It’s been a tough year for small businesses, which lends even more import to this year’s Small Business Week (May 2-8). Business owners everywhere deserve a pat on the back – but don’t rest on those laurels too long! Here, The Hartford’s Gene Marks gives a refreshing take on the classic list article by naming 20 things not to do as a smart entrepreneur.
It’s important to gather as many small business tips as you can, but you know what? After running a business for more than two decades, I’ve learned a few things NOT to do, most of which are common small business mistakes.
Common Small Business Mistakes
Our list of common small business mistakes ranges from things as simple as not doing things you’re not good at to not mistreating suppliers and not letting customers mistreat YOU. Here are twenty common business mistakes with the top 10 mistakes new business owners make listed first.
Top 10 Mistakes New Business Owners Make
1. Don’t do things you’re not good at.
You know your business, but you’re not an expert at everything. So, stop doing things that you don’t do very well and instead focus just on the things that you do best. Doing things you don’t do well is one of the most common small business mistakes because it’s so easy to try to do everything yourself. But really, it’s beneficial to hire experts to help you. This can mean hiring someone to do your payroll, file your taxes, send out emails, fix your trucks, key in orders, or arrange for travel. If you’re doing stuff like this, you’re probably wasting your time. Yeah, I know there’s a cost to hire someone. But it costs you more in time and lost opportunities to do everything yourself. For more business management tips, check out other helpful articles.
2. Don’t blame others.
That’s your name on your tax return, your name on the articles of incorporation, and your name on the front door. It’s your business. You get all the riches and glory. But you also get all the headaches. That’s because every problem—every issue, every challenge, every mistake, everything that goes wrong—is ultimately your fault. You hired the people. You bought the tools. You sold to the customers. You chose the priorities. This is your show and if anything happens, it’s your responsibility. This is just one of the common small business mistakes entrepreneurs can easily make early on.
3. Don’t ignore the math.
Quick: you’re selling something for $125, so what’s your margin? How many of these things do you have to sell in a month to break even? How often does your inventory turn? What happens to your debt maintenance if interest rates go up a point? What would be the impact of a 5% rise in your supplier’s costs? What percentage of your sales is overhead? What percentage of your labor represents health and retirement benefits? These are the things that my most successful clients know off the top of their heads. They’re boring, mathematical, numerical facts that drive the success (or failure) of every business and not knowing your profit margin is one of the top 10 mistakes new business owners make. Not interested? Then hire someone who is or go work for someone who is.
4. Don’t take your employees for granted.
Your employees have lives. Really, they do. They have children. They have car troubles and sick parents and dental appointments. Believe it or not, they would rather be at home with their families than working in your office. But, when they’re in your office, they’re doing something important: making you money. Don’t take this—or them—for granted. Offer competitive compensation, good benefits, and, most importantly, an ear for when they want to vent about a professional or even a personal issue. They are, after all, people—and they all want to do the best job they can. Your job is to give them the best environment to accomplish this.
5. Don’t mistreat your suppliers.
I hate it when people tell me to delay paying suppliers in order to help my cash flow. How would I feel when this happens in reverse from my customers? I can answer that because it does happen. I resent it and I give those slower-paying customers less attention than the ones who pay on time. Don’t monkey around with your suppliers. Treat them well. Pay them early. Take discounts if they offer them. But behave as a partner would, because you may need that key supplier in a pinch and, if you’ve got a good relationship, that person will come through.
6. Don’t get mistreated by your customers.
Some customers aren’t great customers. They treat your people poorly. They complain unreasonably. They pay late and haggle too much. Your goal—elusive as it is—is to do business with people that you enjoy doing business with. You should never fire a customer because let’s face it: We all need customers. But you can price those customers that you’d like to see go away a little differently. If they want to behave that way, then they should pay more—that’s your compensation for putting up with their nonsense. Otherwise, let it be their decision to leave you, not yours.
