10 Mistakes That Start-Up Entrepreneurs Make

When it comes to starting a successful business, there's no surefire playbook that contains the winning game plan.

On the other hand, there are about as many mistakes to be made as there are entrepreneurs to make them.

Here are the top 10 mistakes that entrepreneurs make when starting a company:

1. Going it alone. It's difficult to build a scalable business if you're the only person involved. True, a solo public relations, web design or consulting firm may require little capital to start, and the price of hiring even one administrative assistant, sales representative or entry-level employee can eat up a big chunk of your profits. The solution: Make sure there's enough margin in your pricing to enable you to bring in other people. Clients generally don't mind outsourcing as long as they can still get face time with you, the skilled professional who's managing the project.

2. Asking too many people for advice. It's always good to get input from experts, especially experienced entrepreneurs who've built and sold successful companies in your industry. But getting too many people's opinions can delay your decision so long that your company never gets out of the starting gate. The answer: Assemble a solid advisory board that you can tap on a regular basis but run the day-to-day yourself. Says Elyissia Wassung, chief executive of 2 Chicks With Chocolate Inc., a Matawan, N.J., chocolate company, "Pull in your [advisory] team for bi-weekly or, at the very least, monthly conference calls. You'll wish you did it sooner!"

3. Spending too much time on product development, not enough on sales. While it's hard to build a great company without a great product, entrepreneurs who spend too much time tinkering may lose customers to a competitor with a stronger sales organization. "I call [this misstep] the 'Field of Dreams' of entrepreneurship. If you build it, they will buy it," says Sanjyot Dunung, CEO of Atma Global, Inc., a New York software publisher, who has made this mistake in her own business. "If you don't keep one eye firmly focused on sales, you'll likely run out of money and energy before you can successfully get your product to market."

4. Targeting too small a market. It's tempting to try to corner a niche, but your company's growth will quickly hit a wall if the market you're targeting is too tiny. Think about all the high school basketball stars who dream of playing in the NBA. Because there are only 30 teams and each team employs only a handful of players, the chances that your son will become the next Michael Jordan are pretty slim. The solution: Pick a bigger market that gives you the chance to grab a slice of the pie even if your company remains a smaller player.

5. Entering a market with no distribution partner. It's easier to break into a market if there's already a network of agents, brokers, manufacturers' reps and other third-party resellers ready, willing and able to sell your product into existing distribution channels. Fashion, food, media and other major industries work this way; others are not so lucky. That's why service businesses like public relations firms, yoga studios and pet-grooming companies often struggle to survive, alternating between feast and famine. The solution: Make a list of potential referral sources before you start your business and ask them if they'd be willing to send business your way.

6. Overpaying for customers. Spending big on advertising may bring in lots of customers, but it's a money-losing strategy if your company can't turn those dollars into life-time customer value. A magazine or web site that spends $500 worth of advertising to acquire a customer who pays $20 a month and cancels his or her subscription at the end of the year is simply pouring money down the drain. The solution: Test, measure, then test again. Once you've done enough testing to figure out how to make more money selling products and services to your customers than you spend acquiring those customers in the first place, roll out a major marketing campaign.

7. Raising too little capital. Many start-ups assume that all they need is enough money to rent space, buy equipment, stock inventory and drive customers through the door. What they often forget is that they also need capital to pay for salaries, utilities, insurance and other overhead expenses until their company starts turning a profit. Unless you're running the kind of business where everybody's working for sweat equity and deferring compensation, you'll need to raise enough money to tide you over until your revenues can cover your expenses and generate positive cash flow.

8. Raising too much capital. Believe it or not, raising too much money can be a problem, too. Over-funded companies tend to get big and bloated, hiring too many people too soon and wasting valuable resources on trade show booths, parties, image ads and other frills. When the money runs out and investors lose patience (which is what happened 10 years ago when the dot-com market melted down), start-ups that frittered away their cash will have to close their doors. No matter how much money you raise at the outset, remember to bank some for a rainy day.

