Mistake
1: Not solving a real problem or need
If you want to build a successful and
profitable business, you must create value, and one of the easiest ways to see
if your product creates value is by evaluating whether or not it solves a real
problem or addresses a real need.
Sometimes people get so excited about their
ideas that they forget to perform this primary reality check.
The Iridium project launched by Motorola in
the late 1990s illustrates this point perfectly. Around that time, the mobile
market was in ferment, and service operators around the world were fighting to
claim the increasing number of mobile subscribers.
Most mobile networks, however, were using
base stations that could cover only a couple of kilometers each. Such
technology obviously limited the range where operators could offer their
services.
In order to address this limitation,
Motorola tried to develop a network that would cover literally the whole world.
It looked like a great innovation, and the management team was enthusiastic
about the idea that people would be able to talk anywhere from the Sahara
Desert to the North Pole. They thought that this would definitely create value
for the customers.
The project required an investment of 7
billion dollars and it involved 88 satellites that were placed into orbit
around Earth.
After the network was in place, they started
selling the services. The handsets were large and clumsy, because they required
a more complex technology. They were also selling for $3000 apiece, and call
charges were incredibly high. But hey, those devices would allow users to
communicate anywhere in the globe!
A couple of months later, once the novelty wore off,
people started to realize that there was not such a strong need to make calls
from a remote city in Siberia or from an island in Polynesia, after all. But it
was already too late. Motorola not only missed the sales expectations by far,
but it was also forced to keep paying the maintenance of the satellites, which
amounted to 200 million dollars, monthly….
Motorola invested in what its
managers thought would be a promising innovation, but there was no customer
need to be met or problem to be solved in the first place. In 1999 the Iridium
project filed for bankruptcy under Chapter 11.
Before starting your website or
business, therefore, make sure it will solve a real problem or address a real
customer need.
If you need help to identify
problems and customer needs, take a look around and see what people are
complaining about, what products or services they ask for but are unable to
find in the market, and so on.
Mistake
2: Lacking focus
The Internet is certainly erupting with
opportunities. All it takes is an idea and passion to build a website around
it, and in a matter of months you could have a real business on your hands.
Curiously enough, this abundance of opportunities is also what leads many
online entrepreneurs to fail. How come? Because they end up trying to pursue
too many things at the same time.
They start several blogs, promote affiliate
programs, create mini websites for AdSense and offer consulting services on top
of that. As a result, they end with average, if not mediocre results in each of
these activities.
If you want to create something powerful,
you need to concentrate your efforts on it. This is true for most things in
life. Just think about light. When you have dispersed light beams, they are not
that strong. When you concentrate the light beams, however, they become very
powerful. So powerful that they can cut steel! This is the concept behind the
laser.
Testing with different business models and
ideas is fine, but once you decide what direction you want to go, you will need
to focus all your time and energies on it.
As you probably know, the online market
place is a crowded one. You have thousands of blogs in every niche, hundreds of
websites in every segment and dozens of online companies offering similar
services. If you want to be profitable, you need to be the best at what you do,
and you will only achieve that if you have a laser sharp focus.
This obviously
does not mean that you will need to stick with one project for the rest of your
life. If you grow your business effectively there will be a point in time where
it will pretty much stand alone, and you will be able to step back and pursue
new ideas. Until you reach that point, however, you need to focus ALL your time
and energies on that single project.
Mistake
3: Not finishing what you start
This mistake is connected with the previous
one. People that lack focus usually have a hard time finishing what they
started. You probably have a friend who is always starting a new diet, only to
give up on it one week later, right? Needless to say, that friend will have a
hard time reaching his or her weight loss goals. The same is true for
businesses. Entrepreneurs who can’t finish what they start don’t go very far.
On a macroscopic level, as we explained
above, people who start several projects at the same time take few of them to
completion. Even if a person manages to stay focused on a single project,
though, he can still make the mistake of not finishing what he started.
