When I quit my corporate engineering job to open an eco-friendly retail store, unbeknownst to me at the time, I was making several mistakes. Of course, my first mistake was to open my doors the exact same month that the recession started (December 2007, in case you forgot), but that couldn’t have been helped unless I’d had a crystal ball with upgraded RAM and pin-point future-telling accuracy. Alas, I did not. But I digress. Using 20/20 hindsight, I noticed that there were a few clear errors that I made along the way that you can learn from as you’re starting your first business.
1st Mistake When Building a Business: Choosing a business with too much overhead
As I’m sure you are aware, running a retail business requires a lot of money for overhead. In addition to buying all of the inventory, you have to pay for rent, utilities, CAM, advertising (we’ll talk about that in a minute), PR, software, retail services, computer equipment, and the list goes on. Forget even trying to pay yourself in the first few years.
Even though you probably couldn’t have talked me out of starting my “dream” boutique 6 years ago, in retrospect, I wish I had started a business with much lower overhead. If I had, then I could have leveraged the same money I used to start my retail store to make lots more money in the end. Or, more accurately, I could have failed at a business that didn’t end up costing so much so that it would have been slightly easier to pick myself up and start over. When you’re choosing your first entrepreneurial venture (the one that you want to quit your job for), I recommend selecting one without much overhead so that you can learn what you need to learn about business without breaking the bank (or having to go back and get another job!).
2nd Mistake When Building a Business: Thinking “if I build it, they will come”
I could be wrong, but I think every new business owner goes through the glass-half-full phase of thinking, “If I build it, they will come.” In other words, if you create your business, people will automatically find you and buy whatever you’re selling.
For me, when I opened my retail store, I thought on some naïve level that if I made the store look amazing, had great customer service and sold great products, people would certainly start shopping there. Even today, that seems to make sense to me, but it was definitely not the case. I built it, but I’m telling you now, it took a long time for people to come. Even being in a popular, high-traffic part of town and advertising in all the local papers, it still took years to get it going.
Don’t get me wrong, I think having a positive attitude as an entrepreneur is absolutely critical, but at the same time, you have to recognize that it’s probably going to take a while to build your company and turn a profit. Obviously, people do get lucky and rapidly hit the big time, but it’s more likely that you’re going to have a steady slow burn. If I had known this back in 2007, I think I could have structured my business and my finances a lot differently to take this in account, which would have led to more success in the end.
3rd Mistake When Building a Business: Relying heavily on expensive advertising
This goes hand-in-hand with creating a business with too much overhead. When you start a business that has to rely heavily on advertising, your monthly overhead is going to skyrocket. Sure, advertising can make a lot of sense for your business (depending on the type of business you are starting), but it cost a lot and it’s hard to track how successful it is (unless you’re advertising online where you can track clicks/views/etc).
Knowing what I know now, I would have been cleverer about how I spent my advertising budget. The problem is that ads are so impersonal and it typically takes a lot of repetitions of seeing an ad for customers to take action, so they’re not highly effective. Over the years, I’ve found what works much better is PR. Having an article written about your business will drive more customers/clients to you because it is a more personal approach. With an article, people don’t feel like they’re being sold to, they feel like someone is recommending you. People like social proof that someone else likes what you’re doing. However you choose to advertise or promote your business, BE SURE that social proof (testimonials, media articles, recommendations, etc) is a large part of it.