In the movie, Groundhog Day, Phil, played by actor Bill Murray, is forced to live the same day over and over again until he learns where he is making lifelong mistakes.
Many small business owners are also doomed to make the same mistakes over and over and over again. Here are the top 10 mistakes that are repeated by small businesses and how they can be solved.
1. They focus on profit not cash.
We learned during the great recession that company financial statements can be pure fiction. Profit at the bottom of the income statement is meaningless if your business does not have the cash to pay its obligations. Your profit could be “stuck” in your accounts receivables, inventory, or work in process. Understand the cash flow statement to learn how "profitable” your business really is and how much cash it has to invest, save, or distribute.
2. They don’t diligently collect the money that is owed by customers.
Customers that do not pay aren’t really customers; they are collection problems. Have a strict process on how your business operates in this area. This includes setting mutually-agreed-to prices and payment terms, checking with the customer when your invoice arrives, and asking when it will be paid. If it is not paid on time, call to find out where it is. Remember, the squeaky wheel always gets paid first.
3. Lack of focus on what your business does.
Many entrepreneurs early in starting their company want to be all things to all people. They believe they should not turn away any type of business from any customer. However, the successful company focuses on solving one pain first profitably for customers. They don’t expand too quickly to solving other related problems. To build a strong company, get boring and narrow real fast.
4. Expanding too quickly by increasing fixed and overhead costs.
Many entrepreneurs hear that bigger is always better. After some initial success, they want to have more office space. This is only a way to “grow yourself broke." In order to grow profitably, keep as many expenses variable and available as possible. This will ensure that expenses only increase when sales grow at the same time.
5. Hiring the wrong people.
Many small business owners have big egos. They routinely hire the wrong people for all the wrong reasons. This includes employees that are friends, relatives, or just not as good as themselves. This comes out of a basic fear that they will be overshadowed in their business. It is critical to hire people that are complementary to your skills. The only way to build a profitable sustainable business is to find leverage with people and processes.
6. Not firing employees quickly enough.
Every business owner’s mantra needs to be “slow to hire and quick to fire." If a mistake was made in the hiring process, this will be evident in the first 30 days of employment. People have a hard time changing within a company. What is worse is that everyone knows who the non-performers are in the company and this holds the business back. Fire your non-performing employees today.
7. Knowing when to quit.
The most successful entrepreneurs know “when to hold them and fold them." Will Rogers said that “if you find yourself in a hole, the first thing to do, is stop digging.” It is time to shut down your company if you run out of your passion and cash. In this case, there truly is not a way or a reason to turn the business around.
8. Not focusing on marketing and distribution.
The biggest error in thinking for many entrepreneurs is that “if you build it, they will come." The reasoning goes that if “I build a better mousetrap," customers will automatically buy it. There could be nothing further from the truth. The most successful businesses execute a superior marketing and distribution strategy that finds the customers that have the money to buy the product that solves their pain. Unfortunately, the best products don't always sell the most.
9. Failure to systematically do marketing even while they have “too much work."
We actually can’t sell anything to anyone; we just need to be there when people are ready to buy. This is why having a systematic and constant method to building relationships with customers, prospectors, influencers, and connectors is critical. Trust is built over a long period of time. Build relationships by consistently giving value freely. As a result, when a prospect or their friend has a problem your company can solve, they will call you.
10. Not consistently seeking help.
Small business owners are a stubborn group. We want to do it alone and not ask for help, until it’s too late. Get one or more mentors for your business early on. This can come from hired professionals like bankers, lawyers, or accountants, or organizations such as SCORE or SBDCs. Better yet, join a mentor group and talk to other business people who have been where you are right now. You will be surprised how many will volunteer their help.
What other mistakes do you think small business owners make over and over again?