COMMON STARTUP MISTAKES TO AVOID
For most people, starting a business is an exciting time during which they are invigorated by the possibility of success and the fun of tackling new challenges. It is also a time to make lots of mistakes!
Many of the mistakes entrepreneurs make during the start-up phase can be avoided. One of the best ways to steer clear of foibles is to talk to established business owners about what they learned during the process. Ask your attorney or accountant for referrals to business owners who have relevant experience and attend trade association meetings and talk to people in the industry you are entering.
No matter how much research and preparation you do, you will make mistakes when you start a business, but the common errors listed here may help you avoid a few.
Common mistakes include:
Incorporating too quickly
The first step for many people when they launch a business is to file with the state office of incorporation. While incorporating is an appropriate step for many businesses, it pays to wait until your business idea is well formed before taking the plunge. The reason: the concept of your business and therefore the name is likely to change during the first few months of operation.
Not researching the market
A frequently overlooked component of business start up is determining whether the target market for your product or service will buy from you. The best way to derive the answer to this question is to ask them. Arrange to speak to as many of your potential customers as possible. Questions to ask include: Would you buy my product or service? Where do you currently obtain this product or service? How much would you be willing to pay for it? What do you like/dislike about your current provider? Where would you look for this product or service when you need it?
Wanting to over-use an attorney
Attorneys' hourly fees add up extremely quickly and newly-minted business owners are often shocked by their first few legal bills. The temptation when you start is to involve your attorney in all aspects of your business for counsel and drafting of documents. Many business owners quickly learn that it pays to do your own research, draft your own documents, and call on the expertise of your attorney to refine your work.
Spending too much money on office space and decorations
A nice office and great computer equipment make many entrepreneurs feel as though their dream of entrepreneurism is coming true. While one of the pleasures of launching a business is setting up an office that you are proud of, expensive trappings have put many businesses out of business before they got off the ground.
EFFECTIVE COMPETITIVE ANALYSIS
For your small business to succeed, you need to know almost as much about your competitors as you do about your own company and customers. Unfortunately, many small business owners make the mistake of waiting until a competitor has opened up shop across the street and is cutting into profits to find out who and what they're up against.
A competitive analysis allows you to identify your competitors and evaluate their respective strengths and weaknesses. By knowing the actions of your competitors, you will have a better understanding of what products or services you should offer; how you can market them effectively; and how you can position your business.
Competitive analysis is an ongoing process. You should always be gathering information about your competitors. Look at their Web sites. Read their product literature and brochures. Get your hands on their products. See how they present themselves at trade shows. Read about them in your industry's trade publications. Talk to your customers to see how they feel about competitive products or services.
Click on the steps below to learn more about how to analyze your competitors:
Step 1: Identify your competition
Step 2: Analyze strengths and weaknesses
Step 3: Look at opportunities and threats
Step 4: Determine your position.
Step 1: Identify your competition
Every business has competitors, and you need to take the time to discern who your customers can approach to get a product or service that fills the same need as yours does. Even if your product or service is truly innovative, you need to look at what else your customers would purchase to accomplish this task. For example, you may be opening a Website that offers online Bingo. Your competition would be other Bingo sites, other Web gaming sites, the Bingo hall down the street, and any other businesses that are competing for the same leisure-time dollars.
Begin by looking at your primary competitors. These are the market leaders, the companies who currently dominate your market. They are probably the ones who you find yourself bumping up against in your search for new customers. If you're a florist, it would be other florists in your neighborhood. If you're a computer consultant, it would be other consultants with the same specialty.
Next, look for your secondary and indirect competitors. These are the businesses who may not go head-to-head with you, but who are targeting the same general market. Sticking with the florist example, it might be a small local roses-only store, a national floral delivery service, or the flower/plant department of your local supermarket or discount store..
Finally, look at potential competitors. These are companies who might be moving into your market and who you need to prepare to compete against. For example, you might have an independent frozen yogurt stand; you will need to prepare to compete against national frozen yogurt franchises, even if they are not yet in your market.
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Step 2: Analyze strengths and weaknesses
After you've figured out who your competitors are, determine their strengths and find out what their vulnerabilities are. Why do customers buy from them. Is it price? value? service? convenience? reputation? Focus as much on "perceived" strengths and weaknesses as you do on actual ones. This is because customer perception may actually be more important than reality.
It's a good idea to do this strengths/weaknesses analysis in table form. Write down the names of each of your competitors. Then set up columns listing every important category for your line of business (price, value, service, location, reputation, expertise, convenience, personnel, advertising/marketing, or whatever else is appropriate to your type of company). Once you have this table set, rate your competitors, and be sure to put in comments as to why you've given them that rating. You might even want to put strengths in red and weaknesses in blue, so you can tell at a glance where each competitor stands.
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Step 3: Look at opportunities and threats
Strengths and weaknesses are often factors that are under a company's control. But when you're looking at your competition, you also need to examine how well prepared they are to deal with factors outside their control. These are called opportunities and threats.
Opportunities and threats fall into a wide range of categories. It might be technological developments, regulatory or legal action, economic factors, or even a possible new competitor. For example, a photo developing store needs to know how well its competitors are prepared to deal with the advent of digital photography. Or a company that sells over the Web should analyze how its competitors are prepared to deal with online security issues.
Again, an effective way to do this is to create a table listing your competitors and the outside factors that will impact your industry. You will then be able to tell how they can deal with opportunities and threats.
