Christopher Hytry Derrington

Christopher Hytry Derrington

Posted: November 18, 2010 02:17 PM

10 Most Common Startup Mistakes (PHOTOS)

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Starting and running a small business is hard, risky work. According to the SBA, approximately 550,000 new businesses were started in the United States in 2009. Within two years, 30 percent will have failed. Half will be gone within five years. Only one in three will survive to celebrate their 10 year anniversary.

In this Internet era, the speed of business is accelerating, the competition is global, and customers demand more than ever. As a result, business owners have a smaller margin for error.

During my career as a serial entrepreneur, I've made my share of stupid mistakes (and will probably continue to do so). In spite of the inevitability of screw-ups, I take the time to analyze each one and figure out what I should have done differently. The introspection is much more painful and not nearly as fun as celebrating a success. But the old cliché is true: I learn more from my failures than from my successes.

Check out some of the most egregious mistakes new -- and even some experienced -- business owners make, and leave your suggestions for other business mistakes I may have missed in the Comments section.

Ignoring That Cash Flow Is Blood
1 of 11
Too many times companies don't know or don't understand the importance of cash flow. Money is the grease that lubricates the components of your business. Keep your financials up to date and review the reports. Every Tuesday, the entire Team associated with the company's money flow should review the cash flow, the accounts receivable and the accounts payable reports. We use QuickBooks. It's worth the $200. Your time is too valuable to be using paper ledgers or spreadsheets to keep adequate records.

Additional Cash Flow Mistakes:

1. Confusing Sales with Cash Flow: Many companies have gone out of business by exhausting their resources to fill big sales orders only to find out that they have no cash to pay salaries, bills, and raw materials.

2. Spending Money before You Have It: Never count on investment money or accounts receivable before it arrives and clears the bank.

3. Not Keeping Enough Cash Reserves: There will be tough times when you will need to draw upon it. Build it or get a Line of Credit from a Bank.

4. Keeping all Eggs in One Basket: Servicing only one idea/client. What happens when you lose that client for whatever reason?

5. Buying a Building or Unnecessary Assets when You have Your Initial Success: Many, many businesses have failed when they hit the next tough times and significant cash is locked up in their building or airplanes or cars or boats.
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Starting and running a small business is hard, risky work. According to the SBA, approximately 550,000 new businesses were started in the United States in 2009. Within two years, 30 percent will have ...
Starting and running a small business is hard, risky work. According to the SBA, approximately 550,000 new businesses were started in the United States in 2009. Within two years, 30 percent will have ...
 
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SparkyAdams   4 minutes ago (10:52 PM)
How to Raise Startup Capital. Or Not?

http:// smartstart­up.typepad­.com/my_we­blog/2010/­11/how-to-­raise-star­tup-capita­l-or-not.h­tml
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angrymanspokane   5 hours ago (6:24 PM)
Done most of these and survived anyway. Dumb luck can play a big part in sucess
jturicik   10 hours ago (12:33 PM)
"Gone Fishing" is my favorite slide--(8). Having lived and worked side by side with someone who started their own business (and has been very successful), it takes a lot of hard work and dedication to succeed. Early mornings, and long days are the norm--but the results are well worth it. Make sure you love what you're doing going in, and you won't mind the hours.
I also think slide 10 is important--long hours don't guarantee success if your activity is not generating positive results for the business. Soliciting feedback from people you respect is crucial and helps you avoid the "not seeing the forest for the trees" syndrome.
Great info Chris.
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adrianrf   11 hours ago (12:03 PM)
I also disagree with #6, [not] Quitting your day job.

pleaseforce has it exactly right.
why should anyone else take a leap of faith by backing you or joining in to help when you yourself haven't exhibited that faith?

and sorry, you can't devote 80hrs(+) to your new venture (#3) while keeping a 40hr(+) "day job" — not for more than about a week, without jeopardizing your health *and* both jobs.

the rest of it is well-observed.
logicanada   11 hours ago (11:47 AM)
Cash flow is number one, but don't forget to promote and advertise on your peaks as well as your valleys.
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pleaseforce   12 hours ago (10:43 AM)
Very helpful tips. I have to disagree with one slide: no. 6. In my experience trying to keep your day job and start a new business won't work. Your success is tied to your confidence and commitment level. Keeping your day job is like saying to yourself: and if it doesn't work, I still have my job. That's not commitment. And the lack of confidence will show in your every move. You gotta go for it man!
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obelis kreative   09:48 PM on 11/18/2010
One key point is to try as much as possible to self-finance your venture, at least in the early stages, either through a day job, savings or family, or a combination of these.
It will be very easy to raise finance later on when your accounts show that your business has become self-supporting, without the help of any large bank loans.
Sundialsvc4   09:09 PM on 11/18/2010
If you ever _do_ start your own business, you will never again look at "conventional employment" the same way again.

And by the way ... I =don't= mean that in the way that you might think!

... nor do I mean it =that= way, either!

... nope, nor =that= way!

If you ever do start your own business, you will realize precisely why "the organization that you left behind" was built and was run in the way that it was. Why it more-or-less HAD TO BE run in the way that it was. And, why YOUR new company (gasp!) will ... have to be run in much the same way.

