1. JUMPING IN TOO QUICKLY WITHOUT ALTERNATIVE SOURCES OF INCOME
I want you to pretend with me for a moment that you needed to support your family playing the violin. You have never played the violin before, but you need to play concert style compositions to make enough to support your lifestyle needs. And you must learn it in a short amount a time – at least in a month so you can cover next month’s bills. Does this sound like a Sisyphean task?
Of course it does! Yet this is what most would-be entrepreneurs do. They jump into a business very quickly without another source of income. Thus, they have burdened themselves with all the intricacies of learning the business - its customers, its competitors, the regulatory environment, the suppliers, the metrics, the opportunities, etc. – all while trying to deliver the products and services that make money. The worst part is that even if the business starts to cash flow immediately, the resources are drained and diverted into the personal accounts of the owner.
Most solo-preneurs jump in way too fast and count on their new venture as their only source of income. I’m not saying I haven’t seen it done, but statistics prove that new business startups fail more often than not. I believe that one of the primary factors is that the propagator of the venture relied solely upon this new ‘corpus’ to provide a personal revenue stream.
If you’re going to dive into working for yourself, make sure you have other sources of income apart from business operations. A part time job, retirement income, or other passive income that is not derived from business operations can make sure that you continue to eat and that your business has all the funding it needs.
2. NOT HAVING A CLEARLY DEFINED GOAL
Most entrepreneurs I talk to, speak of something called the entrepreneurial curse. To me, it has become synonymous with “I’m distracted”. I will consider every opportunity, and I will begin new business ventures, segments, and ideas without perfecting or even being profitable in the one I’m in.
New entrepreneurs are known for this. In my business, I ask simple questions of the principal: “How will you make your money today? What will your business be known for? What is the quickest path to the dollar? How do you do ‘x’ better than anyone else?” I tell them, especially in the early stages, that you need to be an innovator and not an inventor. Being an inventor early on can often cause you to run out of time and resources before you identify a market large enough that is willing to pay for your new invention. Find an existing need…. a big enough need….and find a way to deliver it better than anyone else.
If you’re the guy who has a great idea to broker scrap metals, while growing a trucking business, and a real passion for developing a janitorial company, which will feed the retail side of your new and improved ShamWow product…. you’re on the road to failure. The scattered approach that is synonymous with most start-up ventures is a sure-fire way to tax mental capacity, drain financial wells, and put your business on a road to nowhere that will ultimately end up in your brand fading into obscure oblivion.
3. NOT KNOWING THE NUMBERS
Pastor: “Good morning church. I would like to ask for your kind donations to the new building fund”
Parishioner: “Sounds great. How much do you need?”
Pastor: “I don’t know”
Parishioner: “How long will it take?”
Pastor: “I don’t know”
Parishioner: “How many more people will the new building seat”
Pastor: “I don’t know. But how much are you willing to give my dear friend?”
Parishioner: “I don’t know….”
This exchange is simply a silly illustration to spotlight the callow thinking of newly ordained business owners. Most of the new entrepreneurial flock I have encountered have no idea about their margins, what their break-even point is, their close ratios, their weekly prospecting targets, or any other relevant metric important to the business.
There are numbers everywhere in business. Numbers related to inventory, sales, profitability, debt servicing, cash flow…you name it. And a successful proprietor should be familiar with most them.
However, if you don’t have the time in the beginning to do an in-depth analysis, you should at minimum be familiar with:
- What does the business need to earn in revenues this year to keep the doors open. This will consider net earnings, so you will need to know cost of goods sold, tax rates, salaries, and other general and administrative expenses. Then, work backwards from there to develop a weekly revenue target.
- How many people do I need to talk to hit that revenue target. This will consider your close ratio which can be affected by your industry, the target demographic, the competitors in the market, and your skill-set, among other things.
- Based on the numbers above, when will I be able to hire an admin, buy more inventory, invest in marketing, etc.
- Monitor your sales and revenue numbers weekly, monthly, and quarterly. Identify trends. Make certain to keep good records so you can make correlations between your activities/behaviors and upward or downward trends.
I could continue with a laundry list of relevant metrics. But the point to take away is to be familiar with the numbers that drive your business and your industry. Proceeding without this information would be like endeavoring to construct a building without ever considering a single number.
4 GOING IT ALONE!
My business coach, Michael Burt, often says “you can’t see the picture if you’re inside the frame.” I couldn’t agree more. Most of the clients we sit down with in our consulting business are highly intelligent and highly creative. There are some that are successful millionaires. However, they all need the benefits of having an objective eye placed upon their business.
Most thriving and larger businesses have many objective eyes: leadership coaches, management consultants, CPAs, Attorneys, marketing agencies. The companies that leverage the knowledge and expertise of others are often the ones that have achieved or are achieving success.
Still, most solo-preneurs will never understand their own need for outside resources. And these resources don’t necessarily have to cost money to engage. They can be a former colleague, an interested spouse, someone you met at a networking event or on social media. Either way, it is very strategic to have a knowledgeable person consider your operations, your brand, and your focus, in order to help you avoid the wasted time and resources of the usual pitfalls.
Plus, having another person consult with you opens you up to their network and their common body of knowledge. Yet, XYZ LLC company will often see its owner trying to be accountant, marketer, HR specialist, IT support, and practitioner all at once. And that is usually never a successful proposition.
Thanks for reading,