The New York Times blog You’re The Boss recently ran an article, “The Top Ten Rookie Mistakes for Entrepreneurs,” that had some great tips. I typically like to bring in information from a number of sources, but I thought this particular article was worth sharing in detail. The top ten rookie mistakes are as follows:
1. Assuming the lower the rent, the better. Keeping costs as low as possible is not always the best way to run a successful business, especially when you have no reputation or good will to otherwise bank on. Sometimes the company’s image, or exposure to customers, is worth paying a little more for.
2. Hiring someone you know really well, instead of hiring someone competent. I think many new business owners make this mistake. Working with someone you know and trust can not only be helpful in the beginning, it can also be fun. The problem comes in when this person does not otherwise possess the skills for the job. In the long run, hiring a competent person that you will grow to trust and like is a far better investment than trying to figure out how to fire your best friend or your sister-in-law.
3. Buying all used equipment. Sometimes buying lower cost equipment can help on the start-up costs, but spending time and money repairing equipment or dealing with unexpected equipment failures can cost you customers and money down the road.
4. Underpricing services or products to attract new business. It can be tempting to underprice the competition or price your services at a level that will attract immediate new business. The problem with this cycle is that it ignores the continued costs required to keep the business afloat. Pricing things too low, and attracting customers who now demand prices that low, starts a bad cycle that is difficult to escape.
5. Cutting corners on professional advice. This is my personal favorite, in a very self-serving way. I do think good professional advice is incredibly important—it’s what I do. But beyond good legal services, it is also very important to have tax advice, financial advice, and business and marketing advice from competent professionals who can anticipate any issues and steer the early stage business in the right direction. Nothing kills a start-up faster than a copyright lawsuit, an employee work-related accident, or an IRS audit, if the entrepreneur doesn’t plan with the right advisors from the beginning. Entrepreneurs are often incredibly hands-on, and accustomed to doing everything themselves, but professional advisors play a very important role in ensuring the viability of the early part of the business.
6. Being so debt-adverse at the expense of doing things right. Sometimes borrowing money is necessary to put the right things in place. It can be a good thing to resist borrowing more money than the business can handle, but sometimes debt is necessary to get things moving. It sometimes takes money to make money.
7. Selecting a bank because of a long-term personal relationship. Sometimes using your personal bank for a business loan can be a great thing, and sometimes it is like hiring your best friend—it can be in place of competence. Some banks are more experienced than others at lending to small businesses. Ask other professional advisors, such as your accountant and your lawyer; they should be able to help select the right lender.
8. Assuming you can create and track the success of your advertising. This is another area that is important to leave to professionals. Advertising can be a substantial cost, and may not be necessary or a large component of your start-up, but if you are going to use advertising it is only helpful if you can track its success.
9. Treating employees fairly—so fairly that you suffer through a bad fit for months. Similar to the mistake described above, sometimes you hire people you like and trust and not necessarily the most competent and the right fit for your company. It is important to treat people fairly, but not so fairly that you let them flounder, and your company suffer, for months and months. Sometimes it was a bad hiring decision, a bad fit, and you should recognize that for what it is.
10. Falling blindly in love with your product or service. This is all too common of entrepreneurs. It is critical that you have a passion for whatever you are putting your heart and soul in to, this new company. However, not so in love that you ignore the hundreds of reasons this new company is a bad boyfriend. Sometimes the product or service is a bad boyfriend: it steals your money, takes all your time, is abusive, bad for your health, and will likely never be rehabilitated. If you are blindly in love, you won’t recognize the bad boyfriend until it is too late.