Editor’s note: This article was first published in January 2011. The example of a national TV ad costing 30,000 euros for 15 seconds comes from the original article, and its exact date is unknown (2011 at the earliest).
Roberto Menéndez Fernández wrote an article some time ago about the most common mistakes to avoid when registering a new business.
The article below was published a long time ago by the Spanish magazine Emprendedores, and I’m going to try to rescue it from oblivion, because it is very detailed and thorough: 15 mistakes to avoid when starting a business.
1. Rushing
Haste is bad for almost every area of your life, and when starting a business you should definitely avoid rash decisions, whether in choosing premises, your bank or the people you work with (employees, suppliers, partners…), or in setting up your procedures. Take the time to put together a good business plan, which will guide you when it comes to actually running your business. You’ll save time and money and avoid a lot of grief.
2. Not choosing the right business for your personality
Are you someone who looks for security? If so, perhaps the best type of business for you is a franchise, which brings knowledge of the sector and greater stability in exchange for a fee. Are you not very consistent, with frequent mood swings? In that case, do you really want to open a restaurant where you’ll be facing the public for long hours? Perhaps a sales business where you can make the most of your skills would be a better option! If you’re going it alone, choose a business that suits your personality, your circumstances and your needs. If you’re going to have partners, try to complement your personality with theirs.
3. Burning your boats
During the Spanish conquest of Mexico, Hernán Cortés, in a reckless moment, ordered the ships that had brought his men to the American coast to be burned, so they couldn’t flee en masse. He was lucky and the gamble paid off. Fortunately, we have no such need. If we’re not absolutely sure of our chances, or if we want to minimise risk, there’s no reason to burn our boats. There are plenty of ways to build ourselves a good safety net. If we’re not sure our business will succeed, we can look for an activity we enjoy that we can do part-time, without having to leave our job if that’s our source of income. Starting a business can be combined with other activities.
4. Not knowing the exact costs of your business
The goal of a company is not “to sell, and the more the better”. The goal of a company is to make a profit. If we don’t watch our contribution margins, we can’t know whether we’re generating potential profit. You need to be absolutely clear about the breakdown of your business’s fixed and variable costs.
5. Not paying attention to detail
Just take a walk around town, or better still around a shopping centre, and you’ll easily find shops close to each other in the same line of business. Some are empty and others are packed. Luck? I don’t think so. The packed ones offer what customers are looking for. Very often it’s a matter of details: decoration, atmosphere, products. If your business deals with the public, you may have the best product in the world, but if customers don’t feel comfortable in your premises, they may not come in. If your business doesn’t deal with the public, think about how you’ll reach your customers. Maybe the advertising you send out doesn’t really motivate them to call you, or maybe the people who answer the phone aren’t entirely pleasant. So how will you get customers motivated to buy your product (which, for that matter, may be the best in the world)?
6. Not wanting to sell, or not knowing how
Anyone who owns a business must know how to sell (or want to learn). The goal of every company is to make a profit. If we don’t sell, we won’t achieve the contribution margin needed to reach that profit. If we don’t know how to sell, let’s learn. And if we still don’t want to or can’t, let’s find professionals who can, whether in-house (our own salespeople) or external (a distribution network). Whether or not you sell directly, you need an attitude of constant attention to the customer. There’s a wise Jewish proverb that says, “If you can’t smile, don’t open a shop.”
7. Not taking professional advice
Let’s admit it: our broad knowledge doesn’t cover the full body of commercial laws and regulations our company has to comply with. Unless your business happens to be a law firm or a business consultancy, my advice is to stick to what you know how to do (hospitality, software, consulting, recruitment, plumbing, etc.) and surround yourself with the professionals who can advise you best. In many cases you don’t need to bring them into your company: outsource.
Don’t hesitate: take advice from professionals and let your company focus on what it does well.
See also: It’s easier to achieve success than to keep it: Donald Trump (video)
8. Not being demanding
Always demand the best from the people you work with. Reward their efforts properly; they’ll appreciate it and your company will benefit. This applies both to internal collaborators (employees) and external ones (suppliers). Never settle for less.
9. Not being realistic
This point has come up already, but it’s worth stressing how important it is. Can you really cover, for a whole year, the fixed costs of a 200-square-metre office on Calle Serrano (one of Madrid’s most expensive streets) with three employees, before you even have customers or a product portfolio? Are you a brilliant programmer? Then maybe you should stick to programming, use a virtual office service and find a distributor to sell your brilliant software! Let’s be realistic. Let’s know our limitations, never to discourage ourselves, but to size our business to our social and economic reality. Anything else is playing the lottery and has nothing to do with a business project; you’d be better off going to the casino, which is more fun and less of a risk.
10. Not making proper financial forecasts
This is closely related to the previous point. You have to ask yourself, “How long can I cover my fixed costs with the resources I have now?” We need to give our company adequate financial provision to get through the first months or years. That doesn’t mean we need a fortune to fund a string of premises and/or employees forever. It means the beginning can be tough and sales sometimes don’t come as quickly as we’d like. So let’s be prudent and cover our backs, because a newly created company is exactly that: new, and that means partly not knowing the reality we’re going to face.
11. Not having a business plan
Not having a good business plan is like setting off for Pernambuco in a boat with no maps, no oars and no compass. Can you get there? Sure… but how, when, and after how many detours? The business plan is a fundamental tool that lays the foundations of your business and sets a mission and a direction. It sets out the strategy and the tactics to reach your goals. And last but not least, it helps us monitor and track progress and, of course, correct course when decisions turn out to be wrong.
12. Not paying, or not collecting
One is as serious as the other. Point 8 reminded us that we have to be demanding with the people we work with, and we can’t be if we don’t pay them. An angry employee or supplier can be a source of terrible publicity for our company. On the other hand, if we don’t collect what we’re owed, we’re financing other people’s activities. Unless your business is a lender, don’t provide more credit than strictly necessary. No customer should be excused from paying on time for “being a good customer”.
13. Confusing the company’s cash with your own pocket
The company’s cash is sacred. It isn’t your pocket; it’s there to meet the company’s financial obligations. Cash is not the same as profit; it’s just cash. Find a good accountant, in-house or external depending on your needs, and listen to their advice.
14. Underestimating the importance of advertising and promotion
Advertising and promotion are essential. Without them, the outside world (read: customers) won’t know we exist. Choose the form of advertising and promotion best suited to your company and don’t be swayed by siren songs. Do you really think a national TV ad costing €30,000 for 15 seconds will bring more customers to a restaurant in Cáceres (a provincial city in western Spain)? Wouldn’t it make much more sense to spend a small fraction of that on the local press? Likewise, if our company sells consulting services, will advertising in a multiplex during a teen movie really help? Wouldn’t a phone campaign targeting a database of potential client companies, carefully segmented to our business area, make much more sense? According to some studies, an average company that stops marketing sees its sales fall by between 15% and 30%.
15. Not looking after customers and collaborators
It’s common knowledge that winning a new customer costs ten times more than keeping an existing one. The same could be said of collaborators (employees, suppliers, etc.). You don’t need a sophisticated CRM (customer relationship management) system to take good care of your customers. Our customers and collaborators are an important asset of our company and should be treated as such.
Further reading
- How to run a small business in times of crisis
- 5 ways to grow your business
- Why new businesses fail
- Steve Jobs and the early days of Apple: a motivational story
Featured image: Unknown author, Public domain, via Wikimedia Commons.
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