10 Stupid Mistakes by the Newly Self-Employed
By Steve Pavlina
Having been a non-employee for about 14 years now, I've made my share of
stupid business mistakes. I've also coached a number of people to start
their own businesses, and I've seen many of them make similar mistakes.
This advice is geared towards small business owners, particularly people who
are just starting (or about to start) their own business.
1. Selling to the wrong people.
While sales are important to the survival of any business, you don't need to
push your business on everyone you meet, including friends and family.
Furthermore, it's a waste of time to try selling to people who simply don't
need what you're offering.
Selling to the wrong people includes trying to sell to everyone. Some
customers are much easier to sell to than others. For example, my wife does
web consulting for small businesses and she's learned that some clients are
much harder to work with than others. If a potential customer is broke and
obsessively worried about every nickel they spend, if they want a web site
but don't know why, or if they simply don't understand the Internet well
enough, they won't be a good client in the long run. Feel free to say no to
customers that are more trouble than they're worth. Let your competitors
sell to them instead. You'll save yourself many headaches, and you'll free
up more time to focus on serving the best customers.
Just because someone is interested in doing business with you doesn't mean
you should accept. In my first year in business, I probably said yes to at
least 50% of the people who approached me with a potential business
relationship. I wasted a lot of time pursuing deals that were too much of a
stretch to begin with. I accepted lunch invitations from random business
people who just wanted to "see if there's a way we could do something
together." Virtually none of them made me a dime. If you think a meeting
is pointless, it probably is. Don't network with random people just because
you think you're supposed to network. Today I accept such invitations less
than 1/10 as often. If an offer doesn't excite me right away, I usually
decline or ignore it. Most relationships simply aren't worth pursuing.
Learn to say no to the weak opportunities so you have the capacity to say
yes to the golden opportunities.
2. Spending too much money.
Until you have a steady cashflow coming in, don't spend your precious
start-up cash unless it's absolutely necessary. I started my computer games
business with about $20,000 cash (my own money), and it went fast; shortly
thereafter I was using debt to finance the business. Unfortunately, the
original business model didn't work, and it took five years before the
business was generating a positive cashflow. I soon learned that every
dollar invested in the business was another dollar that eventually had to be
recouped from sales.
In 2004 I started this personal development business with only $9 cash even
though I could have spent much more on it. No fancy logo, no snazzy web
design, no business cards or stationary. I paid to register the domain
name, and that was it. That's as much as I was willing to spend before I
started generating a positive cashflow. All other business expenditures
came out of that cashflow.
Your business should put cash into your pocket, so before you "invest" money
into it, be clear on how you're going to pull that cash back out again.
Obviously some businesses require lots of cash to start, but in the age of
the Internet business, you can very easily start a lucrative business for
pocket change.
3. Spending too little money.
It's also a mistake to be too stingy with your cash. Don't let frugality
get in the way of efficiency. Take advantage of skilled contractors who can
do certain tasks more efficiently than you can. Buy decent equipment when
it's clear you'll get your money's worth. You don't have to overspend on
fancy furniture, but get functional furniture that helps you be more
productive. Don't use an antiquated computer with outdated software that
slows you down if you can afford something better.
It takes time to develop the wisdom to know when you're being too tight or
too loose with your cash, so if you're just starting out, get a second
opinion. Often the very thought of getting a second opinion makes the
correct choice clear. If you can't justify the expenditure to someone you
respect, it's probably a mistake. On the other hand, there are situations
where it's hard to justify not spending the cash.
4. Putting on a fake front.
Many one-person businesses refer to themselves as "we." That's something a
lot of new entrepreneurs do, but it isn't necessary. There's nothing wrong
with a one-person business, especially today. My games business has mostly
been a we over the years, but my personal development business is still an
I. My wife's business is a we, since she has a staff working for her, but
her web consulting business is an I. It's perfectly OK to refer to your
business as an I when you're the only one working in it. Pretending that
you're a we when you're really an I is a bit silly. It's not going to gain
you any respect in a way that matters. Promoting yourself as an I may even
be an advantage today, since people will know the buck stops with you, and
if you make a promise, you're the one who will carry it out. Promises from
a we sometimes aren't worth very much.
If you're a newly self-employed person, don't pretend you're anything else.
Price your products and services fairly for your level of skills and
talents. Some newly self-employed people think they must become actors.
The business they promote to the world is pure fantasy. Trying to fool your
customers in this manner will only backfire. If you're so desperate for
business that you need to lie, you shouldn't be starting your own business.
If you can't provide real value and charge fairly for it, don't play the
game of business. Develop your skills a bit more first.
