When I speak to clients looking to launch new ventures or grow their existing businesses, I often notice that they find themselves overwhelmed by challenges that have little to do with their business models. Often, a brilliant idea that works great on paper is overshadowed by bad decisions, such as hiring the wrong personnel, spending money on unnecessary items or failing to accurately capture customer needs.
Here are some tips I believe are essential for first-time entrepreneurs to consider while building and sustaining a successful business.
1. Demonstrate value to your customer.
Impress customers with your knowledge and work ethic. Demonstrate evidence of value to the extent that they will want you as their long-term partner. If this means you have to do something for free for an initial period to win their trust, be ready to do that.
I once worked with a client who had developed a systems integration solution that he believed would be a perfect fit for his enterprise customers — the only problem was that they were already using other products and seemed hesitant to make the change. By incorporating his solution as a limited “freeware” supplement to his other product offerings, he was able to demonstrate value that the customers wouldn’t have experienced otherwise. Eventually, they were so impressed with the solution and his dedication to serve their business needs that many decided to subscribe to this add-on service, resulting in an additional profit center for my client and, more importantly, committed, long-term customers.
In a competitive market, there is no substitute for sharing real-world value to gain customer trust; be ready to invest the time necessary to demonstrate value, and you will heap huge returns down the road.
2. Be ready to take calculated risks.
Most successful entrepreneurs have taken exceptional risks to get where they are today — it is indeed true that higher risks bring higher rewards. However, it is also important that every risk be evaluated carefully, as one wrong step could result in irreparable damage to your business.
On several instances, I have advised clients whose risk profiles were so high that I had to constantly talk them out of jumping off the metaphorical cliff. This included taking on risky, unsecured loans with usury-like interest rates, making a business or infrastructure acquisition decision without performing due diligence, and hiring candidates for key management roles without conducting proper screening — any of these decisions could have resulted in considerable pain or business failure without taking the time to carefully consider the underlying risks.
By incorporating a risk-evaluation process as a key component of decision-making, smart entrepreneurs are able to take the right kinds of risks and achieve phenomenal successes. Entrepreneurial risk-taking is a balancing act, but it can be a rewarding experience once you find the right balance.
3. Be frugal.
Eliminate wasteful practices that keep costs up. Constantly try to find ways to bring costs down. I’ve found that many entrepreneurs backed by VC capital or investing their own money spend lavishly on expenses that could be easily eliminated.
I once worked with a client who set up an office in an expensive part of downtown LA and hired several support staff on full retainers before landing a single customer. While the additional staff provided a nice cushion of support and the location attracted potential customers to his office, he quickly ran into recurring cash flow issues to keep up with the excessive burn rate when the sales conversions took longer than anticipated.
While certain startup expenses such as registration fees and essential infrastructure cannot be avoided, successful entrepreneurs often find creative solutions to keep overall costs down, such as setting up virtual offices, hiring temporary staff when possible and making equity a key component of compensation packages to retain and motivate key talent. Frugality is not a bad word when it comes to entrepreneurship. Embrace this idea, and you will find running a startup business a truly rewarding experience.
4. Plan for change.
I have noticed that many first-time entrepreneurs make the mistake of assuming they have the perfect business solution the first time around, only to find their products failing because of unanticipated problems.
One of my clients decided that his geolocation-based price comparison app was perfect in its current form for younger customers looking for deals while shopping in retail stores, and it did not require significant market testing to prove his model. Come launch day, the product launch was a disaster because certain key locations experiencing heavy product downloads were not mapped into the geolocation feature. Additionally, the user experience failed to account for older customer demographics that loved the product but couldn’t handle all the social media widgets incorporated within the app. The client worked on significantly revamping the product and, after addressing the user experience, location and demographics issues and testing the product across a wider market, he relaunched the product to great success and positive feedback.
The ability to adapt to changes and pivot your business plan toward a different path based on market data is a key attribute to be a successful entrepreneur.
5. Know your numbers.
If you are launching a business, make sure you and your partners have a good understanding of the numbers behind key business decisions. Data is a powerful tool in assessing “go/no-go” decisions but is often overlooked because the entrepreneur doesn’t take the time to fully understand the cost implications.
Hire an accountant, and talk to your CFO. Also, write down the numbers on Excel, Notepad or even a piece of paper, and take the time to understand the data to the fullest extent possible. This will not only help you come across as smart and reliable in front of investors, but will prevent you from committing costly mistakes while making key decisions for your company.
