2.04 – Please, Do Not Make These Mistakes!
Starting a business can be an exciting venture, but it’s crucial to ensure you’re not beginning for the wrong reasons. Here are some common pitfalls to avoid:
Steering Clear Of Bad Assumptions
Your business idea should be thoroughly vetted to avoid potential pitfalls. Here are some assumptions that can lead to failure:
The Market Needs Educating
Believing that the market needs to be educated about your product or service can be a risky assumption. Many early internet businesses fell into this trap and failed. If customers need significant education before they will buy your product, it’s best to leave this idea to those with substantial resources and a long-term vision.
We're First to Market
The concept of gaining ‘first-mover advantage’ often justifies rushing into a new business. However, as discussed in Chapter 1, this idea is likely flawed. Being first doesn’t guarantee success if you cannot sustain your market position.
If We Can Get Just 1 Percent of the Market, We're on to a Winner
No market has a vacant percentage waiting to be filled. Entering any market requires displacing existing competitors. Even if your product is new, it must compete with established businesses. For example, Po Na Na, a chain of late-night souk bars, failed despite appearing new and unique. Competing in a crowded dining market with established cuisines and supermarket ready meals led to their downfall.
Every business begins with an idea, but it must be viable. This means the market must have customers willing to buy from you, and there must be enough of them to support your business. The idea doesn’t need to be original; it just needs to be practical. Franchised businesses are a good example of this, as they allow multiple business starters to capitalize on an established idea.
Avoiding obvious mistakes
Enthusiasm for starting a business is valuable, but it must be balanced with practical realities. Here are some mistakes to avoid:
Starting in a Sector You Know Little About
The allure of business opportunities in unfamiliar sectors can be misleading. Success in business relies on in-depth market knowledge and the ability to sustain it against competition. Without this knowledge, failure is likely.
Investing More Money Than You Can Afford to Lose
It’s essential to learn how business works before committing all your capital. Spending everything upfront is a gamble, not a calculated risk. For example, Freddie Laker, who founded the first low-cost, no-frills airline, risked everything on buying more planes than he could afford and betting against the exchange rate. This gamble led to his failure.
Competing with Established Businesses Before You're Ready
Taking on entrenched businesses with deep pockets is a recipe for disaster. Freddie Laker also made this mistake by challenging national carriers on their most lucrative routes. While his business model was eventually proven by Ryanair and easyJet, they started with substantial financial backing and targeted less contested short-haul markets.
Key Takeaways
Starting a business requires careful consideration and avoiding common pitfalls. Ensure your idea is viable, backed by solid market knowledge, and avoid overcommitting financially. Learn from the mistakes of others to set a strong foundation for your entrepreneurial journey.