5. Assuming a signed contract will be honored.
I've made this mistake more than I care to admit. I've had signed contracts
with supposedly reputable corporations, and they weren't worth squat when
the CEO decided he wanted out of the deal, even for completely dishonorable
reasons. Sure I was in the right, but did I want to go to court to enforce
it? No, I'd rather continue doing meaningful work.
A signed contract is just a piece of paper. What's behind a signed contract
is a relationship. If the relationship goes sour, the contract won't save
you. The purpose of a contract is to clearly define everyone's roles and
commitments. But it's the relationship, not the paper, that ultimately
enforces those commitments. When I understood this, I focused more on
relationships and worried less about what was on paper, and my business
deals went much more smoothly. Once you start falling back on the paper,
the deal is already in trouble. Creative (and lucrative) business deals
almost always stray from the paper contracts that represent them. One of my
attorneys, who had worked on dozens of game development deals, told me that
no deal he worked on ever followed the contract exactly; most weren't even
close. And these were big money deals in many cases. Business
relationships are similar to other personal relationships - they twist and
turn all over the place.
Written contracts are still necessary, especially when dealing with larger
corporations where people come and go, but they're secondary to
relationships. Just don't make the mistake of assuming that the contract is
the deal. The contract is only the deal's shadow. The real deal is the
relationship. Keep your business relationships in good order, and you won't
have to worry so much about what's on paper.
It's sad but true that there are loads of scoundrels in business. Many of
them hold titles like CEO, President, and CFO. There are indeed people out
there who seem to care about nothing but money, and they will lie, cheat,
and steal to get it. In recent years some of the more despicable ones have
gotten themselves indicted (or are already behind bars). But there are
plenty of others to whom the word honor has no meaning. For example, in the
computer gaming industry, it isn't unusual for large publishers to feign
interest in certain games and string the developers along. They give the
developer every indication that a deal is pending, but all the developer
sees are delays and false verbal promises. In reality the publisher only
wants to keep the game off the market to keep it from competing with one of
their own titles; they hope to cause the developer to miss the next
Christmas season or to run out of cash and cancel the title altogether. It
happens. Business, especially the entertainment industry, is not for the
timid.
6. Going against your intuition.
Intuition is just as important in business as it is in other settings.
You'd be amazed at how many gigantic corporate deals are green-lighted or
red-lighted because of some CEO's gut feeling. While you might think that
logic is the language of business, that's far from reality. If you base all
your business deals on hard logic and ignore your intuition, most likely
you'll be in for a world of hurt.
We humans aren't very logical to begin with. We simply don't have enough
data to make truly logical decisions because business deals depend on human
beings, and we don't have a logical system for accurately predicting human
behavior. Not being able to predict how other humans will behave is a
pretty big gap in our logic. And intuition has to fill that gap. The real
performance of human beings is what makes or breaks business deals. But to
assume everyone will perform as expected is unrealistic in the extreme. No
deal ever goes perfectly.
It's hard to say no to a deal that seems juicy by the numbers when my gut is
saying, "You'll regret it," but more often than not, I later see evidence my
intuition was right all along. Sometimes I just get a bad read on someone,
and then years later, several people I know are complaining about being
ripped off by that person.
Intuition is a critical part of the decision-making process in business.
Since business deals depend on relationships, you need to get a read on the
other people involved in any deal you consider. If you get a bad read, walk
away. If you get a good read, proceed with caution.
7. Being too formal.
I'll say it again. Business is built on relationships. In some settings a
certain degree of formality is appropriate, but in most business situations
being too formal only gets in the way. Business relationships work best
when there's a decent human-to-human connection behind them.
I think it's a mistake to be too formal even when looking to establish new
business relationships. If someone mails me a letter that starts with "Dear
Mr. Pavlina" and then goes on to explain a long-winded business proposal,
I'll usually just trash it, especially if it uses the word "we" a lot.
Better to fire off an email with a "Hi Steve," and just ask me very
informally if I'm interested in the kind of arrangement you're seeking. It
saves time and opens the door to a real human relationship. Human beings
don't want to build relationships with faceless corporations. They only
want relationships with other human beings... sometimes animals too I
suppose.
Treat your business relationships like friendships (or potential
friendships). Formality puts up walls, and walls don't foster good business
relationships. No one is loyal to a wall... except the one in China.
Formality is boring and tedious. People want to enjoy their work. If
someone address me like a computer, I'll respond in kind - by hitting
delete. But if someone demonstrates they have a real personality and a good
sense of humor, a connection is far more likely.
8. Sacrificing your personality quirks.
In the early years of running my games business, I took myself too seriously
and assumed that I had to act "businesslike" ... whatever that meant. Being
self-employed was a weighty responsibility, and other people were counting
on me. Sink or swim, right?
