By Mark Fleming, President, Academy of Business Training, Inc.
In my 40 years of business, I have seen many companies come and mostly go. The primary reasons for the high failure rate are lack of management experience and undercapitalization. In this article, I am going to discuss what I find to be the most common mistakes made due to a lack of management experience.
Three common management mistakes are almost always fatal: 1) poor choice of location, 2) poor spending habits, and 3) failure to seek out advice and training.
1. Poor Choice of Location
I’m sure you’ve heard the adage, “What are the three most important considerations when opening a new business…location, location, location.” Truer words were never spoken, yet I repeatedly receive calls from entrepreneurs seeking advice on how to save their business when the location is the primary problem.
Many times I have seen entrepreneurs open in a location a national chain has abandoned. Their reason for choosing the location is because “it was already set up for my business, so I saved big on fixtures and finishes.” …that’s your reason for opening in that location? You thought you could make it in a place abandoned by a national chain? Your two hundred a month advertising budget is going to bring people in when the national chain spends hundreds of millions a year and couldn’t make it there? Opening in a location abandoned by another business is rarely a good idea.
Another location mistake is opening a specialty business in middle to a poorer neighborhood. The reason for this choice is usually, “I wanted to open my business close to where I live.” Choosing a location because it is close to where you live with no consideration of whether or not people in the area want or need your product or service is always fatal.
2. Poor Spending Habits
Poor choices in spending come in many forms. One of the most common is unrealistic expectations of business volume. Entrepreneurs are an optimistic bunch, so they tend to overestimate their opening volume of business. One young man I worked with was certain he was going to make it big, so he opened a 2000-square-foot store. As it turned out, and it usually does, 1000 square feet would have been sufficient. Even though there were often customers in the store, the store always looked empty, which creates the impression the business is not doing well and potentially drives away customers. We solved the problem by partitioning off the rear half of the store, and then his business looked like it was booming. It took several years for his business to grow to the point where the partition came down. The net result was he had to pay double what he should have been paying for rent, and this caused him to struggle for years.
Another mistake is buying everything new. Because most new businesses only last a year, there are plenty of fixtures available that are in almost new condition and available for ten cents on the dollar. Look around before you call a vendor to purchase new.
You should always ask yourself if your purchase will make you money. I was contacted by a woman who had just opened a clothing resale shop and was having cash flow problems. We went over her books, and I found numerous examples where she had spent money that would return nothing to the business. One such example was she had paid $185.00 to have her logo imprinted on her checks. I asked her if she thought having her logo on the checks would generate any business for her. On reflection, she realized the only thing the recipient of the check would be concerned about is if the check cleared! I asked her if the $185.00 would have come in useful now, see admitted yes.
3) Failure to Seek Out Advice and Training
The last problem we will discuss is the failure of new business people to seek out advice and training. Entrepreneurs are an independent bunch, doggedly determined to do things their way. The very thing that makes them want to own their own business is what makes them fail. Unless you are in some cutting-edge business, everything you are going to do has been done before. Why not learn from other people’s mistakes, so you do not make them yourself. Join discussion boards or groups for entrepreneurs. Ask lots of questions; you will find the most successful people enjoy helping newcomers. Seek out training in such things as management, customer service, and anything related to the operation of your business.