Five Mistakes That Entrepreneurs Make That Can Cost Them

By Alex Day

Starting and growing a business is very challenging.  I have watched many entrepreneurs do it very successfully and then watched some of those same entrepreneurs meet with failure in future endeavors.  I wanted to list five of the common mistakes that I have seen made and counsel you to avoid these.

1.  Building your operating expenses too fast. 

I can speak authoritatively on this, because I did it with one of my startups.  As entrepreneurs, we always BELIEVE we are going to succeed.  This inherent belief makes it easy to justify expenditures to handle future growth.  If that future growth does not come, then you have a problem.  I believe that it is very important that you strongly evaluate every penny you are going to spend.  Make sure that it truly is a need.  One of the best pieces of advice that I have received was from a successful entrepreneur in Tel Aviv.  My friend Avi told me that as an entrepreneurial company, I had to stay alive long enough to succeed.  Those words have resonated in my ears.  There is so much truth in those words. 

The guy that came out of the "big" company can do well in a small company.  I have seen this many times.  "Jack did great at 3M, so he can really kick butt in a startup!".  Sometimes this is true, but often times this is a mistake. It takes the rare individual who can make the transition from working at a large company to successfully growing a small company.  The dynamics are very different and the requirements are sometimes incompatible.  If a "corporate" person wants to make the transition to the small business world, they can certainly do it.  But like most entrepreneurs, they will probably fail their first time out. 

Assuming because a person was successful in a big company, they will excel in an entrepreneurial company.

The attitude of the individual can play a big role in their failure.  I have seen so many times people from the corporate world come into a small company with the attitude that they have played for the major league, so doing this job in the minor league is going to be a piece of cake.  The more accurate analogy is that she left a baseball team to go to a hockey team.  It is a completely different game altogether.  You don't get to contact the "legal department" or send that issue over to "HR".  Entrepreneurial businesses have to operate differently.  Making the assumption that a top performer in the corporate world will be a top performer in an entrepreneurial company can sometimes be fatal to a business.

3.  Assuming because you are a small company you don't need an IT infrastructure.

"I'm a small company.  Why do I need to worry about my IT infrastructure."  I was recently consulting with a small company and was encouraging them to do some work on their IT infrastructure.  As it happens the individual responsible for this came out of the corporate world and never worked for a small company.  His words were, "We are just a small company.  All we need are some shared drives".  This actually harkens back to my earlier point and the attitudes associated with moving from a bigger company to a small one.  The IT tools that are available now provide the entrepreneur with tools that are going to allow them to compete with the bigger companies.  This is NOT the area on which to skimp or take nonchalantly.  You do not need to make a big capital investment in IT, but you absolutely need to have this as a priority.  Make sure your team HAS the tools, and then make sure your team knows how to USE the tools. Entrepreneurial companies are fast paced and are usually busy putting out fires.  Make sure that your people are trained on the tools that are available.

4. Assuming the cheapest route is the right route. 

As an entrepreneur I am always looking for the most cost-effective means of accomplishing tasks.  I got into a thought process that if I can pay $50 for this instead of $500, it would be better.  Often times this is the case, but one of the things that I learned is that often times the money I saved in the short run cost me more in the long run. A quick example of this is Microsoft Office.  A few years back I decided to deploy Open Office instead of Office.  It cost less up front, but what I found is that my staff that needed to use it were spending significantly more time learning it and dealing with issues than they did with the tried and true Microsoft Office suite.  In the long run this was more expensive for me.  It can be a tight balancing act sometimes, but think about the long-term costs associated with those types of investments.

5. Assuming it will be easy to raise money.

There are exceptions to every rule.  But for the most part, it is never EASY to raise money.  It almost always takes longer, and is harder than you think it will be.  We all hear the stories of the "easy money raise".  I have even experienced it once.  But for the most part it is a hard row to hoe.  People and organizations do not part from their money easily (presumably that is one of the reasons they have money).  Not all good ideas get funded.  The skill set required to start and grow a business is different from the skill set that is required to raise money.  The people that really excel are the ones whose skill sets overlap these two areas.  And this brings us back to my first point.  Be sure that you don't increase your burn so much that you cannot survive.  Stay alive long enough to be successful.  The successful entrepreneurs are not the ones that don't fail, they are the ones who don't quit.