Top 10 Rookie Mistakes for Entrepreneurs
The following article was originally published in The New York Times.
Many people who start businesses have little or no experience and just jump in. The author has created the following list of the biggest rookie mistakes:
- Keeping your rent as low as possible. The key to business is to keep expenses low, right? Wrong. Sometimes it is worth paying more rent if it will generate more customers, if it gives a better image and inspires confidence, if it helps attract the right employees or if it makes it easier to deal with suppliers. In retail, this one mistake can determine success or failure.
- Hiring someone you know and trust. Competence is more important. While hiring friends and relatives can work, it severely limits the pool from which you choose, leaving out people who could be much more qualified. Friends and relatives can also carry baggage. They can also be very hard to manage, which leads to my ultimate advice: if you can’t fire ‘em, don’t hire ‘em.
- Buying used equipment to keep expenses down. This, too, works sometimes, but it is often shortsighted. For example, buying a used truck with 100,000 miles on it will guarantee that you will spend valuable time and money fixing the truck when it should be out taking care of customers. Can you really afford downtime with any machine?
- Keeping your prices “reasonable.” How about picking a price that will allow you to make money? Many entrepreneurs underprice their products or services in an attempt to attract business. They either have no understanding of their costs, or they are too busy to think about them. At some point, they have to hire an employee, and that low price will leave no profit after the employee is paid. It may even cause a loss. This starts a very bad chain reaction of cash flow problems, profit problems and stress. Perhaps the biggest mistake is thinking that these problems can be solved by attracting more business.
- Saving money on professional advice. There is nothing more expensive than a cheap lawyer or accountant. Good lawyers and accountants make good livings, just like anyone else who is good at a job. You don’t get what you don’t pay for — in this case professional, intelligent advice. And here is the worst part. Most lawyers and accountants are not qualified to be business consultants. For that matter, many business consultants are not qualified to be business consultants. Join a business group, talk to successful entrepreneurs, and get referrals from people who know what they are talking about. How do you know if they know what they are talking about? No one said this was going to be easy.
- Considering borrowed money a last resort. Maybe it should be, but maybe not. Sometimes it is better to borrow money to do things right than to just do them wrong. Borrowing money is not necessarily stupid, irresponsible, or reckless. But it could be. Knowing the difference is, well, the difference.
- Picking a bank that knows you and that you have a relationship with. Again, it can work. But it can also be naive. Some banks are known for lending to small businesses. Other banks are not. First, find a competent, experienced accountant. Then, ask him or her to assist you in finding a bank. Good accountants should know from their experiences with other clients which banks are in the game. Ask other entrepreneurs who they bank with. In Chicago, there are probably only 10 banks that are really interested in servicing small businesses (that means lending money). And here is the big tip. The people writing the ads for the banks are not the ones giving the loans. You might consider it false advertising. Yes, they do want your business account — they love the noninterest-bearing balances you deliver. But that doesn’t mean they want to lend you money. If you get in a bind, the difference between having the right bank and the wrong bank can be the difference between success and failure.
- Thinking you have your advertising figured out. It is very important to know whether your advertising is working — and good luck with that! You certainly need to try to figure out whether your advertising is working, but this can be very difficult. Why? Because even if you are trying to track your results, it’s easy to get bad information: Your advertising may be reinforcing the behavior of existing customers. People may tell you they were just driving by when in reality they were influenced by your radio ad. Many times even your customers don’t know what got them in the door. My advice: Accept that it’s impossible to know everything you’d like to know, but don’t stop trying.
- Treating your employees fairly. Well, yes, absolutely: do treat them fairly. But what is fair? Is it fair to fire someone after two months because you realize you made a hiring mistake? Or are you supposed to give it everything you’ve got, including four more painful months of hope and delusion, while your customers, your bank account, other employees and even the failing employee pay the price? I have probably hired close to 1,000 people over the last 34 years. I have never succeeded in saving, rehabilitating or dramatically changing the behavior of a bad hire. It might not be the employee’s fault; frequently it isn’t. It could just be the dreaded bad fit. It might even be the boss’s fault, but unless you are going to fire yourself, it is what it is. The rookie mistake is to let the situation go on too long. Often people who are not rookies — just bad managers — make the same mistake.
- Falling blindly in love with your product or service. Fall in love, certainly. But a wonderful product or service won’t make up for bad decisions and deficiencies in marketing, management or finance. Being a successful entrepreneur means being a competent entrepreneur, in addition to being the best baker, computer programmer, picture framer, hairstylist or whatever it is you are.