9 Mistakes Entrepreneurs Make
I work in close proximity to entrepreneurs and investors from all over the world. The work is way more interesting than I thought it would be when I took my job three years ago and it’s been rewarding to know that what I’m doing at the end of the day is helping startups and small businesses get the resources they need.
That said, without even being anywhere close to an expert investor or entrepreneur myself, I notice a lot of bad habits and I learn a lot from eavesdropping on smarter people that talk loudly. Here’s a list of some of the most popular mistakes and bad habits I’ve observed:
1. They just pick something they like
Just because you love hats doesn’t mean you should pour your life savings into a hat store. Do you actually know anything about running a haberdashery? Or did you just assume you’d be good at it because you think you have good taste in hats? If you’ve never even worked in the industry and you’ve never seen the books, your business will in all likelihood fail. There are the flukes where someone strikes gold but beating the odds isn’t about knowing the best hats, or the right hats, or the fashionable hats. It’s about which ones move and what the margins are on them. Its hat business not hat liking.
2. They pick something they don’t like
Being an entrepreneur means a minimum 60-hour workweek. In fact, in the first few years of their business, entrepreneurs are lucky if they can only work 60 hours a week. Factor in now that your business has a pretty high likelihood of failing… If you don’t actually like what you’re doing you’re going to run out of steam pretty quickly.
So maybe you think you’ve got the next LinkedIn on your hands – you don’t by the way – but are you actually even remotely interested in a technology based professional networking platform? Of course you aren’t that sounds like the most boring thing on the planet. It doesn’t matter how profitable of an idea you think you’ve got if it’s not something you’d actually use or like.
3. They bet the farm
When you go to the bank to take out that second mortgage to start your restaurant the loan officer isn’t giving you that loan because he or she believes in you, the bank is basically just saying “Sure, we’ll take your money.” It’s a slam-dunk for them because they get your interest payments if you make them and your home if you don’t.
If you’re young and single and you don’t have a family, by all means throw all your money at starting something you care about. Even if the business doesn’t work out, you’ll learn and the next one will be better and getting the money will be easier. But don’t cash in your family’s security.
Here’s why: Not only is this selfish, but people with families who do this get this weird stink of desperation like Gil from The Simpsons. No one wants to patronize or invest in a business lead by someone who is not only arrogant, but desperate and with a track record of being reckless.
4. They spend all their time looking for money (small business)
There’s a great scene in Collateral where Tom Cruise calls Jamie Foxx a loser for being a cab driver and not living up to his potential. Foxx says something like “I’m trying to start my own car company.” And Cruise shouts back something like “Oh give me a break if you were you would have done it by now. All you need is a down payment on a Lincoln Town Car.”
Tom Cruise spends most of that movie throwing people off of rooftops and pretty much being a monster, but in that scene he’s actually right.
Entrepreneurs can get so hung up on not having these imaginary “investors” that they’re trying to find that they use it as an excuse for their lack of momentum. Even people that actually take the step to look for funding seem to be trying to get it unnecessarily. They have business plans that would be easily fundable without investors and scoff when they don’t get it just handed to them.
The harsh truth is that no one wants to invest in a small business no matter how good it is. Professional investors invest in companies that are highly scalable and exit-able. They hedge their bets by investing in 10 companies at a time, and hope one of them pays for the other 9 or more. This means that for the most part, they’ll even leave a really good deal that could double their money on the table if it doesn’t have potential to pay out their kind of dividends.
You should get a loan, borrow money from family, get an investment from a rich friend who’s got a personal stake in seeing you succeed or take a second job until you can afford to get started. Or do a combination of all of them. You might be surprised at how much easier it is to get money once you’ve realistically applied yourself to getting it.
5. They spend all of their time looking for money (In a tech startup)
From a startup perspective I sometimes see or hear about companies that have become professional money raisers and bull-shitters. The finish line for these entrepreneurs isn’t having a successful company; it’s raising another round of funding so they can keep paying their own salaries.
6. They’re uneducated
I know Mark Zuckerberg and Steve Jobs dropped out of college but those guys are both one in 3.5 billion. If you’re betting that you’re going to be the next Zuckerjobs you’re as deluded as you are doomed.
That “here’s to the dreamers” commercial about how awesome Steve Jobs was for daring to do things differently was made by Steve Jobs. Steve Jobs worked his ass off. He didn’t just sit around being brilliant and then one day fart out an iPad.
University is where you’re supposed to figure out your strengths and interests. If you can’t commit to 4 years of personal and professional development how can you possibly be entertaining the notion of running a business?
On top of that, there are a baffling number entrepreneurs that have finished a degree yet somehow can’t spell, are sloppy in their speech and writing and constantly over-use clichés and jargon.
7. They can’t take “maybe” for an answer
I got to sit in on a pitch once where a highly skilled team had developed a smart, helpful piece of software that anyone could use. The investors in the room had all but taken their checkbooks out, with only one concern: The team wanted to sell the product to a very specific sector of the market at a very high price. The would-be investors told them they liked their thingy, but that they’d like to see it made available to more people and for cheaper.
At this point the team got visibly flustered, thinking that these investors (who, by the way have both lead dozens of seed investments to successful exits) simply didn’t understand their vision. The team’s inability to take that feedback constructively probably cost them a round of funding that day.
If someone who knows more than you gives you feedback, consider it.
8. They’re arrogant
I once heard a very successful angel investor say “If I hear someone in a pitch say they have no competition that kills the deal for me.” Everyone has competition. If you don’t think you have competition it means you haven’t done your research. Investors don’t want to hear about how you have no competition, they want to hear that you know exactly who your competition is and that you’ve figured out how to beat them.
The hilarious thing about this is that when this investor said this on the panel he was speaking on, instead of taking his advice there were entrepreneurs clamoring to explain how their company – remarkably – “really did have NO competition!”
9. They think their ideas are special
If you thought of it so did at least 50 other people. I know a guy that started a fairly successful company that’s the exact thing Daryl from The Office pitches to a Dunder Mifflin executive. I don’t even think the guy who started the company knows that his concept basically appeared on a popular sitcom.
Which is fine, because the originality of the idea is irrelevant to his company’s success. An “idea” on its own is worth exactly nothing. When you actually make something, and start a company, then you start to have something. Emphasis on “start to.” His company is making it because they followed through and worked hard to be better than their competitors.
Originality is important, but it’s more likely to add value in how you execute your idea than in the idea its self.
Being protective of ideas makes you seem like a lunatic, impedes you from being receptive to feedback, and gives you false validation when you haven’t actually done anything
There’s some saying along the lines of “The road to success is wrought with failure” and it’s by all accounts true in the world of entrepreneurship. For instance in the angel investment world, only about 2% of companies that start looking for funding ever receive it. Of those companies, not all of them even grow into profitable ones.
The numbers alone can be daunting, but if you consider how many of the people you’re competing with are going to be making these mistakes, it’s encouraging to know how easily you can give yourself a leg up.