6 Fatal and Yet Totally Avoidable Entrepreneurial Mistakes
One of the most gratifying aspects of having achieved even a little success is that people will listen to you. Unfortunately, what people most want to hear about is how you’ve succeeded rather than how you nearly blew it. And so we build story lines around all of the great decisions we made that led us to where we are. But that’s not truth; it’s a reconstruction of the past that sounds neat and orderly.
That point was brought home when one young man I’m mentoring asked me a zinger of a question: “What’s the biggest screwup that you wish you could go back and warn your younger self about?”
We tend to conveniently leave out the “screwups” when we talk about our successes, especially the near-fatal ones. In large part, it’s because successful people don’t live in the past; they learn and move on. Besides, I can assure you that, were I to go back in time, my younger self would not listen to me. I expect his comment would be, “If you messed up that bad, I really don’t want your advice!” So instead I’m telling you.
Do me a favor: Please listen, because if you don’t, I can guarantee you’ll be writing this same column a few decades from now.
1. Personal Guarantees
“The prospect of going personally bankrupt sucked the life out of me.”
Here’s the conventional wisdom: Nothing will motivate you to succeed on plan A more than having no plan B. You either make it into orbit or you fall back to Earth in a blaze of glory. That sounds heroic; trust me, it’s not, at least not for long. While I personally maxed out enough credit cards to pay for a gently used Ferrari, I quickly found that though it may work to jump-start a business, being constantly obsessed with the prospect of going personally bankrupt sucked the life out of me. As soon as I dug my way out of debt, I made a hard rule that I would not sign personal guarantees. If your business is viable, you shouldn’t have to. If it’s not viable, you really need to ask yourself how a personal guarantee is going to change that.
2. Lavish Digs
“While I was there, I’d indulge in refining the useless expertise of kicking myself in my ass.”
Most office spaces end up being museums to house our insatiable egos. My last office space build-out cost just about as much as our top line for the past year and about tenfold the cost of my house at the time. After I successfully sold the company, and moved into the even nicer digs of our billionaire acquirer, I’d still go back to that empty office space and look at the millions of dollars in build-out. While I was there, I’d indulge in refining the useless expertise of kicking myself in my ass.
Here’s a shocker; people are not entirely motivated by money. One of the worst decisions I made was to put in place an across-the-board pay increase for my company when we hit $6 million in yearly revenue. Years later, after the company had been sold, one of my longtime associates in the old business told me it was the worst decision I had ever made. I was dumbfounded. Until that point, I still thought we had done a great thing. We had money to burn, so why not share the wealth? There’s a difference between compensating well and overcompensating. Overcompensation can actually have a negative effect on productivity. Doubting that? Read Daniel Pink’s Drive and get back to me.
4. Misjudging Burn Rate
“Before you know it, you’re burning through cash like a solid-fuel rocket that can’t be shut down once it’s ignited.”
When your business is growing, one of the hardest things to do is say no to any idea that can increase your efficiency. Each idea makes sense and promises to return $2 for every dollar you invest: from ergonomically designed chairs to on-demand massages, and cappuccino makers to CRMs. Here’s the hard truth: It’s a black hole. Before you know it, you’re burning through cash like a solid-fuel rocket that can’t be shut down once it’s ignited. You need to establish a budget and live with it. Make sure it includes enough cash to survive a storm; a hard budget to invest in new systems and technologies; and hedge bets for innovations that may never pay off. Be disciplined on this. You’ll get lots of pressure to cave, especially to spend reserve cash on hand. Don’t, unless you have outside investors with very deep pockets willing to ride it out.
5. Giving Up Control
This one is the kiss of death. It’s what nearly buried Steve Jobs but has kept Larry Ellison at the helm of his company for nearly four decades. When you are growing a company, decisions need to be made fast. Arguing over who gets to make the decision is the worst thing you can do. Not only does it slow the decision but it also undermines the organization’s confidence in your ability to make a decision. In study after study, the quality that people admire most in a leader is a clear ability to decide and to communicate the reasons for what was decided. Agree or disagree, you know what the decision is and why it was made. Giving up control, primarily through giving up too much ownership, will take a toll on decision making and ultimately on your ability to lead.
6. Mistaking a Lifestyle Business for an Exit
“The risk is that you can easily undermine the great potential for a long-term lifestyle business by running it into the ground as a failed exit strategy.”
This is perhaps the single biggest mistake I see most entrepreneurs making. I got lucky and grew my business to the point where I made the transition from lifestyle to exit. However, in today’s marketplace, everyone has aspirations of becoming a unicorn and cashing in big on an exit. Stop for a second and think about what you really need, not just what headlines may tantalize you with. An exit is wonderful, but I can assure you that many people reading this would be much better off building and maintaining lifestyle businesses. The risk is that you can easily undermine the great potential for a long-term lifestyle business by running it into the ground as a failed exit strategy. Think carefully about this, because once you decide on an exit path, although the payoff is big, your results are binary and your trajectory is nearly impossible to change.
This article was originally published on Inc.
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Tom Koulopoulos is the author of 10 books and founder of the Delphi Group, a 25-year-old Boston-based think tank and a past Inc. 500 company that focuses on innovation and the future of business. He tweets from @tkspeaks.
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