by Guest Author on March 4, 2013
When I became an entrepreneur, I really didn’t think much about the financial implications of starting a business. Like many before me, I naively believed that if I threw enough cash and credit at my business it would eventually float. That was a costly bet.
Having been at this thing for a few years now, I look back at the less experienced me and wish I could travel from the future and give her a few words of advice about how to make sure her business doesn’t suck the financial life out of her before it has a chance to turn a profit. Unfortunately, I can’t do that, so I’ll have to pay it forward instead. From me to you, I hope you save yourself a lot of economical heartache by avoiding these 5 costly mistakes I wish I knew before starting my first business.
Mistake #1: Trying to capture the whole market.
My advice? Niche yourself and narrow your focus to the one segment of the market you most relate to and have the most experience in. Not only will these shrink your marketing costs by allowing you to spend your resources on more targeted avenues that yield a higher return, it will also allow you to truly be seen as an “expert” instead of a generalist. Customers are willing to pay more to work with experts and specialists, which results in you working less and making more.
Yes, your overall pool of prospects may downsize a bit, but your opportunity for income expands while also making your marketing much simpler and more effective. Ask yourself these questions to discover your niche:
- Is there a specific type of person you work best with? Who would benefit most from your product or service? (Don’t just think age, gender and location. Think interests, hobbies, opinions and beliefs.)
- What’s a gap in your industry that isn’t already being served? What’s missing that’s leaving some consumers unsatisfied?
- Leave the generalist mindset behind and ask yourself this: What’s the one thing that you know you can do or be better than anyone else? What’s the one result or benefit you can offer your customers that others simply can’t or won’t guarantee?
Amish businesses have a 95% success rate, which a researcher attributes to their resolve to stick with what they know best and do best. “Everything about the Amish says things like ‘rustic,’ ‘traditional,’ ‘handmade,’ so they tend to play to those strengths,” Wesner says. (source)
Mistake #2: Quitting your job at the start.
Luckily, this was one of the few mistakes I actually didn’t make. For as long as possible, I kept working full time while building up both my first and my second business. This gave me the financial stability to stay afloat while investing time and money into my business. When you’re just starting out, the absolute worse position you can put yourself in is financial crisis. In addition to putting your dream at serious risk, it can also create a major strain on your state of mind and your relationships at home.
Also, keep in mind that starting a business when you’re out of work isn’t always the best timing. According to the SBA “When finding work is difficult, starting a business can be just as difficult if not more so.” (source)
Mistake #3: Failing to establish attractive incentives for your past clients to spread the word about your work.
The power of past customers is chronically underrated. In younger years, many new business owners are so fearful of letting go of a portion of their precious income that they wind up missing much bigger revenue opportunities. Save your advertising dollars and let your raving fans do the work for you.
Any time a past client or friend refers a new, paying customer to you, reward them with a flat dollar amount, commission percentage, free products or services or a gift card to popular stores or activities. Get creative with it. Once, a friend of the family thanked my husband for some work he did on their house with a gift card to take an air boat ride. How cool is that?!
Here are a few ways to start tracking referrals, logistically:
- Set up a web-based affiliate program that assigns each past customer a unique, trackable link. You set the commission and all they have to do is use their link. The affiliate software does all the tracking work for you.
- Not ready to leap into the technical stuff? Consider creating your own set of “referral codes” that you assign to past customers, each getting their own unique identifier. Ask new customers to enter their referral code into the inquiry form on your website or provide it to you over the phone. Then, manually keep track of referrals with a spreadsheet or notebook.
Mistake #4: Using credit and all of your savings to finance the new business.
If you already have a proven business model that has demonstrated its ability to generate significant revenue, then it might be ok to leverage the power of financing to grow faster. However, for most unproven small businesses, bootstrapping is the smartest way to grow. It forces you to master marketing and sales, even if you dislike it, which is a non-negotiable aspect of building a business. By financing your business with income, rather than credit and savings, you won’t get in too deep and wind up with more debt than you can handle.
Mistake #5: Not being realistic about the amount you’ll need to invest.
Expect that whatever you estimate it will cost, is probably only a fourth of what it will actually cost. Create a budget and make sure marketing is at the top of the list. You can’t generate revenue if no one knows about you. Most new entrepreneurs focus on the product and service development instead of promotion. Both are important because you can’t sell one without the other, but marketing is the only one of the two that brings in new customers and revenue.
Have you fallen for a financial blunder you’d like to share?
What’s been your financial experience when starting your small business? Have any more tips for those that are just getting started? If you’re a new or seasoned entrepreneur, I’d love to hear your story and tips about how to avoid financial ruin before you even get going.
About the Author
Kathy DalPra is a website and SEO expert who helps wedding professionals and bridal retailers get more traffic, leads and sales online through web design, conversion strategies, copywriting and SEO. For free tips on how to get found, followed and booked online, visit her website at http://brideappeal.com.