Suppose that a certain person has a social
media marketing business. He makes a living by helping companies reach
customers through social media. One of his first marketing activities is the
creation of a blog, where he will write about social media, showcasing his
expertise and building an audience. He starts writing solid articles every day
on the blog, but after a couple of weeks the posting frequency goes down, and
within two months the blog is completely abandoned.
He then figures that writing and releasing a
free report about social media marketing could generate some buzz and attract
new customers. He starts writing it, but after ten pages or so the words stop
flowing, and he decides to put that idea on hold.
Finally, he decides to run a Pay-per-click
advertising campaign on Google AdWords. He spends some $50 buying clicks, but
after that he doesn’t analyze what keywords were converting better, how many
customers he got out of the campaign, what was his return on investment and so
on.
As you probably
guessed, this business will have a very low chance of succeeding, because the
owner is not finishing what he starts
Mistake
4: Under spending
Whether you plan to start a blog or an
online company, you will need to spend some money along the way. New
technologies and web 2.0 tools are certainly bringing down the costs to set up
and manage any kind of business, but that doesn’t mean that you should start
yours with zero investment. It would be possible, but most of the time not
optimal and too risky.
People that under spend on their projects
will often have a doomed venture right from the start.
Let’s consider the creation of a blog, for
example, which is one, the simplest and cheapest forms of web publishing. One
could say: “Why not just buy an available domain name, get some cheap web
hosting for $5 monthly or less, load a freely available WordPress theme and
start writing?”
In theory, you could do it, but it would be
much harder and take much longer to make such a blog profitable. Why? For
several reasons. It is hard to find good domain names these days that are still
available, so you would probably end up using a long and boring domain that
would not help your brand at all. With a free WordPress theme, your site would
look like thousands of others, again hurting your brand and making it more
difficult to communicate credibility. Should you write a popular article and
reach the front page of a social media site, your cheap web hosting would
probably not be able to sustain the traffic load, and your server would crash.
So on and so forth.
With a minimum investment, on the other
hand, you could purchase a nice domain for your blog, hire a designer to draw
your logo and customize your WordPress theme, and get a decent web hosting
service. You could spend less than $400 on these items combined, but they would
make a huge difference in terms of making your blog stand out from crowd.
As you can see, we are not talking about
investing tens of thousands of dollars into enterprise level software solutions
and consulting services. This would be the other extreme. We are talking about
investing the strictly necessary amount of money to ensure you will have a
professional setup that will work towards your goals and not against them.
Mistake
5: Overspending
Admittedly this problem does not occur as
frequently as under spending, but it does happen. It happens particularly with
people who have money coming from other channels (e.g. offline entrepreneurs
that want to start doing business online, 9 to 5 workers with big savings
accounts or startups that have raised money from venture capital firms).
Why might having too much money laying
around be a bad thing? Because money dumb us down. When you have too much of
it, you get too comfortable. You hire people when there is no need to; invest
in marketing campaigns that won’t improve your bottom line; you don’t work hard
to find the most clients possible; and so on. When the money runs out (and it
will!), you will find yourself with a business that can’t stand up on its own.
When money is scarce, on the other hand, you
will literally get off your butt. You will get things done as quickly and
efficiently as possible, you will find creative ways to reach your users and
promote your services, and you will put a double effort into closing every
sale.
If you happen to
have too much money laying around, therefore, you need to limit it. Create a
tight budget for your projects, and stick to it religiously. Your business
needs to run by itself after all, and not with the money that you inject into
it from external sources.
Mistake
6: Trying to avoid competition
People tend to think that the secret to
building a successful business or making a lot of money is to find a market
with no competition. While there are untapped opportunities out there, it is
very hard to find them, and waiting for one to appear is not an option. If
there is a known consumer need and a viable business model, it is very likely
that some companies or people will already be trying that.