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Step 4. Determine your position
Once you figure out what your competitors' strengths and weaknesses are, you need to determine where to position your company vis a vis the competition. Some of this may be obvious from the results of your analysis, but it also pays to take a hard look at how your business operates.
One of the most effective ways to do this is to create a strengths/weaknesses opportunities/threats analysis of your business. Rank your company in the same categories that you ranked your competitors. This will give you an even clearer picture of where your business fits in the competitive environment. It will also help you determine what areas you need to improve, and what characteristics of your business you should take advantage of to gain more customers.
The bottom line: look for ways to leverage your strengths and take advantage of your competitors' weaknesses.
HOW TO COME UP WITH WINNING BUSINESS IDEAS
Developing a business idea is a matter of creating a vision, leveraging your strengths and determining what the market needs. These three steps should get you started.
Create a vision
Determine what you're good at and what you like to do
Figure out what the market needs
Create a vision
Close your eyes for a few minutes and conjure up a detailed image of what you want your life to look like in 5 years. Be as specific as possible.
Where do you live?
How do you spend your days?
What kind of work do you do?
Do you work alone or with other people?
Who are you surrounded by?
What do you do when you aren't working?
Don't limit yourself to these questions; create a vivid vision of yourself, touching on things that are important to you. These are all personal issues that will impact the type of business you pursue - being a city or country person; wanting to travel or sit at your computer; liking to meet people or work on the phone. This activity will help you create a foundation for choosing a business, making business decisions, and setting clear goals.
It is best to do this exercise with someone else and share your vision. If you can't, write it down to make your vision more concrete.
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Determine what you're good at and what you like to do
It's often useful to look inside yourself to figure out what you like and dislike, and where your talents lie. It's one thing to come up with a winning business idea. It's another to come up with one that fits your skill set and interests you. Your business has to keep you excited so you can thrive over the long haul.
One of the best ways to do this is to make three separate lists:
List 1: What you're good at
Everyone is good at something and many skills can be the foundation for a business. You might be naturally organized or have a knack for fixing things. You may be so used to your skills that they don't immediately come to mind, so assemble this list by observing yourself for a few weeks with an eye out for your aptitudes and by asking people who know you well for their impressions of what you excel at.
List 2: Skills you've acquired over the years
Whether or not you've worked in a conventional environment, you no doubt have accumulated many. Write down all the work responsibilities you've had; think about the varied tasks you know how to complete. Make sure this list is complete -- there should be at least 10 distinct items.
List 3: Things you like to do
List the things you enjoy doing. This may not be as easy as it sounds. This list should be at least 10 items long. Stretch beyond your hobbies and interests that spring to mind immediately. If you're stymied, ask people who have known you for a long time -- particularly people who knew you as a kid -- what they have seen you doing when you're happiest.
Keep these three lists in an accessible place (for instance on your desk) for several weeks, and every time an idea comes to you, jot it down in the proper category. Ask people who know you well for their input or to help you jog your memory.
SETTING GOALS FOR YOUR BUSINESS
Goal-setting is crucial to the success of any business, but is particularly important for entrepreneurs who can become distracted without focus. Goals direct actions, give you something to aim for, and can serve as a yardstick for measuring your business' success.
The way you approach goal-setting will determine whether you are able to attain your goals. Most people agree that goals are important, but less than five percent of people write down goals or have action plans for attaining them. Fear is most often the culprit. People don't like to write goals down on paper (a crucial part of goal setting) because they are afraid to commit to them. If this is your problem, try to remember that a goal can be changed at any time after you write it down. Also keep in mind that goal-setting becomes easier the more times you undertake it. When you have set goals and attained them, the power of goal setting will compel you to set more.
If you avoid goal-setting, the tips and hints below should help.
Have short-term and long-term goals
You might want to set weekly goals, quarterly goals, annual goals, and even 3-year or 5-year goals. One way to generate short-term goals is to first consider your long-term goals. Is there a certain dollar amount you want to earn or a number of clients you need to sign up by a certain time? If nothing like that comes to mind immediately, take a few minutes and think about what professional goal you would like to attain. Once you have determined long-term goals, you can work backward. If your goal is to make $100,000 this year, you should make a list of what it would entail to make that money. If you encounter difficulty creating your list, ask peers or friends for help. When your list is complete, break those small steps down into goals.
Make your goals specific and measurable with a deadline
"Increase my sales" is a good goal, but it's so vague that it does not provide a means by which you can judge your success. Modify your goals by making them specific. All goals should be specific (Get new clients), measurable (Get three new clients), and have a time frame (Get three new clients by November).
Don't set yourself up for failure
Make sure your goals are attainable. If you aim too high, you're dooming yourself to defeat.
Don't be lazy
On the other hand, some entrepreneurs set goals that are too easily attained. If you tend in this direction, look for ways to challenge yourself. If you usually aim to add one new client every quarter, push yourself to shoot for two or three.
Be relevant
Goals should help you attain a specific aim. Look out for goals that are just going to keep you busy, but are not appropriate to the overall success of your business. If you don't believe your goals are worthwhile, you won't make the necessary effort to achieve them.
Be patient and persistent
It your system of setting goals does not seem to be working because you are not attaining much of what you write down, do not give up. Keep setting goals for several months and you will find that your goal setting skills improve.
Review your goals constantly
Keep your weekly or other short-term goals in plain view -- by your desk, or next to your computer, for example -- so you know what you need to attain. Look at your annual goals monthly to see if you're on track. If your business' focus changes, don't be afraid to alter your goals. Flexibility is a crucial component of goal-setting.
