Let’s start with a dose of reality. Most start-ups fail. Two recent articles, one by Forbes and one by Fortune, cited a 90% failure rate of start-ups. And top Harvard Business School lecturer, Shikhar Ghosh, confirms that 75% of U.S. venture-backed firms don’t even return investors’ capital.
Welcome to part one of a 3 part series on common mistakes business make. We are writing this to help all those out there who have started, or who are considering, their own businesses as a result of all the economic upheaval. We want to see you succeed!
When we first started out on our Barefoot Wine journey, we didn’t have a roadmap or a mentor to guide us. In fact, like many newly-minted entrepreneurs – especially those working in regular jobs who believe they have what it takes to succeed as an entrepreneur – we were both excited and scared to death at the same time. What would we tell friends and family if things didn’t work out?
In spite of the roller coaster of emotions we felt, we pushed forward and built a successful, global brand.
We made mistakes, ran into obstacles, and had to make a number of detours, pivots, and downright pirouettes until we finally realized entrepreneurial success.
We are successful entrepreneurs who walked the walk, and in this 3 part series, we are going to take you inside the real world of entrepreneurism where we’ll share some of our “on the ground” insights into three of the most popular misconceptions that can derail even the most determined entrepreneurs.
Although there’s lots of information on the internet about WHY entrepreneurs fail, much of it is cobbled together from theories.
Stuff like “8 Mistakes New Entrepreneurs Make,” or “Five Reasons for Entrepreneurial Failure,” or “The Most Important Qualities For Entrepreneurial Success.”
The problem? Very little of this information is based on the actual experience of the authors. And even less of it has to do with entrepreneurial thinking.
Thinking that having enough money is the key to
This is a very common misconception. “If I only had the money” we hear people say. Or worse, “We failed because our financing ran out.” The mistake here is that money cures all ills, or that, somehow, throwing money at a problem will automatically solve it.
“If I only had more money to spend on advertising, promotion, or development” is a common lament we hear. Another one is, “I’m going into business; therefore I need a factory, an office, equipment and a large staff.”
Where does this “money solves all” obsession come from? Look no further than the media.
The extremely popular television program Shark Tank offers up a steady stream of entrepreneurs pitching for money they feel certain is the only thing standing between them and huge success. (The Sharks know better and while the entrepreneur is busy pleading for financial support, the Sharks are looking for the true characteristics needed for success.)
Crowd funding is another relatively new phenomenon that pushes the notion that money solves all problems and paves the road to startup success. There’s an entire industry standing by to give new entrepreneurs money in exchange for a piece of the action.
So it’s not so hard to understand why entrepreneurs – especially those who are inexperienced (like the “crowd”) – believe money is all they need to succeed.
And, even though you may have a blockbuster business plan, having money can often result in disastrous consequences:
- You can run out of money before you have an income that will pay your bills. You spent it all getting ready, building inventory, or covering necessary (and often, unnecessary) administrative costs.
- You have to go back and ask for more money. That usually means giving up more ownership which, ultimately, leaves you working for your investors.
- You are less likely to be frugal, resourceful, and innovative because you don’t perceive the “need’ to be. This results in waste and poor oversight as to where and how the money is spent.
- You tend to blindly believe your advisors without road testing their advice. They get paid whether it works or not. You don’t.
- You get lazy. You’re not under the gun as long as your funds hold out. So you tend to proceed contently in non-profitable directions for far too long.
- You lose your credit when you run out of money and now you have to find more money or shut down.
- You expand too quickly and underestimate the hidden costs of sales which results in loss of reputation for dependability.
Money CAN provide you with an advantage, but as you just learned, it can work against you in so many ways. The sooner you learn to avoid this false, money-solves-all mistake, the better your chances of succeeding.
Next time in part 2 of this 3 part series, we will examine the 2nd biggest mistake new businesses make: Thinking the quality of, or demand for your product or service itself will make it a success.