Diary Of An Under 30 CEO: Entrepreneurial Mistakes And How To Avoid Calamities – Part 1

Posted on April 6, 2013 03:20 pm under Diary of an under 30 CEO, Entrepreneurs

VENTURES AFRICA – As of today, this ambitious column, without dragging itself into the egotistical realms of ungratefulness, and never much in two minds, will hijack the opportunity whilst in a celebratory mood to acknowledge its readers; words fail me when it comes to describing your efforts. Thanks to the readers, the resident entrepreneurship column is growing in leaps and bounds; hopefully, it will grow to enjoy one of the most constructive, well informed, and educative comment threads. And before we start, once again, i must salute the readers for their amazing job of making sense of my random bad and atrocious examples, which do not always make any meaningful sense at the least.

Are you ready to take the plunge? While there’s never a guarantee of success, more often than not, there are about as many mistakes to be made as there are entrepreneurs to make them. Which brings us back to something i posted some time ago- business in Africa is riddled with a sad reality, that for every successful entrepreneur, there are thousand others, not so successful young entrepreneurs, who daily have to face the brunt of the realities of entrepreneurship. The African business landscape has experienced a steady growth in numbers of business ventures appearing on the scene, but unfortunately few have grown to behemoth proportions.

In all fairness, and with this in mind, especially to those despite their hectic schedules, who find it within themselves to make time to- at the least, browse through some of the weekly dosage of musings provided consistently, by your resident serial-writer, on this your favourite resident column, which is an icon of objective business journalism; confers upon us the responsibility to inform them of some of the glaringly apparent common mistakes entrepreneurs make.

From past experiences and education, i will share some hard-earned experiences, and insights gained from lapses in judgement in the development of enterprises. I know, in summary, for the benefit of those who have jumped onto the groovy train too late; despite the availability of many sources to search for entrepreneurship knowledge, i would recommend our only official prescribed source, which is earlier archived Diary Of An Under 30 CEO articles, for expansive explanations for some of the issues covered in this most comprehensive two-part article.

Obsession with the Unattainable Elusive Perfect Product

To tell you the truth, since time immemorial, there has been an unwritten and over-emphasized basic business golden rule, and this phrase serves as a buzzword, the customer is king. Furthermore, sales are the lifeblood of any business, regardless of how perfect or pathetic your products are. Therefore, it goes without mention, that understanding your customers’ wants and needs, are key to business success, and should be your number one priority, after all, they are the best source of ideas and inspiration available to you.

Basically, even if your product is the best thing ever produced, with definitive characteristics that include flawless, better, or stronger than the competition’s, for as long as it’s not what the customers like or need, your efforts to sell it will be futile, they won’t buy it, and would rather find another company that is more responsive to their needs. It’s a cruel fact, but it’s as simple as that. Many entrepreneurs have become victims of their obsession to create the unattainable elusive perfect product. The price of trying too hard to create the perfect product is that the market will change, and eventually the product will become perfect when it has already been rendered obsolete, this is a cutthroat and dynamic business environment, after all.

Honestly, the most important thing is to get the less-than-perfect product onto the market as soon as possible, and if necessary improve it whilst it is available on the market. It’s absolutely a no-brainer to focus all your energies on providing quality products while doing less about marketing them. Your customers’ purchasing behaviour of your products is the only realistic yardstick of truly letting you know how great or perfect your product is , otherwise, the sooner you realize that there is nothing perfect, the better for you. Actually, it’s far more important to face criticism from customers, because this same criticism could be a catalyst that leads you to innovations that can assist your business corner the market, as you develop your product in a way that no one else in the marketplace has done.

It’s noteworthy that it is of paramount importance to spend more time and give your best on making your product the best, however, it’s not worthwhile if the product can’t be sold. Spending more time on developing a product, and less time on selling it, amounts to treachery, for any business enterprise. In fact, to get results every product, no matter how great it is, needs to be marketed. From a personal perspective, i would advocate you to focus 50 percent of your time on your product, and the other 50% on marketing it. It’s suicidal for any entrepreneurial venture to spend 90 percent of the time developing quality products, and 10% on marketing them. If you are unwilling or unable to invest the time and money on marketing, you will lose ground to your competition.

Be certain to listen to the most vocal minority customers. Don’t create a product that has to work on finding a market. Says Rosalind Resnick, founder and CEO of Axxess Business Consulting Inc., a consulting firm,” While it’s hard to build a great company without a great product, entrepreneurs who spend too much time tinkering may lose customers to a competitor with a stronger sales organization.”

Finance

“You also need to understand the fundamentals of money, how it works and how you can make it work for you because it is a scarce commodity, yet crucial to entrepreneurial success,” says Kenyan entrepreneur, Mike Macharia.

