The goal of every entrepreneur is to create a successful business that thrives and flourishes. What is the definition of thriving? To develop well or vigorously. To make steady progress. What does it mean to flourish? To be in a period of highest productivity, excellence, or influence. Success is the achievement of something desired, planned, or attempted.
Yet, most businesses fail or end up not creating the freedom that entrepreneurs envisioned when they started. Here are some of the typical initial missteps.
Business Plan & Funding
Many entrepreneurs believe they first need a business plan and then they need to raise funding immediately from professional investors. These types of investors rarely invest in ideas. There are some types of new businesses that are capital intensive such as a new car maker or pharmaceuticals that need funding from the get go, but those like software, retail, or e-commerce sites don’t. Many would-be entrepreneurs simply never get passed the starting line. They believe funding is the issue, but it is not, resourcefulness is.
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Many investors aren’t interested until a start-up reaches $2 million in annual sales. Lots of successful companies didn’t look for investors until they reached $4 million in sales and usually that’s after 3 or 4 years of operation. From there, funding allows them to reach $40 or $50 million within the next 6 years.
Entrepreneurs have an obligation to demonstrate the worthiness of their business proposal to investors. Entrepreneurs should focus on creating and growing the business first. This is the business proof of concept wanted and needed to attract investors. An early question entrepreneurs should ask themselves is, “How do I create this worthiness without major funding?”
Success the First Time
This brings me to the next point, most entrepreneurs believe their first product or service is the one that will reach success. In their minds, they expect some bobbles along the way, but no big hiccups. If the product doesn’t sell well, the blame is cast on marketing and sales. The first product should be considered a business experiment. It’s the starting point to address a particular market, a means to gain direct experience with the customers and industry, but it’s not the end. It’s very unlikely to be the one that brings the company success.
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Professional investors only attribute about 10% of a start-up’s success to the product. It’s the business of the product that matters more. Yet, many entrepreneurs put little thought into the business of the product. It’s mostly an afterthought, with the bulk of their attention directed at the development of the product or service. Usually they research how the current competitors conduct business and simply copy whatever they do. Start-ups must stand out from the competitors and not just with their product’s features, also in the way they do business. You can’t stand out by copying. And if you aren’t copying, then the business of the product becomes a series of business experiments too.
There’s a lot of experimentation with the business in the early years, trying to figure out what works and what doesn’t. This is the key to success – the willingness to experiment. There no sense in doing this in an unorganized manner either. That’s the idea behind the experimental start-up phase. Entrepreneurs write a concept plan instead of a business plan. Too often, the business plan process gives the entrepreneur the illusion that they’ve created a proven recipe, which when followed will lead to the desired result with certainty. Often times, the business plan contains little fact or experience, and following such a plan leads to failure. The concept plan focuses on outlining what the entrepreneur would like to happen, but details the guesses, assumptions, estimates, and what-if’s. Then the entrepreneur creates a strategy to conduct a series of business experiments so they can discover the right product and right business model.
About the Author
This guest post is courtesy Cynthia Kocialski. She is the founder of three start-ups and helps entrepreneurs transform their ideas into new businesses. Cynthia is the author of Startup from the Ground Up and Out of the Classroom Lessons in Success. Cynthia writes regularly at Start-up Entrepreneurs’ Blog and provides in her video series information on how to create a Concept Plan.
Video Series from Cynthia: Your Start-up Company As A Business Experiment