, it is for YOUR users – the people who buy now and tell you how it is helping them already and what they wish it did. You should always launch when you can – you don’t need 10 different beauty products to launch a line – you need one good one, and you can build out from there. Don’t start a restaurant with a Cheescake Factory length menu, focus on core dishes, ideally with interchangeable or long lasting ingredients, and build out from there. It’s the same for every industry, trying to do too much and waiting until you have it just right is a recipe for running out of money or energy before you ever make a dollar.
If you don’t know what the one thing is, that’s also a problem. You shouldn’t set out to create a swiss army knife of whatever, you start out to create a great knife, or a great survival tool – when you have met that, you can start selling it, and you can always add features later. (Even the original swiss army knife only had 4 features) You also need to pick so you know where your priority is. Let’s say I ultimately want to create the ultimate all in one vehicle help kit – it’ll have something like a flare, reinflate tires, have tire goop for patching holes, a jumper pack, seatbelt cutter, window smasher, tire chains or traction mat, flashlight, and a toolkit. Well, the first problem I might run into is that my friend complains it’s too big to fit on his motorcycle. I also find out it’s really tough to get a long enough hose for a small air compressor to reach all 4 tires while it functions as a flare behind my car. Also, the air compressor makes the flashlight overheat and blows LEDs all the time. I could keep trying, but really, I need to start by focusing on picking ONE thing to do right. That could mean deciding it’s a tire kit first – it reinflates and has tire goop that you can add with the push of a button. Now I can come back later and build complementary tools and come up with a few ways to package them together later. Or maybe, what I really want is just a tidier way to access all the tools I already have, and I need to source each of those things and build the perfect case so I can quickly get what I need and not have all these things rolling around in the car. I might even realize my friend is right and the motorcycle community is my best target and focus on building the most compact tool kit or a container to hold other compact tools that’s just the right size and weight to fit in the bottom of their side bags. The important part is picking a place to start. You can always expand into other features, other devices, or a system to tie everything together later – knowing that’s the plan will help you build for it as you go, but you focus on the right now problem. (like maybe I use lithium batteries so it’ll be compact enough for the motorcycle kit I want to come out with in a year or two, or if I’m building a software I spend a little extra time on user login process so the same login will smoothly connect to other features later) (And that original Swiss Army knife? Its purpose was to give the soldiers one thing instead of 4 – a packaging solution)
The third problem waiting asks for is the ladder against the wrong wall problem again. If you wait to launch, you might find out the core of your software, which you pictured attorneys using, is actually a much better fit for the real-estate market, only now you have to rebuild half the features to make them work in that market. By launching when you have something good enough for someone to want, you can start seeing what your customers want and filling that need. The best feedback you can get as you build your product is from your customers.
Starting a business in an industry you don’t know is the easiest way to fail.
If you don’t already, learning your industry is your first priority. None of the rest of this matters if you don’t know your industry. Without that knowledge, even if you are brilliant, you’ll mess up in a thousand little ways until you fail completely. This doesn’t mean you can’t follow your passion, but learn the industry, then start a business. If you have never worked a day in food service, go pick up some shifts, watch Gordon Ramsey help restaurants, and read stories and tips until you know what you are getting yourself into and the fundamentals of the industry.
You need to understand margins for the industry (how much to price over your costs), how to source whatever you need, how to do the work in a professional way, and the terminology everyone uses so you can even communicate. Learn everything you can, even if you plan on being different from everyone else, you need to know what they do to figure out how to do it better. There is a quote by Pablo Picasso that actually applies to just about any business: “Learn the rules like a pro, so you can break them like an artist”
On top of all that, imagine what you would think if you found out the guy who built the software you are thinking about trusting to run your entire business had never built a single piece of software before. Or if the person who came to replace your roof let you know it was their first day doing this, but “don’t worry I’m naturally good at this sort of thing”.
Your market is your customer base: if you don’t know them, they won’t know you.
Knowing the industry keeps your from blowing the thing, knowing the market makes sure you get clients. The most obvious example is understanding what your customer or client is looking for when you pop into their life. A $100/plate restaurant will fail miserably at a traveling carnival, and a corndog stand isn’t going to do well in front of an Opera. That’s the most obvious, but there are a lot of little ways to get this wrong or push it to far.
If you are opening a business you need to understand a lot about the market. How many people are willing to pay what you are asking for? How many similar businesses are competing for their attention? Is there enough to go around? Are there essential partners or locations that could make the difference for you (think setting up shop on that $100/plate restaurant next to the Opera and offering a guaranteed finish time to Opera goers.)
If you don’t understand your market, you could be fine if you are lucky or pick something that almost always has room in the market (I’ve yet to see an urban Taco Bell struggle). But, if you don’t know the market, you are just as likely to make a decision that puts your business at a severe disadvantage before you even start.
I mentioned knowing how many people are willing to pay for your thing. You also need to make sure you understand those people. How does your thing fit into what they want or need, what problem are you solving and how will you make sure they know about you? Understanding your future clientele is one of the most important parts of understanding the market.
Whether you can help it or not, poor timing is an easy way to kill your business.
Sometimes poor timing can't be seen ahead of time, opening any in person event based business just before a pandemic is both impossible to see coming and devastating to your new business. In these situations, pivot as quickly as you can to doing something a little different, or if it makes sense, put your business back into idle entirely and do something else for a little while.
Other times, your timing can be improved. For instance, don't open an ice cream shop at the start of the cold season. Make sure you know your market well enough to know it isn't about to disappear (like screen repair if you think screens are about to be replaced by holograms)
There are lots of pitfalls lining the road to success. No one can see all of them coming, but trusted advisors and even just having someone to talk details with can help you avoid as many as you can and help improve the likelihood that your business succeeds.
Set up a call so we can talk about your business.