This perspective is one that's fairly impossible to explain. Those of you out there who run (or who have run) your own business, are nodding your heads vigorously. Those of you who have not (yet...) are staring at me as though I =must= be "the pointy-haired boss" from the comic-strip, "Dilbert."

Being "a successful entrepreneur" DOESN'T mean that "you become rich." :-O But it /does/ mean that, for the rest of your life, you will understand where a paycheck actually comes from. You will never again take it for granted. Even if you elect to go back into the world of full-time employment for "somebody else's company," you will never look at your boss(es) the same way again.

And =that= ... is "priceless."
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Stephen Cook   10:46 PM on 11/18/2010
So if I understand you correctly, any business I build will have to become bloated, inefficient, resistant to change, full of incompetent managers who made it to that position by virtue of time in rather than talent out because that's the way business is supposed to run?

The way business is done in this country is the reason why we're losing ground in virtually every sector there is. Our business schools are putting out students who can't read (or write, or even grasp basic critical thinking skills), who are studying all the same textbooks and all listening to the latest flavor-of-the-month business gurus with the same stale ideas which are just a re-written re-hash of what was popular two years ago.

There are tried and true methods for business that always work: embracing change rather than trying to avoid it; building a sales force that relies on relational sales rather than quick transactional sales where your client has more in common with someone in line at a McDonalds than someone who can help grow your business, and listening to the people who actually talk to the client base every day, rather than an accountant whose only contact with a client is endorsing and recording their check before deposit.

I think American business is sick, and if every entrepreneur tries to do it the way it was done by the first person they ever worked for, it'll never get healthy.
Sundialsvc4   16 hours ago (6:59 AM)
Scott Adams knew what he was doing when he designed "Dilbert." Everyone has a pointy-haired boss; no one thinks they are one.

Journalists know what they're doing, too. The dream of being a successful entrepreneur rates second only to the dream of being a freelance writer ... which is supposed to consist of padding around your house all day in your underwear and booties.

Yes, writers keep re-hashing the same books, because they keep selling. But you are selling "the dream of not-being where you are," not the dream of "successfully being somewhere else, successfully doing something else." There are always discontented people who think that their jobs suck, and most jobs do suck, even if they're a job of your own making. (Remember that.)

There are two ways to make a go of a business: (1) put a little money into a lot of things, taking a small profit from each one; or (2) put a lot of money into a few things, building up a "relationship" as you call it, in order to get a much bigger profit from each one. Option (1) is much less risky and easier to scale-up, which is why there is no salesman handing you a box of cereal, nor a station-attendant pumping your gas. "Loners" tend to pursue option (2) because, well, "there's only one of Me." But, if the gold isn't there, all you've got is a hole in the ground.
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Reno Fickler   08:20 PM on 11/18/2010
The most difficult rule to understand of self-employment is-
IT AIN'T YOUR MONEY.
Time and time again I have seen people begin to take in cash and not control spending. Pay your bills, taxes and put some in reserve before considering other outlays.
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Raccoon1   07:29 PM on 11/18/2010
Location, location, location.
yappnmutt   06:07 PM on 11/18/2010
the only thing i would add of significance is....it's just business. don't let an emotional attachment to anything or anyone impede your business. the point about hiring friends and family covers part of the issue but the idea extends to the entire business.
Sundialsvc4   09:37 PM on 11/18/2010
Well-said.

Another point I would add is this: "it might NOT work out." And, if it doesn't ... "withdraw gracefully, and withdraw quickly."

One reason why you might not want to involve "family and friends" is that ... well ... they might not really want to =work= for you to begin with ... and you might not want to =work= with them. They are, after all, your "family" and your "friends."

When you work for someone else's company, one thing that you tend to take for granted is that the place will still be open. When you start your own, you realize that this might well not be the case! But... do members of your "family" really want to sign-on to such a precarious(!) position? If your "friends" do... will they continue to be your friends? That "illusion of continuity" is something that an awful lot of people WANT TO take for granted... even if they continually grouse about it.
jorie   04:34 PM on 11/18/2010
how about not enough start up capital
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Christopher Hytry Derrington   05:40 PM on 11/18/2010
Hi Jorie,

Good comment. That would have been in my 11-15 ranking. I've found that adequate capital is a subjective number: highly dependent on capabilities of the entrepreneur(s) and the market/industry niche. Some great companies have been started with $25K and some failed after raising millions.
jorie   06:27 PM on 11/18/2010
My husband is a serial entrepeneur. he has come very close to making it huge, but overlooked this or that. One of his products is the biggest innovation in a particular sport industry in the last 10 yrs - unfortunately, he did not position himself properly within his own company and through raising capital and bringing on partners, he ended up with the short end of the stick. the partners gave part of the marketshare away to companies who figured ways around patents.

Anyways, we started another business that was based upon the holiday season. I won't get into specifics. We did not have nearly enough money to do it properly and broke even the first year without paying salaries to any of the partners. The next yr, the idea/concept was taken by a huge corporation and is now a very successful business. Had we had the money, I think we could have made the concept into something of our own. Now my husband has another very great idea for a new product that will again change a particular sports industy - this idea has been shown to some huge players in the market place and they think the idea is golden. This time, he is just selling the rights to use the product to a major company within that industry. They will do the design, manufacture, etc. They are to meet just before Christmas. I am keeping my fingers crossed . Starting your own business is such a learning

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