Entrepreneurs Often Squander Time, Money and Resources
Learning to Focus on One Thing is Critical to Success
By Mitchell York , About.com Guide
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How can you avoid the pitfalls that destroy most entrepreneurs? Rob Kelly, a San Francisco-based Internet veteran who has started, sold, bought and, by his own admission, even bankrupted a business, says there are five major mistakes entrepreneurs of failed businesses make. If you avoid these mistakes, he says, your chances of creating a winning business go way up.
1. Failed entrepreneurs believe that “if you build it, they will come”: Webvan is perhaps the most compelling example of a business that assumed tons of customers would flock to its service.
In reality, what happened (as reported in The Four Steps to the Epiphany by Steven Gary Blank) was:
They had close to 400 employees by the time they shipped their first product.
They spent $18 million to develop proprietary software and $40 million to set up their first automated warehouse (before they had shipped a single item).
One month after Webvan’s product shipped, they spent $1 billion on a warehouse deal with Bechtel.
While Webvan came out of the gates with customer orders most of us would dream of (2,000 orders a day), it had nowhere near the volume needed (8,000 per day) to sustain the substantial investments it had made. And so it failed.
Kelly says a good tip to avoiding the “if you build it, they will come” pitfall is to create a “minimum viable product” (MVP) before you invest too much time and resources. Simply put, the idea is to put no more features and expense into product development than are required to make it minimally acceptable enough to ship.
2. They spend too much time on business support and not enough on money-making: Entrepreneurs often waste valuable time on items related to supporting the business before they’ve figured out their money-making formula. Examples of wasteful business support items include:
Accounting – Selecting an accounting program to track their financials.
Design – Choosing a logo for business cards or a Web site.
Intellectual Property – Figuring out how what parts of your idea can get a copyright, trademark or patent.
While those can be important later on, you shouldn’t sweat supporting a business until you have a business capable of making money. Here are the key money-making topics Kelly says you should dig into before you work on supporting your business:
Lead generation – What are your sources for new customers?
Converting leads – How do you convert your leads into first-time customers?
Upselling – How do you sell additional products to your existing customers?
Nail those money-makers first before sweating what your new logo should look like.
3. They run out of money and time: Most entrepreneurs fail because they run out of money or resources. Even mighty Webvan (with billions of dollars available to it) fell victim to this. They run out of money because they did a poor job at one of these three parts of financial projections:
You were optimistic on your revenues.
You underestimated your expenses.
You mis-projected your balances.
The root cause of many missed financial projections is that the revenues take longer to bring in than expected; yet meanwhile the meter is running on such expenses as people and office space. “Figure out how to buy time,” Kelly advises. “With enough time anything is possible.”
Obtaining cash is one good way to buy time. And if you don’t have cash, make sure you minimize your cash outlays until your money-making is kicking in. A good entrepreneur substantially minimizes cash outlays until the business is off the ground, Kelly notes.
4. They lack strong execution: Entrepreneurs often fail because they execute poorly. This is not surprising since a common characteristic of entrepreneurs is that they are often more creative — which is in part why they come up with great ideas for businesses — than they are organized and detail-oriented. Kelly believes the key items for strong execution are:
Pick a vision/general direction for your business;
Set goals/priorities toward that vision;
Measure your progress on those goals/priorities in regular meetings in which you and your team are held accountable;
Refine your vision and goals on a regular basis;
If you are a solo-entrepreneur (with no real team), take advantage of experienced business-people or friends who can act as your accountability buddy on your progress.
5. They start too many things: Kelly says he knows an entrepreneur who has a full-time job (which he dreams of quitting) and has three Web sites running in his limited part time. He’s spreading himself too thin on the three web side-projects — one of them is showing promise (it dominates a niche market and generates $1,000 per month in revenue and growing). Kelly told him he should focus on that side-business and let the other two go.
Kelly says he knows another entrepreneur who is almost single-handedly running both a web application and a mobile application business.When he her pushed her on which business had the real potential, she admitted that the mobile app is what she has tremendous confidence in — yet she spends 80% of her time on the Web site.
Kelly advises: Constantly apply the 80/20 rule to your work by asking yourself, “What are the 20% of my projects that generate 80% of my value?” And then try to drop everything else and reinvest your time in the most valuable projects . Finally, don’t start something new unless you feel strongly that it is going to be generating 80% of your value some time soon.