It’s a great idea for a business. At least that’s what your friends say. Hurry do it before someone else does. What could go wrong? I consult with new businesses and many of them know exactly how to screw it up…
1. Being the First Business of Its Type
Many people think being the first to open or start a new kind of business is worth something. Some think they can copyright or trademark their new business idea and stop others from copying it. There are a couple problems with that thinking.
Being first isn’t worth anything, in fact it is the most expensive position to take. If you are the first you have recruit and educate customers to this new way of doing business. You have to explain the concept and convince people that it is worth changing the way they have always done something. That is not only hard but expensive because you need to get people’s attention long enough to make your pitch.
Plenty of first movers have run out of money, made mistakes that competitors can learn from and paved the way for those who come later.
If you are looking at your business idea and thinking “No one has ever done this before” be sure to ask yourself why not?
2. Not Knowing Your Customer
It is tempting to think that people who like X will like this business but if you aren’t one of those people then you are at a big disadvantage. A good new business fills a need. You should understand that need as well as possible. If the need is/was so big then how come no one fill it before?
Better to stick with businesses that you DO understand the need for and have been a customer of. Imagine for example starting a cat sitting business when you have never used cat sitter or worse, have never owned a cat.
3. Opening a Restaurant
Don’t do it. Just don’t. It may sound good and your friends have always said ‘You’re a great cook…you should open a restaurant’ but if you have never worked in a restaurant you have no idea what you are getting into. And if you have worked in a restaurant and are still thinking about opening one consider other options.
You raised or have or inherited $200,000 so you want to open a restaurant…. why? You hate money? You want to die broke? You don’t like having free time, normal blood pressure or a credit score above 400?
If you can’t resist the siren song, at least start with something survivable — a catering business or a pop-up. Give yourself time to come to your senses, hopefully before your money runs out.
4. Not Researching the Competition
Had a client tell me they didn’t do a feasibility study because “feasibility studies tell you all the reasons NOT to just do it.” Um, yes. You’re going to find out those reasons sooner or later. Sooner is MUCH cheaper.
Go look at the competition and learn as much as you can. How many employees do they have? How many customers? When are they busy? When slow? Who is their supplier(s) (look in their trash)? How much rent do they pay? How deep are their pockets and what are they likely to do if you start to see some success?
Learn from their mistakes and their successes.
5. Starting with Angel Money
Maybe this is not a complete mistake but it easily leads to mistakes including mistakes in the overall design of the business model. Many people think about how much it will cost to start a business but not how much they will need to keep it running. There is a mental hole in the big picture of their business and it sneaks out in statements like “I want to open a business that does ___X___” rather than “I want to run a business…”
This problem is worse with non-profits. Some people believe that non-profits don’t need to make money or that they don’t need to have the same business accounting and structures that for-profit business do. These people are wrong.
When you get grants to start a non-profit your customer is the grantor entity, not the people coming in the door. The grantor wants prestige and credit for doing something good in the community but that is sometimes at odds with what the community allegedly being served actually wants. Then you have two masters to serve… good luck.