19 mistakes start-up entrepreneurs make that ruin businesses in the bud
Author: Your Mentor. Date of publication: February 04, 2021.
In this article, we'll cover the basics of doing business such as profit, customers, resources, and manufacturing. Consider the importance of human connections in the modern business world, linking a company with customers, employees, and suppliers.
Find out how the most innovative companies use multi-functional teams that include not only traditional business functions such as finance, marketing, accounting and manufacturing, but also designers and engineers. In addition, we will discuss the importance of data in the modern business world. After reading this material, you will learn what makes bad companies bad and good companies good, and how to make your company interesting, innovative and profitable.
Fundamentals of Modern Business
When we think of business, business culture, or business goals, we think of money, profit, power, or competition. Of course, these things are a direct part of the basics of doing business, but that shouldn't be the goal. The main goal of the business is to create useful things for our clients. This also includes meeting the needs of our employees and our business partners. But don't be fooled. Business, of course, is about making money, but you cannot make this money without customers, employees and business partners.
To be successful in business, you need to understand people. What do customers want? How do they want to get it? How can I get more results from my employees? You must understand the infrastructure: favorable location of buildings, accessibility of roads, internet, legal system. You must understand resources, materials, raw materials, energy. You need quality resources at a good price.
Now let's list the important directions in the non-material sphere. To be successful in business, you need to know what happened yesterday, what is happening now, and how you can use data, information and knowledge to make better decisions tomorrow. Finance, accounting, sales and marketing, supply chain management, human resources management, information technology - all these will help you understand the essence of money and the usefulness of working with people. Understanding money, people, information, resources and infrastructure, as well as knowing how to create a useful product or service, are the main foundations of doing business and will allow you to start running your own company.
Every business is created for profit, but most companies can operate for years without it. But how can a company incapable of making a profit stay in business? To try to answer this question, you must first understand the basics of profit.
Profit is the amount of money left after the company has paid all its bills. That is, revenue minus costs is equal to profit. It looks simple, but in reality it is not. This simple formula has many nuances. But we will not dwell on the theoretical part in great detail, but consider briefly two variables of our formula:
- Revenue (income) is the amount of money a company receives from its customers for its goods or services;
- Costs are the sum of all the company's production costs product or service creation.
Every company tries its best to tilt this balance towards revenue in order to make a profit. It could be:
- tough competition to increase sales;
- tight cost control, like cutting payroll costs or using lower quality materials, but this can alienate customers ;
- Expanding production space, opening a branch, increasing inventory or training employees.
Making money, being profitable is what a business does. These are important decisions that business leaders face on a daily basis.
This article is more suitable for beginner businessmen. We will tell you about the pitfalls that one hundred percent will meet on your way. Do not be afraid: forewarned is forearmed! So we warn you.
For convenience, we will divide all problems into six main groups. It will turn out like in the song from Muse - Map of the Problematique, or a map of all problems.
Problems with the state
Analysts and entrepreneurs themselves call the imperfection of Russian legislation one of the main problems. Businessmen are dissatisfied with the complex bureaucratic system (a lot of time is spent on paperwork and communication with officials), the taxation system (inflated taxes), regulatory authorities (endless inspections of the SES, fire service, etc.) and the high level of corruption (if you want to keep the business, pay) ... If we recall the dashing nineties, when a simple businessman could run over and take away a business at any time, now for entrepreneurs it is simply heaven on earth. Nevertheless, the legislative system is really imperfect. Not everyone is able to overcome administrative barriers. And fighting corruption at different levels seems like a completely insoluble task. Therefore, some entrepreneurs are trying to bend the system: they avoid taxes, do not comply with the requirements of the law. We recently wrote about the law on online cash registers. In fact, almost everyone should switch to a new type of cash register equipment. But is it really so? Why is this happening? Probably, many statesmen and officials are somewhat out of touch with reality and do not represent the true needs of small and medium-sized businesses. Or maybe they don't want to understand. But let's not build theories of a universal conspiracy - we'd better think about how to solve this problem. No way. Do not try to change what you cannot change. Fighting the state machine is like fighting a multi-headed hydra, you will still be a loser. It is enough just to strictly observe all the rules and laws, especially since it is quite realistic.