Another undisputed business golden rule is that cash is king. It suffices to state that, whilst you may have a booming business with many customers, you can’t pay for your operating overheads without cash. More importantly, money that you are owed only makes it easier for forecasting future cash inflows. Furthermore, let me hastily state that, a business can be profitable without cash, for how long this situation can be allowed to prevail before the business goes bust, is a subject for debate on another day.

Cash is king, at whatever stage of business development. The prerequisite for any capitalist entrepreneur, is to always think carefully before spending and remain focused on the bottom line, after all, business is all about the bottom line. Even with all these corporate social responsibility initiatives, the main objective at the end of the day is the bottom line; forget how otherwise, we are made to believe that it’s for the benefit of the community. The most fundamental purpose for cash in any enterprise is for business-building processes, such as marketing, product research and development etc., and not to be overspent on overheads or fund the lifestyles of your customers.

Until it’s certain that your profits can support the costs, retain humble office space, and furniture, because a quest for a high life, usually lets your expenditure to inflate more than your revenue, which is a no-brainer, since you will suffer a financial crunch. In addition, before profits justify the expense, spend money that is necessary to achieve the company’s objectives.

Another problematic entrepreneurial mistake is the myth about raising capital. Most entrepreneurs waste a valuable chunk of their energy seeking investors not customers through their relentless pursuit of capital and not revenue. In as much as the pursuit of capital can’t be downplayed, it is advisable to work on strengthening your revenue streams, through focusing on customer acquisition which should be part of any funding strategy. Your customers are the best place for your business to get funding, even more dependable than banks or venture capitalists. Strong revenues improve valuation and help reduce financial pressures, never place investors before customers.

Some entrepreneurs raise capital easily, and then afterwards, start thinking of ways to spend the money. Once you are facing this dilemma, you are in a bad space, because every fund-raising initiative should be for a specific purpose. For instance, when you sell part of the company it’s either you want to raise finance to increase your production levels, through purchase of new machinery or equipment, or to purchase new larger premises, therefore, you should not deliberate on how to spend, after you have already raised the finance, there should be an objective behind the need for more finance. Remember, owning the business outright is the best case scenario; don’t sell a stake to fund your lifestyle. At this juncture, let me mention that bootstrapping has its advantage, because too much cash can make you complacent and careless. Over-funded companies tend to get big and bloated too soon, before they can make concrete plans about how to spend their cash.

 Part 2

Posted on April 14, 2013 03:00 pm under Diary of an under 30 CEO, Entrepreneurs

VENTURES AFRICA – Today any firm can become fat and mostly happy, even if initially it was losing so much money it seemed to threaten its very existence, and became a basket case with a problem of survivorship. However, the fundamental thing is to keep learning from previous mistakes, and keep improving your entrepreneurial skills, otherwise, you will continue going backwards. Indeed, some of the branding of firms is so crazy that one has to assume that somebody inside the company has gone insane. The fortunate thing for entrepreneurs is that there are no good business ideas, just good execution.

Competition and the market

“Entrepreneurs should ask themselves if the market really exists if there is no competition”, says Entrepreneurship professor, Peter Bryant of IE Business School, Spain.

Even if you initially have a monopoly in any industry, eventually, competitors will enter the fray. Competition should never be ignored, even if it has a small market size currently, because it will always pose a threat anytime. Therefore, you should know your competitor more than they know themselves. Claims that there is no competition or the incumbents don’t pose a threat to their businesses, amount only to treacherous thinking, because i can assure you that at any given opportunity your competitor is analysing your business, and developing new innovations to counter your efforts. Unfortunately, gone are the days of resting on your laurels, because technological innovations are reshaping industries, and are constantly creating future threats to any industry. Competition doesn’t only mean your other industry peers; rather it extends even to other technological advances that might threaten your business.

Search widely to also identify current and potential imitators, whilst also checking often, as competitors’ initiatives and start-ups maybe difficult to see. For instance, a simple illustration is Nokia. In as much as Nokia was the market leader and the torch-bearer in the mobile phone industry, unwisely they drew so much satisfaction from that, such that they forgot to anticipate or forecast future trends in the mobile phone business. Smart-phones would become the next lucrative gadget to manufacture, and Nokia looked blindly on the other side and missed the opportunity to consolidate its market share by quickly developing its own smart-phones because it had the financial resources and muscle. Even if it wasn’t sure about this new gadget, it could have mitigated it’s risk by making an agreement with a rival to produce a joint venture product, unfortunately for reason best known to the company they decided turn a blind eye to the new craze that was about to change the mobile phone industry. As i write this they are still playing catch-up to Apple, Samsung, Blackberry etc., who have suddenly become the new market leaders.