Even if you managed to find a market with no
competition (or to create one as some companies do), soon afterward other
companies would be jumping right into it.
If you can’t avoid competition, what should
you do? Beat it! That is the whole point of playing the game, you need to beat
the other players.
Perhaps the greatest misconception that
leads people to want to avoid competition is the “first mover advantage”
theory. This management theory states that the first company entering a certain
market or niche will gain a massive market share and, thanks to the competitive
advantages developed, it will also be able to defend its leadership position
from new entrants, no matter what.
It is an intuitive thing, and many academics
have defended this theory over the years. But is there empirical evidence to
back it up? Not quite. Google was not the first search engine. Ebay was not the
first online auctions website. Amazon was not the first online bookstore.
MySpace and Facebook entered into the social networking market many years after
the pioneer, Classmates.com.
There are few situations where the first
mover advantage theory holds true, like in natural monopolies (i.e. the first
company building an oil pipeline does enjoy some advantages for being the
first). In most other cases, and especially on the Internet, being the first to
enter into a market is not essential to succeeding
Mistake
7: Trying to reinvent the wheel
Picasso once said: “Good artists copy; great
artists steal.”
Contrary to what some people might believe,
he was not encouraging fellow painters to rip off the work of other painters.
What he meant was the fact that great painters need to go beyond imitation.
They need to be able to identify, understand and incorporate the traits and
techniques of other successful painters. After that the painter will still need
to develop his own style, obviously, but neglecting the advancements that other
people introduced would be foolish.
The same is true for businesses. If you try
to reinvent the wheel for every aspect of your business you will certainly have
a hard time achieving success. It is essential to analyze the competition,
identify what they are doing right, understand how they are doing it, and
finally incorporate it into your own business.
Obviously, you will still need to innovate
if you want to build a successful company, but these are complementary and not
mutually exclusive strategies. In other words, successful companies incorporate
best practices of their markets and innovate at the same time.
Let’s suppose that you want to build an
online store to sell running shoes. You could try to develop the store layout
and purchase process all from scratch. However, this would probably take a lot
of time, energy, and the results would be uncertain in the end. A smarter
approach would be to analyze how established online shoe stores organize their
products and handle the purchase process, and then adapt it to your own
requirements. This will give you a solid starting point, and you can always
innovate on top of that to leap ahead of the competition.
Mistake
8: Trying to do everything yourself
One of the most difficult things for an
entrepreneur is to learn how to delegate work. When you do everything yourself
you control every detail of the execution, including the quality and the
deadlines. When you pass work to other people, however, a lot of uncertainties
come into the picture.
Unfortunately, you can’t build a real
business alone. There are just so many things that a single person, albeit hard
working, can do. Delegating work is essential, and you should start doing it as
soon as possible.
At this point you might be asking yourself:
“Are you suggesting that I need to start hiring people?” Not at all. Hopefully
one day your online projects will be so big that they will require full time
employees, but until you arrive there you can still get help from freelancers
and part time contractors.
For example, even if you are just getting
started with a blog you could still delegate part of the work. If you are a
good writer but have no technical skills, you could hire a freelancer to setup
your blog and design it for you. Sure this will cost some money, but it will
save you a lot of time, time that you will be able to spend doing what you do
best.
Mistake
9: Being inflexible
While having a strong and clear vision about
what you want to achieve is essential, it is also important to not become
inflexible regarding how you will achieve it. In other words, the vision is the
what, and it should be rock solid. The how, on the other hand, are the various
strategies and action plans that you will use to achieve that vision, and they
should be flexible and crafted along the way.
Let’s take a look at the disk drive
industry. From 1976 to 1996, about 130 companies entered into that market
segment. In 1997 only 20 of them were still in business. Almost 85% of the
companies had ceased to exist, most of them because they were inflexible about
how they pursued their vision.
