Most people go about starting their first business all wrong. They start with something far too difficult, which means it will never get started at all, or if they do it is likely to fail (meaning they will never start another). Probably the most universal "first business idea" that people have, is for some type of retail shop. The family owned restaurant, sandwich franchise, and corner store are all popular ideas. The second most popular "first business idea" is probably the high tech startup, which especially became popular after the dot com craze. The general idea being, (1) hire a bunch of smart people and put them in a nice office, and (2) change the world with a hot new technology. Unfortunately, both of these are TERRIBLE first businesses. Here's why: they require large amounts of money to be invested, are high risk, and have a low probability of success. It's no wonder that most people are reluctant to quit their job and work for themselves if this is what they think starting a business is all about! You've probably heard me say before that your business shouldn't be based on a brand new idea. Successful companies are those that take an existing business, and just improve it slightly. Your first business should also require very little investment (no office, employees, or outside funding) and you should concentrate on selling something as soon as possible. Let's explore this concept in more detail, by looking at the top five mistakes first time entrepreneurs make: Mistake #1: Raising Money For your first business, think small. Your first business should be more of a side project that you are testing out, than a full commitment of all your resources. More importantly, your first business should be inexpensive. Don't invest money that will bankrupt you if you lose it, avoid venture capitalists, and don't take on any debt or sell ownership in your company to others. These all increase your risk, distract you from your main purpose (which should be creating a valuable product and bringing in your first dollar), and means you have to start explaining your decisions to other people. Besides, you don't need to raise money if you aren't going to be... Mistake #2: Spending Money Here are a list of things you should not spend money on, under any circumstances, when starting your first business: an office or retail location, employees other than yourself, furniture, letterhead, logo design, legal services, and travel expenses (plane tickets and hotels). This is the classic mistake of a first time entrepreneur, who thinks that starting a company means spending money to APPEAR as if you are a company. Starting a company is about creating a product or service that people will pay for and getting the word out. Your sole focus during the startup phase should be earning that first dollar. Save money by working out of your home and meeting potential clients at a restaurant or coffee shop. Use the computer and furniture you currently own. Hire college student to make the website, and write the legal documents yourself by modifying templates found on the internet. Once your company is profitable, then, and only then, is it time to go back and start spending that money. Mistake #3: Waiting Another big mistake that first time entrepreneurs make is waiting too long to launch their product. Working in isolation, trying to make everything perfect before your big launch, will often result in disappointment. You see, nobody gets it right the first time. I've never met an entrepreneur who launched a product or company that was perfect from day one. A much better alternative is to release early and often. In other words, once you get the very basics of your idea put together, show it to the public. Start getting feedback on it and find out what people think. Start to build buzz and stay in touch with your early customers. When you do finally launch, you'll have a much better product. Mistake #4: Creating a Business Plan I can hear every MBA in the room shouting blasphemy! But I for one do not believe in business plans. After studying finance, accounting, and management, and seeing dozens of business plans presented to venture capitalists, I've become convinced that they have very little value. Even with the smartest people, best research, and all the time in the world, you cannot accurately predict the future. The truth is that you never know exactly what is going to happen when you launch the company, and trying to predict it is quite simply a waste of time. That's not to say you should blindly enter a business venture with no thought to the profitability. I think you should work through how much you think you can sell, at what price, and what your expenses will be. See if it at least is in the right ballpark. But the kind of calculations I'm talking about can be done on the back of an envelope, not 50 pages of excel documents. The fact of the matter is that business plans only exist to make investors feel good about giving away their money, and the research data inside them can be skewed. So leave business plans for the Fortune 500 companies and venture capitalists. Creating a business plan is a waste of time for your first business. Mistake #5: Becoming a slave to your new business Most people decide to start a company because they want the lifestyle. They want to set their own hours, make more money, and have total control over their life. But some entrepreneurs end up becoming slaves to their new business. They trade working 8 hours per day at a big company for working 12 hours a day for themselves! People who start restaurants, franchises, and retail shops often fall into this trap because the store can't be open if they aren't there. Avoid these for your first business, and seek one that fits your lifestyle goal. What would your business would look like if you had plenty of customers? How would your day be spent? Is there something only YOU personally can do? How would you feel about doing it eight hours per day? Great first business ideas, are scalable and don't require the owner to invest more and more time. Hopefully with these five common mistakes, you can start to reshape your idea of what a good first business is like. With a little bit of planning, you can avoid the common pitfalls of first time business owners, and recognize a great opportunity in front of you!
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