Clarion Communications

Being self-employed is the dream of many. But as one self-employed person quipped, “I used to work for a boss; now I work for a tyrant.” Or, as another put it, “When you’re self-employed, you’re the first one hired and the last one fired.” That’s true, but you may also be the last one to get paid. Undaunted, people launch themselves in various self-employment projects.

In recent years, the choice of self-employment has not been an option; it became an imperative as business after business has shed its workers for a variety of reasons. In the midst of the business down turn, self-employment has become the means many have found to keep themselves in luxuries such as bread, milk and
sugar.

But having found themselves on the self-employed route, many find the journey tougher going than they anticipated. For many, it results in early retirement from self-employment and a loss of confidence in this kind of business activity. The mistakes many make, however, are readily overcome with a little planning and
thought.

Here are some of the common mistakes made by startup businesses.

1. Lack of funds
At the end of the day, business needs money. However you look at a business, you soon find it does little else than consume funds. Business is, more than anything else, an expensive item. How expensive? It depends on the kind of business. But every business consumes capital at an alarming rate.

If nothing else, the business needs to provide a source of income for the business owner, not as profits to the owner but as a wage or salary to an employee.Nearly every small business I have been in (including my own in the early days) fails to pay the business owner a market wage. Not paying these kinds of expenses canhide the true cost of running a business. While owners may forgo income in the shortterm to get the business rolling, most business people do this because they don’t havethe funds. If they don’t have funds to pay appropriate wages to the workers(themselves), then they probably don’t have adequate funds for sales and marketingof the business. Or perhaps they don’t carry some of the insurances a business reallyneeds to protect it from disaster. The source of this problem is a lack of funds.

2. Too Much Debt

To solve the funding problem many business owners borrow to get the business going. But borrowing money can lead to some unexpected results. There is a principle that in order to manage big things, we first have to learn to manage small things. Property renters learn this quickly. If a prospective tenant can’t come up with the bond money, then he probably is a bad risk.

Borrowing sums of money when we not learnt to manage such sums can easily lead to disaster. One business I know exhibited this problem. The new owners obtained a $50,000 loan to start up the business, and spent a huge portion of it leasing prime office space and furnishing it to a very high standard. Rather than
apply the funds to marketing and sales, they spent it on appearances. They lasted about three months before they shut the door.

3. Poor Pricing
The way many businesses get started is by pricing themselves at the lower end of the market. This pricing strategy has nothing to do with pricing for results. It is just that the business owner really does not have the courage to ask the higher prices that established businesses are charging.

To his hurt, the under-priced business owner soon finds that his customers really don’t appreciate him or the fact that he’s so cheap. He finds that his customers soon drift off to do business with the higher priced people in town, leaving him to find a new customer to replace the one he has lost. What he fails to realise is that his customer has left him because the quality of the service that can be found elsewhere is superior, and at this prices he can never afford to compete with more expensive competitors.

It takes a year or so (sometimes a lot longer) of operating like this before the business owner decides he has little to lose if he puts up his prices. So he timidly asks the next customer to pay more, finds he gets no rejection on the basis of price, and finds now he can afford to offer a better quality service or product to the customer.

Since people do not buy on price but on value, the business owner is beginning to learn that his price is not as important as the value he brings to his customer.

Those businesses that don’t reach this stage die a slow and lingering death. Sometimes they last for years, often for no other reason than the business owner really can’t find a job elsewhere, so he keeps his little business going because it is better than nothing. He neither learns nor desires to learn the mechanics of business that would help him price his products competitively without being at the lower end of the market. Some people are just too proud to be successful.

4. Poor Sales and Marketing
At the end of the day, business is only produced when a sale has been made. Yet many attempt business without the skills of finding customers or making a sale. Somehow they believe that customers will walk in the door and all will be well.

Unfortunately, this is often a characteristic of religious folk who go into business for themselves. They believe God calls them to this business and that failure is impossible. What they forget is that while God may have called, He did not offer to help them bypass normal business practices. Just as Christian farmers must adopt good farming practice to be successful, so must service and manufacturing businesses adopt good business and management practices in order to succeed. If business were easy all of us would be millionaires. But even McDonalds continue to advertise their beef burgers and fries. And if established businesses such as these need to continually advertise their products, you can be certain that the startup business also needs a similar strategy.

Often the lack of marketing skills is tied with the lack of funds. Somehow business owners have to find a way to tell people the business exists and why they should do business with it. This might be done through radio, TV or newspaper advertising, telephone calls, direct mail, or personal calls. But however, it is done, it
will cost money – lots of it.

5. Poor Management and Leadership
The common mistakes listed above all fall under a general heading: poor management and leadership. This, above all determines the success of the business. And while it is not necessary to get every step in business right, you have do enough right things to make the business work properly. Startup businesses are driven by a vision of the business owner. Too often that vision cannot be articulated clearly and translated into economic results (profits) for the business. Unless that vision is translated in goals and activities in the business, failure looms higher on the horizon. Management practices are needed to bring the vision to fruition.

This means giving appropriate time to planning, implementing appropriate accounting systems that accurately reflect the status of the business, hiring staff that will share the owner’s vision, then getting down to work of locating clients and creating happy customers. The failure rate of small businesses is high because of the
kinds of mistakes listed above. But as I have written in my book Making Sense of Your Dollars: A Biblical Approach to Wealth, owning a business, or sharing in one, is the way that our economic wealth is created and expanded. By avoiding these common mistakes in startup business, you can considerably improve our chances of success.

Clarion Communications offers a range of services that teach business owners management principles, including our very own do-it-at-home (or at the office) study material. The first series of lessons on finance are now available. For further information, send an e-mail to sales@clarion-communications.com. We’ll show
you how to develop and maintain management practices that will give your business
every chance of success.