Posted by DebtKid :: August 26, 2008 @ 12:13 pmLike many new young entrepreneurs, three years ago I thought I was pretty hot stuff. I had a few employees, raised some angel money... and then proceeded to make huge mistake after huge mistake.
Of all my business blunders, these 7 are the ones that still make me gnash my teeth.
1) I Managed People like Michael Scott from “The Office”.
Many entrepreneurs are terrible bosses. Some of us simply cannot manage people well. We get stuck thinking that our “one great idea” will carry our business into "multi-millionairedom". While that may be the case on rare occasions, the majority of successful businesses are built by a smart, efficient and motivated group of employees, not just one person.
Growing a business beyond your own skills is vital if you ever wish to sell your company. You can only make so many sales calls in a day! If you want your business to hit the next level, you need other workers and you need to know how to lead and inspire them.
The good news is that this skill can be developed. If you've never had an employee before, try hiring a local college student on a part-time basis to get your feet wet.
Oh, and don't hide out in your office all day. It doesn't work.
2) I Hired My Friends.
Do not hire your friends. Especially in a start-up situation, you do not want to be your friend's employer. Having to lay off a friend of mine was one of the worst experiences I've had as an entrepreneur.
Also, you should almost never be the “boss” from 9-5 and “friend” again outside of work. It's too hard and really an inappropriate burden to put on yourself and your friend (no matter how many times they beg you to hire them!) I wouldn't even recommend going into business with a friend.
3) I Budgeted Like Britney Spears: Terribly.
You don't even have $100,000 in sales yet, so why did you just hire that fancy-pants PR firm? One critical mistake many new entrepreneurs make is thinking that just owning a business makes them a success. Wrong! Fail! Try Again!
An ergonomic chair that costs a thousand dollars does not make your business successful. That big office with a plasma TV and PS3 for your one employee does not make you a success.
Profits and positive cash flow are the marks of a truly successful business. Spending just to look successful or “big time” is what wanna-be entrepreneurs think is success.
4) I Leased A Fancy Office While My Large Basement Went Unused.
I thought I had to have a nice office for my business, even though we never had clients visit. It was a complete waste of cash, my most precious resource.
When you are first starting out, there is no better office than your basement or living room. Your parent's basement is even better: cheap rent, good food, and if you're lucky your Mom might still do your laundry.
Honestly though, for most software or web start-ups there is no need for an office in the early stages. The longer you can go without an office, the better. Investors love frugal founders, so if you plan on raising money for your business, stick to the home office as long as possible.
5) I Raised Money Before I Had Customers.
Raising money with just a “business plan” is not the best idea.
Do whatever you can to launch your business without raising money from outside investors. I don't care if you have to live on rice and beans for a year. Do it. A year down the line when you have a sick cash flow positive business that you own 100% of, you'll thank me.
If you do need to raise money, do so after you've already proven your business even if only on a very small scale. You'll get a much better valuation for your business as well as give investors more confidence in your business acumen.
6) I Mixed Business with Pleasure.
Have a separate checking account for your business. Never, ever, mix your business expenses with your personal life. It's a recipe for disaster.
7) I Assumed Everything Would Go According to Plan.
For the entrepreneur, realistic optimism can be good, but having optimism just to make things feel better can be deadly. If you are unable to see potential flaws or downfalls in your business, you must recognize and plan for them.
Bring in a partner or trusted mentor who can keep your optimism in check. I've seen too many entrepreneurs (myself included) get absolutely crushed when their business doesn't pan out the way they had hoped.
A few other mistakes I made:
- Not utilizing open source software. Don't pay a web designer to build your site from scratch. Have them install a content management system like WordPress and then have them design a custom theme. You'll save thousands.
- I “over-planned” my business. It's good to have a business plan, but it’s better to have a plan that you actually take action on and can then translate into actual results and sales.
Next week I'll share the top 7 things I did right as an entrepreneur. Make sure to subscribe so you don't miss it!
What mistakes have you made make you gnash your teeth?
19 Comments
Just-2-Much! I can relate to mistake #1 and 2. Glad to see I was smarter on the remaining 5 issues!!!
[...] Here’s a great list of highly regrettable mistakes made by a Angel-funded first time entrepreneur from LendingClub. Know them, love them, learn them. [...]
Hi DebtKid - Mrs Micah recommended this post to me. This is really great advice. I've made tons of business mistakes and even liquidated one business. Not all my mistakes were the same as yours - some were much worse.
But the good thing is you can learn from them and start again.
Hiring is really difficult to learn - especially when you've never done it before. I didn't hire friends but I was way too much of a pushover in the beginning. And I also believed that all agencies were reputable and would only send me good staff.
I read lots of stuff about people buying fancy equipment and getting huge premises to begin with. Some folk on the internet advise it - but as you say, if it's not going to make you money you don't need it.
[...] on the LendingClub blog listed 7 mistakes made when he/she was building out his/her startup. Check out the full blog post for all of the details and apparently later this week will come 7 things done [...]
[...] Ted who is the co-founder of two of my favorites sites ever, Dogster and Catster pointed the way to this article which enumerates the mistakes made as an [...]
DebtKid, that is a great article with lots of common sense - but not commonly followed - advice. Some smart reminders and good lessons learned.
Here's a related article on my blog that may be of interest:
'6 big mistakes that people make in business.' Notes from presentation by Keith Cunningham.
I'd be interested in hearing your perspective on these six.
excellent post. I am guitly of all except #1. I was just too nice.
I once read that having a killer PR agency is a must, it was not worth it in your experience or was just the wrong agency?
Great Post
#6 (separate bank account) is critical - it pisses off your partners and investors, it ruins your accounting, and worst of all, it opens you up to personal liability. It's a very bad mistake that is very easy to avoid.
[...] poured myself into what turned out to be a pretty nice post over at Lending Club about my 7 biggest business mistakes. I’ll probably write a follow up on the 7 things I’ve done right, next week. Come to [...]
@ Deckoff - Definitely agree about obsession with a product as a mistake. I think that's where listening to your customers can help you overcome that blindness.
@ Carlos - I think once you hit a certain point in your business (ie, big funding, new product launch), it's appropriate. My mistake was putting the cart before the horse. Or whatever that expression is. Basically, the point was don't waste money on services you don't need just to make yourself look or feel better about your business.
[...] all my business blunders, these 7 are the ones that still make me gnash my [...]
This is a must read for anyone who thinks that they are going to make it big big because they've got a great IDEA and everyone will just line up to throw money at them. This may have been a good strategy in 1999, but not anymore!
[...] Ted who is the co-founder of two of my favorites sites ever, Dogster and Catster pointed the way to this article which enumerates the mistakes made as an [...]
Seems like a common sense to me! But never thought of using wordpress for business...after all it is free. Thanks!
Ain't it all the truth?? I didn't make all the mistakes but many. Even if I knew them...probably still had to make 'em.
I made over 100.
http://blogs.jobdig.com/wwds/2007/12/10/a-complete-list-of-100-attributes-off-people-who-start-companieshow-you-can-be-one-of-americas-entrepreneurs/#comment-116067
Those were interesting mistakes. I think it's ok to commit mistakes, because from there you learn from it and will make you a better entrepreneur or what ever career you are in. It is still important to recognize them and and learn from those mistakes, even though you've done hundreds of them. This is life suppose to be - trial and error. At the same time, you enjoy it to the fullest!
Nice post, I can relate to most of these, especially thinking that owning a business makes you a success - LOL!
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