3, often fatal, mistakes made by new businessesMay 03, 2023
There are any number of things which can go wrong with an early-stage business. Getting from an idea to a successfully operating business is no mean feat, so if you’ve got that far you really do deserve a pat on the back.
I’ve worked with many new and early-stage businesses over more years than I care to remember. Along the way I’ve recognised there are some very typical and common areas where things can go wrong. Setting up a new business can be a bit like going through your teenage years i.e. rather than listening to your parents you do it your own way, which often proves to be the hard and wrong way. It’s only many years later that you realise maybe your parents were right.
Of course, there’s a strong argument that learning the hard way as a teenager is best in the long run. However I’m not so sure that’s the case when it comes to setting up a new business, the consequences can be too dire i.e. the business fails. So here are my top three reasons behind a new business getting into trouble.
1. Running out of money
This one’s a bit obvious. The reality is you need money to make money and if the cash runs out, it’s usually all over Rover. With very few exceptions, it’s not really possible to build, launch, and run a business without money to fund it all. There are any number of ways to fund a business, and of course equity investment is just one of them. So the basic message here is that as you’re making your plans you need to pay serious attention to where you’re going to get the money from and how you’ll ensure that you don’t run out. Preparing and managing a budget is a crucial business management skill; if you haven’t got that skill, either get it or find someone who already has it.
2. Neverending product/service development
The basic rule is to develop your minimum viable product (MVP) and bring it to market. If you find yourself in an endless loop of ‘we’ll just add this one more feature and then we’ll launch’, it’s probably already too late.
So get your MVP out there, get feedback from your customers, and act on that feedback. And if your idea is destined to crash and burn, you’re better to fail fast. That way you minimise your losses - avoiding sending good money after bad - and you can get back to trying again, perhaps with something entirely different.
I agree this is often easier said than done. You know instinctively that you’re almost there and you want to go to market with your best possible effort. However the downside is that if you don’t have the discipline and courage to get out there fast, and even if necessary fail fast, then you’re never going to make it.
So to pick up that well-known slogan from the ’80s, Just Do It. Or my preferred version, JFDI.
3. Rising to the level of your incompetence
This is about knowing when it’s time to step aside. It’s an enviable skill to take your own business idea and bring it to life. And of course, there are any number of examples where someone has done just that and then taken the next steps to create a global giant. Steve Jobs is the classic example, but even then the time came when the company he himself created determined it could no longer tolerate him; until it did again…
So as your company develops and grows, a question you need to ask yourself is, “Am I the right person to take things to the next level?”. And perhaps you are, but then again perhaps you’re not. The skills, competencies, and experience needed to lead a business through a time of significant development and expansion are quite different to those required for creating the business in the first place.
Stepping aside and recruiting a replacement CEO doesn’t necessarily mean the end of your time with your creation. Various options can become available to you. Typical examples are where the founder steps up to a board/governance position, perhaps even chairman of the board, or takes up a consultative-type of role. Another step I’ve seen taken is where the founder moves into a role such as Chief Product Development Officer.
TIP: If a potential investor asks you the question, ‘What role do you see yourself playing as the business grows well beyond its current stage’ often the answer they are wanting is something like “When the time is right, I’ll be looking to appoint a CEO/MD with the appropriate skills and experience to take the business to the next level, and I’d see myself moving into a non-executive director capacity”.
On the contrary, if you believe you’re the right person to take the business from inception to world domination, then you’d better be the right person!
Why not take a look around our Knowledge Base for more tips and information around establishing and funding a business.
Author: Richard Mojel - Commercial Director, ISQ Crowdfunding