I started my games business in my early 20s, and people in their early 20s
are invariably weird. But I assumed that as a business owner, being weird
wasn't appropriate or acceptable. So most of my business letters and emails
looked like they were written by the same people who created Microsoft's
EULAs. The job title of "President" really went to my head. I learned how
to function without a personality.
It took a number of years, but eventually I became comfortable just being
myself, especially after my games business became profitable. Now that I'm
a blogger, my personality quirks and unusual experiences are strengths. My
personal oddities give this blog a unique flavor. If I were to take myself
too seriously and write more formally, this blog would be very dull and
would likely lose much of its audience.
It's perfectly OK to be your own weird self and to inject your own unique
spirit into your business, especially if you're in your teens or 20s. Don't
be afraid to be more like Steve Jobs... and less like Steve Ballmer. Don't
pretend to be something you're not. Ultimately you'll enjoy your work much
more if you attract the kinds of customers and partners that want to work
with you for who you are - warts and all. Send the people who only want to
work with androids to your corporate competitors. They deserve each other.
:)
If other people can't handle your weirdness, too bad for them. Focus your
energy on the people who can.
9. Failing to focus on value creation.
It's easy to fall into the trap of thinking that the purpose of a business
is to make money. But the real purpose of a business is to create value.
While it's possible to make money in the short run without creating much
value, in the long run it's unsustainable. Even criminal organizations have
to create value for someone. When you know your business is just sucking
value away from others without providing anything in return, it will erode
your self-esteem, and the business won't be much fun to run.
Why does your business exist? It exists to provide some sort of value, both
for you and your customers. The better you understand what value you're
trying to provide, the better you'll be able to focus. The basic value
provided by my games business was cerebral entertainment. The basic value
provided by StevePavlina.com is personal growth. Too often business owners
aren't clear on what value they're trying to provide. They just sell stuff
and hope for the best. That's a lousy business model. The world doesn't
need more selling or more stuff. But it always needs and wants genuine
value creation, and that's where you should direct your efforts.
Presently this web site contains over 400 free articles. That's a lot of
value creation. Thousands of people visit each day to receive some of that
value. Helping people grow is the business' primary aim.
10. Failing to optimize.
Although value creation is essential to a sustainable business, it's equally
naive to assume you can simply focus on creating value, and the rest will
take care of itself. You may build a business that provides good value but
loses money. As a business owner, you need to find a way to deliver your
value in a cost effective manner. Most likely your first attempt will be
very suboptimal. You'll waste too much time, money, and resources trying to
produce and deliver your value. That's OK though. Many businesses start
out that way. Just don't let yours stay that way.
Once you have a particular business process in place, pull it apart and
re-optimize it from time to time. Look for ways to make it more efficient.
Can you get it done in less time? At less cost? Can you do it less
frequently? Can you outsource it? Can you dump the process altogether?
I used to process credit orders for my games business manually. I started
the business in 1994, and when I'd receive an order through the mail or via
my web site, I'd use some software to input and run the orders by modem. At
the end of each month, I'd manually tally the sales. That worked fine when
sales were low, but it became burdensome as more products were released and
sales increased. Several years ago I upgraded the process such that online
orders were fully automated, including instant delivery of the game
download. All orders are recorded in a database, and I can view real-time
reports to see how sales are doing for each product. It took some work to
set this up, but it was well worth it. That one optimization saved me a lot
of time and effort, and I don't have to pay high fees for a third-party
order processing service.
Don't fall into the trap of using archaic methods for doing routine tasks
that could be automated, including inventory management, billing,
accounting, order processing, communications, and marketing. If you find
yourself doing the same repetitive tasks month after month, make sure you
put some effort into optimizing them. Not optimizing is like throwing time
and money down the drain. It's often much easier to save time and money
than it is to create them.
An Internet business has abundant opportunities for optimization because
it's so easy to try new things and measure the results. In the first year
after launching this site, I experimented quite a bit with Google Adsense.
Many people don't like the ad layout on this site, but it's the most
effective layout I've tried so far. I use it because it works. Adding the
donations page was another optimization. Some people click ads, some people
donate, and some do both. So even though value creation is the primary aim
of the business, this is still a for-profit business and needs to generate
income in order to be sustainable. If I don't eat, I don't write. More
money means more resources for ongoing value creation. So value creation
and optimization go hand-in-hand.
It takes significant effort to build a successful business, but it's also a
tremendous growth experience. I know many people who have quit their jobs
to run their own businesses. Many of them didn't do as well as they'd
hoped, but I don't know any that regretted taking the plunge. There's
simply no substitue for holding the reins of your own destiny.
source:
www.stevepavlina.com/blog/2006/04/10-stupid-mistakes-made-by-the-newl
y-self-employed/