7. Don’t ignore your customers.
You work hard to get your customers. So, don’t ignore them. Ask any first-year business school student and they’ll tell you that their professor told them that it’s much, much more expensive to acquire new customers than it is to grow your revenues with existing ones. And you know what? They’re right. Are you staying in close touch with people who have bought from you in the past? Are you making suggestions or offering them additional products and services that can improve their lives or businesses? Are you showing enough gratefulness with special discounts or incentives for loyal customers? Focus on your existing customers first and, believe me, the new ones will come.
8. Don’t forget to pay your taxes.
You hate it. So do I. But it’s a fact of life: taxes are due every quarter. Just because they’re “estimated,” and the IRS isn’t sending you an invoice, doesn’t mean that you’re not required to pay them. You are. When your accountant tells you to pay, then pay. Meet with your accountant a few times a year and maybe you can adjust those estimates, depending on how your business is doing. But do not ignore your tax liabilities—they will quickly grow and could potentially bury you. I’ve seen it happen. It’s not pretty.
9. Don’t give up equity.
OK, maybe someday you want to go public, or your exit plan involves selling your business for zillions to some big tech company. To do that, you need to bring in investors, venture capitalists, partners, and high-priced employees – then equity would be an important part of doing business with those people. But most of us don’t have these dreams. We want to grow our companies, earn a nice living, build some value, and then one day either pass the company on to another generation or to a buyer. Try not to give up ownership in your company too early or for too little. The more equity you control, the more of your life you will control.
10. Don’t invest in too much technology.
One of the common mistakes entrepreneurs make is investing too much in technology. If the tech giants had it their way, you’d not only be upgrading their software every month, but you’d also be buying every new gadget that comes on the market as soon as it comes on the market. Don’t do this. My smartest clients use technology effectively and treat purchases like the purchase of any other capital investment: with return on investment in mind. Just because a piece of tech is cool, or fun, doesn’t mean it’s going to benefit your business. Measure the cost of it over a five-year period of time with the benefits it will produce more business, better productivity, and lower costs. If you can get yourself a good return on your money, then buy that tech. Otherwise, invest somewhere else.
10 More Common Small Business Mistakes
11. Don’t think that the good (or the bad) times will last forever.
Like many small businesses, if you’re in a cyclical industry such as construction, retail, or transportation, then know this: Things are never as good as they seem and things are never as bad as they seem. Everything evens out over the long term. It’s important to remember this because too many business owners I know have suffered—even gone out of business—because they overspent during heady times and left themselves without reserves or capital when things inevitably turned south. Sock your money away into savings and use it to keep the lights on and key staff employed for when the economy or your industry slows down. Don’t take on too much debt and don’t over-expand just because the past few months have been strong. Trust me, whether it’s good news or bad news, it’s not going to last forever.
12. Don’t always play it safe.
You’re in business, and half the fun of being in business is that you can make some bets. Some people like going to Vegas. I like the excitement of a new marketing campaign, a new hire, a new capital investment, or a partnership. Some statisticians believe that the best football coaches go for it on 4th down more often than others—it’s because the data favors that move. Never bet the farm on anything. Always be prepared to lose what you bet. But make some bets now and again. Take a few chances. That’s how you’ll grow. And most assuredly, that will be how you learn.
13. Don’t put all your eggs in one basket.
Business owners—and I’m one of them—can easily get in trouble when you’re relying too much on one thing. In fact, putting all your eggs in one basket is one of the most common small business mistakes. Accounting rules require firms to disclose in their financial statements when any one customer accounts for more than 10% of their sales. That makes sense, because the loss of that one customer could be a significant event for the company. The same goes for the loss of that one important employee—it happened to me. Or the one machine you have that’s doing all the production. Ask those farmers in Idaho who relied on just China to buy their soybeans how things have been going for them lately. Not too good. Diversify. Spread the risk. Have a backup plan. Always consider alternatives. Relying too much on one thing for your livelihood could set a bad precedent.