Furthermore, any entrepreneur should know extensively the competition and develop counter strategies. For example, the big music record companies failed to take Napster seriously, only to realize late that it was hurting their sales, even though they later fought court battles with Napster, the damage had already been done. That is from being powerful, they suddenly became vulnerable, such that when Apple came up with the i-pod, the music industry had no option but to quickly get into agreements with Steve Jobs so that they got the few crumbs, Apple might have offered rather than lose out completely like they did with Napster.

Winning 1 percent of $1 billion is easy in dreams; you have to move mountains to achieve that reality. Never think that customers will always come, because unless it’s a socialist economy, the choices of substitutes will always be available and the customers are not compelled to buy from you if they are not happy with your products, or if they don’t know about your products. Make extensive efforts to develop a relationship with your customers, have your brands imprinted on their minds despite your market size.

A sale is the lifeblood of any business, and marketing is the spine. Great companies don’t just create brands, they also create movements. Movements are created by being held in high esteem, and revered. Entrepreneurs often over-estimate the size of their potential market because of performing inadequate market research. Conducting sufficient research on potential and existing competitors assists you to focus on a market segment that can boost your business, because defining your market segment too broadly is a costly oversight. It doesn’t matter that a bigger market gives you a chance to grab a slice of the pie; you might be forced to compromise on quality too soon because of over-stretching your current resources.

Lastly, ask relevant questions such as: What are potential customers buying now? What is their incentive to switch to buying a new product? Is there enough market demand to support the introduction of a new product?

Focus, Equal Partnerships and Key Customer Syndrome

After you have had that dream about that brilliant and great billion dollar idea, write a business plan early on, even if it’s for your own benefit. Furthermore, being in business requires a road map, just like life in general requires some sort of a plan. The business plan ensures that you set both short and long-term goals for the business, such that you have a reference point to check your progress against along the way. Without a clear vision of where your business is heading, your great idea can get muddled along the way. The good thing about planning is that, it builds habits and habits create actions and actions get things done.

Let’s be honest, entrepreneurs need to see beyond the first 6 or 12 months operation. It’s essential to have a concrete idea of how to keep the company profitable over the next several years. In addition, the companies that flourish are the ones that are not stagnant, but are constantly reinventing themselves, improving their products, services, and finding new revenue streams to increase their turnover. Rome was not built in a day, nor were there no daily developments, meaning that you need to execute your plan and strive for improvement each and every day.

Moreover, let me state that, some companies might not need a formal business plan, however, a start-up that needs significant amounts of capital to grow and more than a year to turn a profit definitely needs a roadmap of how much time and money it’s going to take to achieve its goals. This might require going through the key metrics that make your business tick and building a model to spin off a couple of years of sales, profits, and cash flow projections.

Normally, when starting a business, it’s very tempting to divide ownership equally among the partners and attempt to make all decisions through a consensus. However, disagreements will always inevitably arise, despite the fact that partners might agree in the early stages of the business. It’s also inevitable that partners most often will have different ideas about how much time to put into the business, regardless of what agreements have been made about what level of commitment is required. Therefore, it’s always advisable to ensure that there is a defined leader with adequate authority to make final decisions, and sufficient compensation to remain motivated.

In as much as a gentleman’s agreement is the norm when most companies are founded, however, even that behemoth and revered company called Apple, had its issues which led to Steve Wozniack to turn his back on the company that he had co-founded. One person ultimately has to become a majority owner, even if it means it’s 51 percent it doesn’t matter.

Every business might need to have that one large customer in the beginning to get the business off the ground; however it shouldn’t be a means to an end. Having one customer, who generates more than 50 percent of your revenues can be a recipe for disaster if that customer goes out of business or stops buying from you for some reason. Don’t rest on your laurels because you have one big customer, use that edge to build on, and work on acquiring more customers- both large and small. Customer acquisition is the best funding strategy, since strong revenues improve valuation and reduce financial pressures.

In conclusion, on-the-job experience is the best way to learn about a business. Before trying to launch a start-up, you can gain experience in the field through an internship or a related job. Furthermore, your lack of experience in the industry you are trying to enter can lead to many costly mistakes. Moreover, it doesn’t mean that there are no exceptions to the norm; some entrepreneurs can equip themselves with information about their industry through extensive research.

Lastly, know yourself, trust your instincts, and be prepared to make the hard choices, fail and fail again, be critical about yourself, and most importantly love what it is that you want to do. Above everything, luck matters; always try to be at the right place at the right time.