Loans for business development, unprofitableness, low margins and profit are all a headache for any business. Every entrepreneur knows: even if everything is fine today, clients go jamb and you easily waste money, tomorrow everything can change. It's business, baby! But risk is a risk, and credit hunger is, alas, a harsh Russian reality. According to research by rbc. u, limited access to financial resources is the main problem of modern businessmen. High interest rates on loans, the difficulty of obtaining loans for a long time, the impossibility of a delay discourage many from doing business. Taking out a loan is not a problem - we wrote about it in the article “How to get a loan for business development” To do this, you must be solvent, provide a good credit history, own property in case of collateral, be sure to draw up a business plan and bring guarantors. Banks can be understood: you take out a loan and go bankrupt, but what should they do? Indeed, according to statistics, almost half of young companies go out in the first year. All this is good, of course, but what if you are a beginner start-up, do not even have the initial capital, live in a rented apartment and carry a brilliant idea in your head that could make you a billionaire? What to do? There are two ways. The first is to enter into concessional lending programs provided by the state. The following benefits are available: interest rate compensation or finance lease advance payments. You can also contact the state guarantee fund, which can act as your guarantor. Another good option is to join a trade union of entrepreneurs. The second way is to independently look for an investor who will invest in the creation and promotion of your product. In this case, success depends only on you - how you agree. Of course, no one will bring you money on a silver platter - be prepared for the fact that the investor, like the bank's representative, needs to be assured of the profitability of your project. To do this, he needs to provide a business plan with all the calculations.
That which fills a businessman every day. The computer broke down, the client broke the shop window, the logistics failed - the goods did not arrive on time. As a result - repairs, endless negotiations, new worries, new financial investments ... The ordinary life of the company consists of these little things. How to decide? As they enter, like everyone else. Establish working business processes to the maximum - so that the activity goes like clockwork, without sagging or skidding anywhere. Business processes are internal and external, as well as main and additional. In short, this is any systemic constant activity aimed at obtaining a result. For example, sales - from the very first call to a customer to crediting the purchase amount to the company's account - is a business process. So does technical support. PR company, product promotion - too. If in the middle of any process there is a failure (the manager forgot to call the client and the deal fell through, they did not pay for the Internet and the company was left without communication, the target audience was chosen incorrectly, and the advertising budget was wasted) - this will affect the entire work of the company as a whole.
Problems with competitors
So, you have successfully passed all bureaucratic barriers, found money, registered the form of ownership and started working. And here His Majesty the Human Factor comes into play and brings a lot of problems. Perhaps the main one is competitors. In general, healthy competition is a good thing, both in human relations and in business. Trying to catch up and overtake the rival, manufacturers in every possible way attract buyers to their side: they reduce prices, hold promotions, improve products and quality of service. In developed countries, competition mechanisms have long been debugged. We, for example, are still dominated by monopolists. How can you open a small grocery store with farm products if there is “Dixie” in the next house and “Magnet” across the street? How to open a craft beer bar if customers run to Red and White or Aromatny World ?. And what to do about it?
- Create a qualitatively new product in your field, in your city. Then you will become a monopolist and collect all the cream from buyers. Now you will have imitators, they will already compete with you. Be careful: many entrepreneurs relax at this stage and underestimate their competitors. And they, using modern marketing technologies, pull out the palm.
- Take at low prices, regularly arrange promotions, discounts, give gifts. However, competing with large monsters in this regard is pointless: they will always have lower prices and more assortment, simply because they are larger and more powerful. And I don't want to work at a loss, reducing prices to the baseboard. Conclusion: this method works under equal conditions of competition.
- Increase customer loyalty. If you manage to tame your customers, they themselves will not go to competitors. It is quite possible to do this: it is enough to constantly communicate with your target audience. arrange polls, communicate in person or on the Internet. The easiest way is to ask directly what you would like to see in our store and what would you like to fix. And just do as people ask. Everyone!
Entrepreneurship has its own rules. They are built on the mistakes of businessmen, which led to the extremely difficult situation of the enterprise, or even worse - to bankruptcy. Therefore, it can be said without exaggeration that behind every rule of doing business there is someone's destroyed enterprise. Entrepreneurship is an area where you need to learn from the mistakes of others. Of course, everyone accepts them: beginners and seasoned entrepreneurs. But especially for a novice entrepreneur, mistakes in business are important to notice and eliminate in time. Therefore, we bring to your attention 19 shortcomings that are often made when starting a business.
