Friday, December 28, 2012

Don't Make These Common Entrepreneur Mistakes

One of the most common mistakes entrepreneurs make in building their business is that they assume that some outside funding source will give them the cash to build their business. Statistically, the chances that an angel or venture capital investor will fund their business are about 1% to 4%. This is why it is critical to learn to bootstrap a business in its first year. This means that getting paying customers in the early stages in order to prove there is a viable business is critical.

Here are four other common mistakes:

1. Projecting revenues that are based how big the market is. Many entrepreneurs think it will be easy to build a business since all they have to do is “capture 1% of the market.” Many times they “mis-size” their market or do not have enough capital to exploit actually it. Every entrepreneur needs to show how they can build revenues from the ground up with an appropriate sales and marketing strategy.

2. Thinking their competitive advantage is based on “superior quality” of their product or that it is “first to market”. Every entrepreneur needs to assume that someone with more capital can always build a better mousetrap. Being first or the “best game in town” is never a long-term competitive advantage.

3. Waiting until the business is out of money before looking for other capital. If an entrepreneur runs out of cash, they are out of business. It is best to have 3 months of working capital in the bank to cover any contingency. (Remember, a business never goes to zero revenue overnight so the capital can last 6-9 months in a downturn.) This will prevent an entrepreneur from having to negotiate debt or investment terms when they are financially desperate.

4. Not focusing on the shareholder returns.