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Two Common Mistakes Made By New Business Owners

Undercapitalisation

Being undercapitalised is not only about lack of equity, but also the lack of appropriate debt facilities from a bank that understands the new business and its risk-reward profile. One cure for early cash-flow woes is to dig your well before you need it.

Arrange that “opportunity” or “mistake” finance well in advance, so you don’t have to rely on banks at the last minute. Many start-ups exceed their initial projections and then the principals scramble to pull the resources together to get the business to the next level.

These resources don’t just include cash flow, but also people, supply chain management, plant and equipment. Entrepreneurs need to have a monthly cash flow plan forecasting out over the initial 18 months, to facilitate mid course corrections.

Insufficient marketing

For every dollar spent in developing a product, five times that amount should be spent on marketing it. Unfortunately a large number of entrepreneurs fail to grasp the importance of marketing – they assume the product (or service) will sell itself, and customers will just come. This is surprising when you ask entrepreneurs what they should be concentrating on most in their business.

They usually say marketing, and this is evidenced by the high numbers of attendees at marketing seminars and workshops. Taking products to market costs and financial projections should always allow for marketing expenses.

While the market size is important, it is customers that you need – they pay the bills. It is crucial to implement a month-by-month marketing plan.

Seduced by the first few quick sales there can be a gap before a sufficient flow of prospects is built up in the sales funnel. Implementing a month-by-month marketing plan that involves client relationship management, visibility-related activities, and targeting of new prospects and potential referral sources will ensure you have a steady stream of profitable new business.

Common misconceptions

You just need a great idea or technology. There is no such thing as a “million-dollar idea”. Everyone has great ideas, the trick is to tap into a market need and create a winning product. Many ventures hire their technical talent; the leader has a vision of the market that leads to success.

You understand the market because you have talked to a few friends. Thorough market research is required to know who will buy, and why, to determine what characteristics will cause your product or service to appeal. If you can’t answer, “what problem does this solve”, then you don’t have a viable business idea.

You have no competitors. All businesses have competitors, because anyone can choose to spend their money on something else, even if it isn’t just like what you are doing or developing

Two Common Mistakes Made By New Business Owners

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