Error Incorrect goal setting
Aspiring entrepreneurs come to the realization in different ways that they need to start their own business. Perhaps the most important mistake of a novice businessman is the incorrectly chosen goal of creating an enterprise. You can give a list of the most frequent answers to the question "Why do you need your own business", but each of them is somewhat of a failure. When setting a goal, it is important to understand that to achieve everything and not succeed right away, you will have to sacrifice something. So, in order not to repeat the mistakes of aspiring entrepreneurs, ask yourself the question - why do you need all this, and try to find an answer taking into account the features below for each of the possible goals.
I want to make money
In practice, it is much easier to lose your finances with the help of entrepreneurial activity than to make money. This is a widely advertised image in the media: a successful businessman who, having nothing but a great idea for a startup, has risen to unprecedented heights. There are many more entrepreneurs who did not cope with organizing their own business and turned out to be ruined. It's just that, usually, no one writes or talks about them.
Therefore, be prepared for the fact that even if you find yourself in the galaxy of successful businessmen, before that you will need to find investments, reach at least "operational zero", then distribute the received investment investments, distribute debts, reinvest your growing business, and only after all this it will be possible to add something to your pocket.
I want to be a free person
In fact, you will become a slave to your own business for the next few years. To be successful, aspiring entrepreneurs have to work extremely hard, seven days a week. Your employees are free to get up and leave at any time, and shareholders are free to take their share. Only the business owner will have to pull out his business in any case.
I want to get respect
You will most likely achieve this, but from outsiders. At first, you will hardly be able to spend a lot of time with relatives and friends.
I want to realize myself, I want to grow and develop
You can also learn and realize yourself while working in a corporation. In business, however, you will have to do it quickly, on your own and "on your own bumps." And the price of all this can be health, family, missed youth opportunities.
I want to become a business owner
The most important question for aspiring entrepreneurs is how not to miscalculate with an idea for a business and not close, barely starting. It is clear that the field of entrepreneurship is a risky business and there is no 100% guarantee against failure. But you can still try to minimize the risks, for example, with the help of a business plan. How to do it? We are dealing with it together with Belarusbank and the Innovation Consulting company.
What does a business plan do?
Who needs a business plan and when?
- Yes, not everyone needs a business plan in its classical sense, and not always, - explains Alexander Shust, director of Innovative Consulting. - Who exactly needs a business plan? As a rule, for those who raise money for business - a bank loan, investments or budget funds (from subsidies from the employment center to funds of the innovation fund, and so on). They also make a business plan "for themselves": enterprises in order to plan further work for 1-5 years, and aspiring entrepreneurs in order to understand whether a business will be profitable in a particular area.
Novice entrepreneurs Alexander advises to try to sort out a business idea on their own by answering three main questions.
First question How much money do you need and what is it for?
- It happens that people come and want to do some kind of business, but how much money they need, what and for what time they plan to invest it, they have little idea, - the expert says. - Here's an example, a friend called, he wants to build greenhouses and grow greens on his subsidiary farm. At the same time, he has no idea on the basis of what technology he will do it, how many greenhouses he plans to build, what equipment he will need, how long the project will be implemented, etc. This is the biggest problem. Almost everything depends on the assessment of the volume and types of investment costs. Here people are sometimes mistaken not by percentages, but by orders. It's like with a renovation, when you count on one amount, and as a result, your renovation costs like half an apartment.
Second question What and how much will we earn?
The answers to these questions are called "Production and sales program in kind and in monetary terms." It is important to clearly understand what, in what volume and at what price you will produce or buy and sell.
- For example, a person wants to open a tire service. It would seem that there is nothing complicated, - says the expert. - But you go to the tire service, see the price list. There are on average 20 positions. And at the initial stage you should understand that you, for example, will have 15 positions of services, of which 3 or 4 are gross-generating, which will bring about 70-80% of the proceeds. You estimate that you will have 100 clients a month with an average check of 40 rubles. At the same time, you should perfectly understand how the situation will change if there are not 100, but 70 clients, and the average check is not 40, but 30 rubles. And this business has a pronounced seasonality. You must understand what you will do out of season, how you will recruit staff, and so on. Most novice businessmen cannot (or sometimes do not bother about this, considering this issue unimportant) to do sufficient detail, they cannot build its logic. This is problem number two.
Third question How will we work and what costs will we have?