1. Having my hands in too many pots
So many of us entrepreneurs jump on too many opportunities at once and not a single one of them wind up with our full effort. This is the number 1 thing that self made billionaire Jeff Hoffman warns against. He says young entrepreneurs always come to him saying, “Jeff, I’ve got 12 ideas!”. To which Jeff always says, “That’s great! Pick only one of them to work on.” He says he commonly gets the push back, “But you’ve made a bunch of different businesses, made movies, and made music Jeff. How did you get all of that done?” Jeff says, “by doing them one at a time!”
As someone who has been involved in up to 5 businesses at once, I can honestly say that all of my business have suffered from my split efforts up through 2017.
2. Creating an easy to compete with business
I formed Raku Cutlery in 2015 and started selling ceramic kitchen knives on Amazon under that brand. There was a lot of demand on Amazon for that product and not many sellers, so I tracked down a high quality, easy to work with manufacturer and jumped on board! My sales for 2015 were great! 2016 was almost as good. And 2017 was meh.
While I did reinvest my profits and try to grow the business, I didn’t put enough hard work and time into the business (thanks to blunder #1). To make Raku Cutlery a true success, I should have expanded my product line and created sales channels outside of Amazon. Since I stuck with the one product, a bunch of other sellers discovered my easy to work with, high quality factory in China and flooded the market. Not only have my sales slowed drastically, but my margins have thinned too.
You can shore up your profits by adding barriers to entry. The more hard work that you’re willing to do that your competitors are too lazy to do such as getting a patent, entering a restricted Amazon market, or innovating using customer feedback, the safer your business will be.
3. Starting a business doing something I’m good at, but hate doing
In The Millionaire Fastlane, MJ DeMarco recommends separating your passions from your business. If you do something you love, so are so many thousands of other people and you’re less likely to make your millions. (Not that there’s anything wrong with that if that’s not your goal!) So do something you might not necessarily love to make your millions, but don’t do what I did and do something you hate.
I’m really good at fixing computers. I don’t mind doing it in my personal life on occasion, but I HATE doing it as my full time profession. I’ve done it for over a decade and I’m over it. While opening CGE Computers in 2014 gave me a lot of valuable learning experiences in marketing, hiring, and running a business, I ultimately always wanted out because I’d rather be making and creating than fixing and repairing.
4. Hiring someone full time before the business was ready
My feeble attempt at working around blunder #3 was to hire someone to do all of the computer repairs. So I set an hourly rate and found the best, most knowledgable computer tech in Denver that would go for what I was offering. I found a guy that was good. Really good. Like, earned us a solid 5 stars on Google Reviews good in just a few months good.
Hindsight being 20/20, I focused too much on finding a rock star technician with excellent people skills and didn’t realistically gauge that his financial needs were beyond what CGE Computers could handle for the slow months. In the end, I had a hard talk with him that the business couldn’t meet what he was worth and he’s at a higher paying, more stable company now and we remain close personal friends.
While I don’t regret the experience, the business would have been more sustainable with 2-4 part time technicians who had 80% of my rock star technician’s skill more personal budget and schedule flexibility. I knew I should have done that, but never did thanks to blunder #1.
5. Competing on price and catering to bad customers
One of the things established entrepreneurs commonly say that doesn’t make any sense to normal people is, “I doubled, quadrupled, or added a zero to the end of my price and 3 funny things happened: I work less now, make more money, and all of my bad customers went away.”
If you’re entering a saturated market like I did with CGE Computers doing computer repair in Denver, competing with price is a good short term strategy to drum up some quick business. Be sure that you pivot and charge a premium for high quality product or service in the long run though. I never did this with CGE Computers, thanks to blunder #1. While I did build a list of nearly 300 great customers, I also generated a ton of garbage leads of people who would squirm at spending $89 to have someone come to them and fix their computer even though we had a no fix no pay policy. This is when all of our competitors were charging $120-$150 for the same thing. The cheapest customers are always the first to have a petty complaint, they’re the most time consuming, and the most painful to deal with. Whereas the more affluent customers are typically more understanding, less worried about cost, and are wiling to get out of the way to let you do your job.
6. (Embarrassing) I build a business without enough market validation
This is embarrassing because I knew better. I’ve spent about $6,000 on courses that taught me how to validate a market to make sure a business would be viable and I ignored what I knew.
As an amazon seller, I had heard of a number of fellow sellers setting up promotions to gather reviews incorrectly and losing thousands, sometimes tens of thousands of dollars worth of inventory. And I had an idea on how to fix it. I knew I should have pre-sold the idea using Kickstarter or IndieGoGo to validate my idea, but I rushed it and spent $1,000 out of pocket building a solution before validating that it would actually sell. While some amazon sellers did buy my product, I never made enough money to maintain the product with Amazon’s rapid changes. I wrapped up that business by refunding all of my customers in full and shutting it down.
7. (Really embarrassing) I took a handshake over a signed contract
One of my greatest business successes goes hand in hand with one of my biggest blunders. I helped an Amazon business grow by over 4 times its previous years revenue and thought I would get a big fat commission check. Well, I did collect a commission check, but it was less than half of what was verbally discussed and there wasn’t a thing I could do about it because there was never a signed contract.
Always have a signed contract, especially with trusted friends and family when it comes to a significant business deal. Really iron out the details before going into business and make sure you’re on the same page. If you’re the sales person and you’re getting 15% of the profits, clearly define what the profits are. Is it revenue minus cost of goods sold? If so, what counts as revenue and what counts as cost of goods sold? Does the office Playstation 4 count against your commission? If you’re amortizing (spreading a big cost over several tax years) some cost of goods sold, how does that count against profit and what you’re getting paid in commission?
All a learning experience
All successful entrepreneurs have a laundry list of failures. I look at them as valuable learning experiences. Even though in some cases, I stubbornly insisted on learning some tough lessons for myself rather than following warnings from others. I hope you can learn from my blunders and avoid making some of the same mistakes.
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