14. Don’t worry about your competition.
Your competition? You’re better than they are! And yes, business owners worry about competition but really, it’s one of the most common mistakes entrepreneurs make. Sometimes I meet a business owner who’s obsessed with keeping up with the Joneses. That’s just silly. Of course, you should keep an eye on your competitors. Once in a while, check out their website, visit their store, take a look at what they’re doing. But then move on and focus on doing what you’re doing, because if you’re doing the right thing, then you won’t need to even think about what your competition is doing. Oh, one other thing: never, EVER, diss the competition when you’re talking to potential customers. Always take the high road, and never forget that competitor might be an answer for you someday when you have limited resources, or he/she might be a potential partner, buyer, or seller in the future
15. Don’t ignore the future.
Why are you running this business? You want to provide a livelihood for you and your family and hopefully for your employees, too. But you’re also trying to build something of value for the future. So never forget about the future. What is your five- or 10-year plan? What are you doing today that will build your company’s value tomorrow? Are you putting money away for retirement? Do you have an exit plan? If there are children, rest assured they’re not going to be children forever, so do you have a succession plan? The smartest business owners I know are always looking ahead. Just doing things day to day isn’t a recipe for your future success.
16. Don’t let politics get in the way of your business.
A quick word about politics in these heady, complicated times: try to keep them out of your business. Your political views are your own. Don’t make others in your company uncomfortable if their views don’t align with yours. And also, don’t let your emotions caused by politics get in the way of making good business decisions. You may not like who was elected to some public office that affects your company, but your job is to put those emotions aside and make decisions based on the facts of how that politician is going to affect your company. You owe that to yourself and your employees.
17. Don’t be a jerk…unless you need to be a jerk.
Be nice. No one wants to work for a jerk. Life is short. However, don’t be a pushover. Sometimes—hopefully rarely—you’ll need to be pretty stern. Maybe it’s with a customer who owes you money, a supplier that doesn’t deliver when promised, or an employee who’s constantly late. Some of the greatest leaders in history were jerks—when they needed to be. In your business, something will happen sometime that will require stern, if not forceful, direction and, when it does, you may need to temporarily—be a jerk.
18. Don’t work too many hours.
I know—running a business takes a lot of time, especially when you’re just starting. But life is short (seriously), and let’s always remember what this is all about: enjoyment. One of the easiest common small business to make is to work too much. The smartest business owners I know make it a point to take vacations. They relax on Fridays during the summer or take a few weeks on an island during the cold weather. They’re never completely out of touch, but they go away to think and to relax and to re-energize themselves. That way, they can come back rested and ready to take on the challenges of running a business. Work to live—don’t live to work.
19. Don’t stop taking opportunities to learn.
Vacation is important, but learning is even more important. That’s why many successful leaders I know oftentimes combine both. They travel to conferences and seminars. They read books, watch webinars, and listen to podcasts to better develop themselves personally. They’re always up for talking to other people who can teach them a thing or two (and they’re happy to pass along their knowledge to students and people they mentor as well). Go to your industry meetings. Attend events. Walk over burning coals. Do whatever you need to do—regularly—to assure that you not only grow as a businessperson but also as a human being. Ignoring education will pave a quick road to decline.
20. Finally, don’t lose sight of why you’re doing this.
Why did you start your business in the first place? How come you quit your job and joined the family firm? What was the reason why you took your life savings and bought out your partner? Was it for control? A mission? A chance to do something unique? A way to give something back to the world? A method of making more money? All of these are fine, and the reasons why you’re a business owner are your own. But, every once in awhile, take a pause and reflect on why you decided to do this in the first place. Doing so will help keep you grounded and pointed toward the original goals that you had set. And everyone needs that kind of direction.
So, there you have it—20 common small business mistakes, aka 20 things I’ve learned (the hard way), and what NOT to do if you want to succeed as a business owner.