What Not to Do
Mistakes 4 through 14
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- Mistake 4:
Overprojecting sales volume and timing. "They have
already miscalculated the size of the market. Now they overproject
their portion of it. They often say 'There are 200 million
homes, and I need to sell [to] x number of them.' When you
break it down, though, a much smaller number of those are really
sales prospects. That makes it impossible to make their sales
projections."
- Mistake 5: Making
cost projections that are too low. "Their cost
projections are always too low. Part of the reason is that they
project much higher sales. There are also unknown reasons that
always come out that usually make costs higher than planned. So on
top of everything, their margins are now lower."
- Mistake 6: Hiring
too many people and spending too much on offices and
facilities. "Now you have lower sales, higher costs and
too much overhead. These are the things that you see every day in
companies that fail. And they all grow out of that first mistake:
failing to research the size and viability of the
opportunity."
- Mistake 7: Lacking
a contingency plan for a shortfall in expectations.
"Even if you're realistic in your estimates to start,
there are things that happen when you start a new business. Your
sales ideas may be no good; bank rates may go up; there may be a
shipping strike. These aren't the result of poor planning, but
they happen. More often than not, entrepreneurs just feel that
something will come along when they need it. They don't have
contingency plans for it not working out at the size and time they
want."
- Mistake 8: Bringing
in unnecessary partners. "There are certain partners
you need. For instance, you often need money, so you're going
to need money partners. But too many times, the guy with the idea
takes on all his friends as partners. Many people don't provide
strategic advantages and don't warrant ownership. But
they're all going to get 25 percent of the company. It's
totally unnecessary, and it's a mistake. Before people are made
partners, they have to earn it."
- Mistake 9: Hiring
for convenience rather than skill requirements. "In my
first business or two, I hired relatives. It was easy to do, but in
many cases, they were the wrong people [for the job]. And it's
hard to fire people, especially if they're relatives or
friends. More time needs to be spent handpicking people based on
skill requirements. You really need super-skilled people who can
wear more than one hat. It just bogs you down when you hire people
who can't do the job."
- Mistake 10:
Neglecting to manage the entire company as a whole.
"You see this happen all the time. They'll spend half
their time doing something that represents 5 percent of their
business. You have to have a view of your whole company. But too
often, the person running it loses that view. They get involved in
a part, and they don't manage the whole. Whether I do this
product or that product, whether I hire somebody, [I consider] how
they [will] fit long term and short term in the big picture.
Constantly try to see your big picture."
- Mistake 11:
Accepting that it's "not possible" too easily rather
than finding a way. "I had an engineer who was a very
good engineer, but with every toy we developed, he would say,
'You can't do it that way.' I had to be careful not to
accept this too easily. I had to look further. If you're an
entrepreneur, you're going to break new ground. A lot of people
are going to say it's not possible. You can't accept that
too easily. A good entrepreneur is going to find a way."
- Mistake 12:
Focusing too much on sales volume and company size rather than
profit. "Too much of your management is often based on
volume and size. So many entrepreneurs want to say 'I have a
company that's this big, with this many people, this many
square feet of space, and this much sales.' It's too much
[emphasis] on how fast and big you can build a business rather than
how much profit it can make. Bankers and investors don't like
this. Entrepreneurs are so into creating and building, but they
also have to learn to become good [businesspeople]."
- Mistake 13: Seeking
confirmation of your actions rather than seeking the truth.
"This often happens: You want to do something, so you talk
about it with people who work for you. You talk to [your] family
and friends. But you're only looking for confirmation;
you're not looking for the truth. You're looking for
somebody to tell you you're right. But the truth always comes
out. So we [test] our products, and we listen to what [the testers]
say. We give much more value to the truth than to people saying
what we're doing is great."
- Mistake 14: Lacking
simplicity in your vision. "Many entrepreneurs go in
too many directions at once and do not execute anything well.
Rather than focusing on doing everything right to sell to their
biggest markets, they divide the attention of their people and
their time, trying to do too many things at [one time]. Then their
main product isn't done properly because they're doing so
many different things. They have an idea and say they're going
to sell it to Wal-Mart. Then they say they're going to sell to
[the] Home Shopping Network. And then the gift market looks good.
And so on."
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