During the first years of the industry, the
only disk drives available were the 14-inch ones that supplied mainframe
computers. The two important performance parameters for those drives were the
overall capacity and the cost per megabyte. Early in the 1980s, some new
companies (including Micropolis, Priam and Quantum) developed the smaller
8-inch disk drives. They packed only 10 to 40 megabytes, while the mainframes
required 400 megabyte drives. The companies producing 14-inch drives,
therefore, decided not to produce the 8-inch ones because it was not what their
customers wanted.
Micropolis, Priam and Quantum went on
searching for potential customers for their product, and they found them in the
producers of minicomputers like DEC and HP. Those manufacturers were willing to
have a reduced disk capacity and a higher cost per megabyte in exchange for the
reduced size.
After some years, minicomputers were
dominating the market and mainframes were on the way out. By that time it was
too late for the 14-inch disk drive producers, and most went out of business.
The same pattern was observed when Seagate introduced
the 5.25-inch disk drive.It’s capacity was too low to supply minicomputers, so
the leading disk drive manufacturers ignored it, as their customers would never
want such a product. Seagate went on searching for potential uses for its
drive, and it found one on the personal computer, which could afford having a
lower capacity and a higher cost per megabyte as long as the size was adequate
Again after some years personal
computers were ubiquitous, while minicomputers were becoming a rarity. The
leading producers of 8-inch disk drives lost their position because they were
too inflexible. They were not willing to explore new uses for their existing
products or new product innovations, and they were forced out of the market as
a consequence.
As we mentioned before, your vision should be carved
in stone, but the strategies that you will use to achieve it should be
flexible. They will change over time in response to the evolution of the
marketplace and to the changes in your customers.
Mistake
10: Not testing and collecting facts
Trusting your gut and using intuition is a
good thing, but you need to know when to do it. Most of the time people will
rely on their intuition too much (out of laziness or carelessness), when they
should be testing and collecting the facts instead.
Want a simple demonstration? Take a look at
the image below of two tables. Which one of the tables would be easier to get through
a narrow door?
It looks like the left one is much narrower,
right? That is what intuition would tell most of us. A wise person, however,
would not trust this too much, and would rather get a ruler to measure the size
of the two tables before giving an answer. This person would find that,
surprisingly, both tables are equal in size and shape!
This is an optical illusion first proposed
by Roger N. Shepard on the book Mind Sights: Original Visual Illusions,
Ambiguities, and other Anomalies, and it illustrates our point quite well.
Whenever you need to make decisions for your
business or to draw your strategies, evaluate if it’s possible to test and
collect facts beforehand. It will take some work and consume time, sure, but it
might also be the difference between making the right and the wrong move.
Action
Points
1. Evaluate whether or not your business
ideas solve a real problem or address a real customer need. Ask yourself if
there are people out there looking for what you plan to offer, and how much
they would be willing to spend to get it.
2. If you are already pursuing several
online projects, or have several ideas that you want to kick start, choose one
of them and focus on it. Testing them before you make a decision is fine, but
choose one as soon as possible and stick with it.
3. Make finishing what you start a habit.
This applies to things at all levels, from large projects to your daily
activities.
4. Make a list of basic items that are
necessary to getting your idea off the ground (e.g., domain name, web hosting,
content management software), and then list the items that could be worth
investing in because they would give you some competitive advantage or
strengthen your brand (e.g., professional logo design, professional website
design, custom coding of an application).
5. Create a budget for every project you
start, and stick to it religiously.
6. Evaluate the competition you will face
with each of your business ideas and projects. If there is no competition for
some of them, maybe it is because there is no market either.
7. Remember to identify and incorporate the
best practices of your market segment. You will certainly have smart people
competing with you, so learn from them before you try to beat them.
8. Start delegating as soon as possible and
focus on the strategic side of the business, because that is where your time
will be more effective.
9. Remember that your vision should be rock
solid, but your strategies need to be flexible and reflect the changes in the
market place and in the customers.
10. Always test
and collect facts before making decisions.