9. Not having a business plan. While not every company needs a formal business plan, a start-up that requires significant capital to grow and more than a year to turn a profit should map out how much time and money it's going to take to get to its destination. This means thinking through the key metrics that make your business tick and building a model to spin off three years of sales, profits and cash-flow projections. "I wasted 10 years [fooling around] thinking like an artist and not a business person," says Louis Piscione, president of Avanti Media Group, a New Jersey company that produces videos for corporate and private events. "I learned that you have to put some of your creative genius toward a business plan that forecasts and sets goals for growth and success."

10. Over-thinking your business plan. While many entrepreneurs I've met engage in seat-of-the-pants decision-making and fail to do their homework, other entrepreneurs are afraid to pull the trigger until they're 100% certain that their plan will succeed. One lawyer I worked with several years ago was so skittish about leaving his six-figure job to launch his business that he never met with a single bank or investor who might have funded his company. The truth is that a business plan is not a crystal ball that can predict the future. At a certain point, you have to close your eyes and take the leap of faith.

Despite the many books and articles that have been written about entrepreneurship, it's just not possible to start a company without making a few mistakes along the way. Just try to avoid making any mistake so large that your company can't get back on its feet to fight another day.

Success Story of SOICHIRO HONDA

Like most other countries, Japan was hit badly by the Great Depression of the 1930s. In 1938, Soichiro Honda was still in school, when he started a little workshop, developing the concept of the piston ring.
His plan was to sell the idea to Toyota. He labored night and day, even slept in the workshop, always believing he could perfect his design and produce a worthy product. He was married by now, and pawned his wife's jewelry for working capital.

Finally, came the day he completed his piston ring and was able to take a working sample to Toyota, only to be told that the rings did not meet their standards! Soichiro went back to school and suffered ridicule when the engineers laughed at his design.

He refused to give up. Rather than focus on his failure, he continued working towards his goal. Then, after two more years of struggle and redesign, he won a contract with Toyota.

By now, the Japanese government was gearing up for war! With the contract in hand, Soichiro Honda needed to build a factory to supply Toyota, but building materials were in short supply. Still he would not quit! He invented a new concrete-making process that enabled him to build the factory.

With the factory now built, he was ready for production, but the factory was bombed twice and steel became unavailable, too. Was this the end of the road for Honda? No!

He started collecting surplus gasoline cans discarded by US fighters – "Gifts from President Truman," he called them, which became the new raw materials for his rebuilt manufacturing process. Finally, an earthquake destroyed the factory.
After the war, an extreme gasoline shortage forced people to walk or use bicycles. Honda built a tiny engine and attached it to his bicycle. His neighbors wanted one, and although he tried, materials could not be found and he was unable to supply the demand.

Was he ready to give up now? No! Soichiro Honda wrote to 18,000 bicycles shop owners and, in an inspiring letter, asked them to help him revitalize Japan. 5,000 responded and advanced him what little money they could to build his tiny bicycle engines. Unfortunately, the first models were too bulky to work well, so he continued to develop and adapt, until finally, the small engine 'The Super Cub' became a reality and was a success. With success in Japan, Honda began exporting his bicycle engines to Europe and America.

End of story? No! In the 1970s there was another gas shortage, this time in America and automotive fashion turned to small cars. Honda was quick to pick up on the trend. Experts now in small engine design, the company started making tiny cars, smaller than anyone had seen before, and rode another wave of success.

Today, Honda Corporation employs over 100,000 people in the USA and Japan, and is one of the world's largest automobile companies. Honda succeeded because one man made a truly committed decision, acted upon it, and made adjustments on a continuous basis. Failure was simply not considered a possibility.

About Sabeer Bhatia

Rags to riches - the Biography of the man who created Hotmail and is one of the Richest man in US
When he was only 28, Sabeer Bhatia got the call every Silicon Valley entrepreneur dreams of: Bill Gates wants to buy your company. Summoned to Microsoft's command bunker in Redmond, Washington state, he was deposited on the new acquisitions conveyor belt. Round and round the Microsoft campus he went. All 26 buildings. At every stop, Bhatia's guide helpfully pointed out the vastness of the Microsoft empire. The procession ground on until it reached Gates's office. Bhatia was ushered in. Bill liked his firm. He hoped they could work together.


