The Need To Succeed
People start businesses all the time and they start them for a huge variety of reasons. At this time of year, as resolutions and good intentions fade, there a a select group of hardy individuals who are still determined to change their lives this year. They are the people who have decide that this is the year they will start their own business. Right now they are planning and plotting. many of them are gathering resources and undertaking research to launch as the new financial year dawns in April. Others are about to dive right in. If I may be so bold I would like to take five minutes of your time to look at five traps that make new businesses fail, and offer some advice on how you can avoid them and succeed.Will you be working hard, will you be tired? Yes. But you won't be bankrupt. Click To Tweet
1.The Opportunity Trap
We have to be honest with ourselves, and that’s hard. So often people want something to be true and so they behave as if it is true. Disaster almost always ensues. When we start to consider starting a business the first question is always… Is this really a business? What I mean by this is looking at our planned business and assessing, honestly, if it can really make money. Ask yourself if there are enough customers who will want your product. Question your perceptions on production costs. Get other people to look at your figures and I don’t mean family or friends. This is the first trap, that can sink a business before it starts and we all need to be brutally honest about whether the figures add up. If you can’t make a profit that is big enough to support you then there is no business opportunity.
2. The Pricing Trap
No matter what your business may be it comes down to selling a product. You have to sell it, people have to buy it and there has to be a profit margin. Many new businesses fall into the trap of underpricing their product. They do this either because they are trying to attract customers who will stay with them and pay the full price later on, or because they undervalue themselves. Our products must be priced at the point where we can make the required amount of profit per unit sold and where we will sell enough units for the business to flourish. This harks back to the opportunity trap above. The opportunity may not exist because large competitors make impossible for a small business to enter a market. The pricing trap exists where a small business can enter a market but does so at the wrong price point.
3. The Communication Trap
This is the thing I write about all of the time. As business people we must effectively communicate with our potential and existing customers. We must be able to demonstrate the benefits of our products and service. we must also be able to adapt to the changing market and if we are not listening to customers we will not be able to do that. Communication works both ways.
4. The Optimism Trap
The aim of a business is to generate wealth for its owners. You may want to go into business to be able to do what you love, but if you can’t earn a living that won’t last long. We must be realistic and honest with ourselves when starting a business, as discussed above. We must also continue that as we grow our business. The difficulty is that as humans we are all subject to certain cognitive biases. One of the most difficult for any business is the determination humans have not to quit. We tell ourselves quitters never prosper. There is a cultural weight to the idea that if things get difficult you have to keep trying and persevere. This is true but we have to remember the thing at which we are trying to succeed.
There is no point in maintaining a failing business and ploughing all of our cash reserves in. The idea is to succeed at business. What that business is is almost insignificant. There is nothing wrong with halting your trading in a failing market and switching your direction. It’s ok to re-invent yourself and your business. If at first you don’t succeed, try, try again. It doesn’t say try the same thing again and again. If you can’t sell apples, sell oranges.
5.The Cash Trap
The single biggest killer of businesses is cashflow. Your business must bring in more than it pays out. Sounds simple doesn’t it. But the truth is that it is harder than it sounds for new businesses. There will be times when there is no money coming in but there is still a lot going out and you have to be ready. You have to have reserves and lines of credit, and those lines of credit must be used wisely otherwise they will end up as another debit against whatever you are earning. How do we avoid going under? The best advice I ever received about starting a business was this: Don’t Borrow, don’t give up your day job, do work hard.
To put it another way, a business start up with a lot of debt (highly geared) is much more likely to fail. If you have a day job don’t give it up right away. Keep it and the income stream it gives you and start your business in your none working time. Will you be working hard, will you be tired? Yes. But you won’t be bankrupt.
If you are about to start a new business I hope some of this has helped and I wish all of the luck in the world and more importantly I wish you the energy and good health to be able to work as hard as you’ll need to.