COMMON MISTAKES MADE BY EARLY-STAGE ENTREPRENEURS (AND TIPS FOR AVOIDING THEM) WRITTEN BY BRIAN B. DEFOE
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usinesses fail. In fact they fail at an alarming rate. By some estimates, nearly 80 percent of businesses fold within their first 18 months of operation. Certainly many of those business failures can be attributed to factors outside of the control of their founders. If you opened the doors of your distillery in New Orleans on August 1, 2005, there is a very good chance that your business never recovered from the arrival of Hurricane Katrina 28 days later. But the vast majority of business failures result not from violent cyclonic weather systems but from entrepreneurial errors, which can be distilled down to a few common missteps. And while simply avoiding those pitfalls won’t ensure that your business will thrive, you can nevertheless take comfort that you are giving your venture the best possible chance for success. So, let’s discuss some of the most common reasons for failure and what can be done about them.
FAILING TO DO YOUR HOMEWORK Would you buy a shiny new piece of expensive distilling equipment without studying its specifications? Would you bottle and offer for sale the distillate trickling from that gorgeous copper monstrosity without first tasting it? Of course you wouldn’t. And yet, this type of mistake is the root cause of a great deal of entrepreneurial suffering. I say “type” of mistake because a failure to do homework reveals itself in a number of ways, each of which is a symptom of the problem. Some common symptoms include:
NOT FULLY UNDERSTANDING YOUR BUSINESS’S COSTS If you don’t understand what it costs you to make the product, you can’t accurately determine how to price your product. And if you can’t determine how to price it you run the risk of losing money
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on every unit sold. Commonly, this symptom results in part from entrepreneurs not recognizing the costs of their own services. In that way, the entrepreneur’s good intentions (seeking to protect the business’s cash flow at startup) can result in the unintentional but still quite damaging consequence of pricing the product below a level that would provide adequate margins.
NOT FULLY UNDERSTANDING THE COMPETITIVE LANDSCAPE You might think that your business has no real competition. If you do, you are probably wrong. Few and far between are the situations where a business arrives on the scene without any competition. Even in the context of products that are truly revolutionary there is usually some form of competition in the early stages. Consider the automobile. When Karl Benz put the first internal combustion engine vehicle into production in 1888 there were no similar contraptions on the road — but there were horses. You need to have faith in your product to succeed, but if that faith blinds you to the existence of meaningful direct (or even indirect) competition, then you will fail to plan accordingly.
NOT GIVING HOUSEKEEPING ITEMS DUE ATTENTION There is nothing glamorous about running errands or taking out the trash. But if you fail to pick up the dry cleaning or manage the recycling your household will usually suffer. Similarly, there are myriad essential but truly pedestrian tasks that must be handled with due care on behalf of your business or else the business will suffer. In the context of a spirits business these chores obviously include regulatory compliance, but like all businesses the list of to-do items doesn’t end there. The entrepreneur must also be mindful of basic corporate maintenance, ensure that the business’s intellectual property is appropriately protected (and, perhaps even WWW.ART ISANSPI RI TMAG.CO M