He wished him well. Bhatia was ushered out. "Next thing is we're taken into a conference room where there are 12 Microsoft negotiators,"Bhatia recalls. "Very intimidating." Microsoft's determined dozen put an offer on the table: $160 million. Take it or leave it. Bhatia played it cool. "I'll get back to you," he said. Eighteen months later Sabeer Bhatia has taken his place among San Francisco's ultra-rich. He recently purchased a $2-million apartment in rarified Pacific Heights.


A month after Bhatia walked away from the table, Microsoft ponied up $400 million for his start-up. Today Hotmail, the ubiquitous Web-based e-mail service, boasts 50 million subscribers - one quarter of all Internet users. Bhatia is worth $200 million. He is already working on his follow-up: a "one-click" e-commerce venture called Arzoo! And Bhatia is looking homeward with an ambitious plan to wire India.


Bhatia was born and raised in the southern Indian city of Bangalore. His father, who held a high post at the Ministry of Defence, and mother Daman, a senior official at a state bank, placed great value on education. In 1988, Bhatia won a full scholarship to the California Institute of Technology, in Pasadena. When his plane touched down that fall, 19-year-old Bhatia had $250 in his wallet and butterflies in his stomach. "I felt I had made a big mistake," he says. "I knew nobody, people looked different, it was hard for them to understand my accent and me to understand theirs.




I felt pretty lonely." Ten years later you can still catch a glimpse of the innocent abroad. People say when Bhatia enters a room he owns it. "I call him the Hindu Robot," says Naveen Singha, Bhatia's friend, mentor and proud owner of the third-ever Hotmail address. "He is persistent, focused, disciplined. He's a superior human being." Others say he glows with a beatific, otherworldly air.

Doing his masters of science at Stanford, Bhatia attended lectures by such legends as Steve Jobs of Apple and Scott McNealy and Vinod Khosla of Sun Microsystems. Listening to them speak, Bhatia "realised they were human. And if they could do it, I could do it too." After Stanford, Bhatia found work as a hardware engineer at Apple. In his cubicle, he read about young men starting up for peanuts and selling out for millions.


Bhatia pondered what the Net could do for him, and what he could do for the Net. Then he had an idea. It was called Javasoft - a way of using the Web to create a>personal database where surfers could keep schedules, to-do lists, family photos and so on. Bhatia showed the plan to Jack Smith, an Apple colleague and they got started. One evening Smith called Bhatia with an intriguing notion. Why not add e-mail to Javasoft? It was a small leap with revolutionary consequences: access to e-mail from any computer, anywhere on the planet. This was that rare thing, an idea so simple, so obvious, it was hard to believe no one had thought of it before. Bhatia saw the potential and panicked that someone would steal the idea. He sat up all night writing the business plan.


Hotmail made perfect sense: it included the letters "html" - mthe programming language used to write Web pages. A brand name was born. Bhatia had $6,000 to his name. It was time to find investors. By the time he reached the offices of venture capitalists Draper Fisher Jurvetson, 19 doors had slammed behind him. Steve Jurvetson and his colleagues quickly saw the potential and put up $300,000. Bhatia and Smith stretched the money all the way to launch day, July 4, 1996.


By year-end they were greeting their millionth customer. When Microsoft came knocking, 12 months later, they'd signed up nearly 10 million users. At $350 million, Hotmail's investors agreed: Sell. Bhatia returned to the table, alone, and once more said: "No." The contract was inked on Dec. 30, 1997, Bhatia's 29th birthday. The price: some three million Microsoft shares - worth $400 million at the time and twice that now. Today Hotmail users are signing up at the rate of 250,000 a day, and the firm is valued at some $6 billion.


Yet it is here that Bhatia launched Hotmail and it is here that he hopes once again to transform the Internet with Arzoo! - his latest brainchild. The company is only six weeks old, and the offices are strewn with boxes that once housed computers, monitors - and a ping pong table.