What NOT to do when starting a business/Not AT

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This is a list of 17 things not to do when starting a business. Now you may

think that it doesn't apply to you, but if you scale it down, you might

actually find it interesting...

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By MARK HENRICKS, Entrepreneur.com

 

John Osher has developed hundreds of consumer products, including an electric

toothbrush that became America's best-selling toothbrush in just 15 months.

He also started several successful companies, including Cap Toys. He built

sales to $125 million per year and then sold the company to Hasbro Inc. in 1997.

But his most lasting contribution to the business world just may be a list of

screw-ups he jotted on the back of a piece of paper.

 

" After I sold my business to Hasbro, I decided I'd make a list of everything

I'd done wrong and [had] seen other entrepreneurs do wrong, " explains the

57-year-old Jupiter, Florida, serial entrepreneur. " I wanted to make a company

that didn't make any of these mistakes. I wanted to see if I could come up with

the perfect company. "

 

He came up with an informal list of " 16 Mistakes Start-Ups Make " —since

expanded to 17—that has been used in a Harvard Business School case study, has

been

cited in many publications, and has become a part of what he teaches budding

entrepreneurs in his frequent university lectures. He also used the list in

1999 when he started Dr. John's SpinBrush to sell a $5 electric toothbrush that

quickly became America's best-selling toothbrush. In 2001, Procter & Gamble

purchased the company from him for $475 million.

 

" I didn't expect it to actually work like that, but it did, " Osher says.

" It'll probably never happen again. But we made a perfect business, from the

beginning to selling it to another company. " Since then, however, Osher has

created

another product, an electric dish scrubber that he also sold to Procter &

Gamble. And he has yet another health-and-beauty product-development effort

underway—although he's keeping the details close to the vest—in which he'll

try

again to create the perfect business.

 

To home in on what lies behind the 17 mistakes, Osher told Entrepreneur what

they are and how you can learn from them to achieve your own level of

perfection.

 

Mistake 1: Failing to spend enough time researching the business idea to see

if it's viable. " This is really the most important mistake of all. They say 9

[out] of 10 entrepreneurs fail because they're undercapitalized or have the

wrong people. I say 9 [out] of 10 people fail because their original concept is

not viable. They want to be in business so much that they often don't do the

work they need to do ahead of time, so everything they do is doomed. They can

be very talented, do everything else right, and fail because they have ideas

that are flawed. "

 

Mistake 2: Miscalculating market size, timing, ease of entry and potential

market share. " Most new entrepreneurs get very excited over an idea and don't

look for the truth about how many people will want to buy it. They put together

financial projections as part of a presentation to pump up their investors.

They say, 'The market size is 50 million people that could use this product, and

if I could only sell to 2 percent of them, I'd be selling a million pieces.'

But 2 percent of a market is a lot. Most products sell way less than 1

percent. "

 

Mistake 3: Underestimating financial requirements and timing. " They set their

financial requirements based on Mistake 1, and they go ahead and make a

commitment to this much office space and this many computers, and hire a vice

president of sales, and so on. Before they know it, based on sales projections

that

were wrong to start with, they have created costs that require those

projections to be met. So they run out of money. "

 

Mistake 4: Overprojecting sales volume and timing. " They have already

miscalculated the size of the market. Now they overproject their portion of it.

They

often say 'There are 200 million homes, and I need to sell [to] x number of

them.' When you break it down, though, a much smaller number of those are really

sales prospects. That makes it impossible to make their sales projections. "

 

Mistake 5: Making cost projections that are too low. " Their cost projections

are always too low. Part of the reason is that they project much higher sales.

There are also unknown reasons that always come out that usually make costs

higher than planned. So on top of everything, their margins are now lower. "

 

Mistake 6: Hiring too many people and spending too much on offices and

facilities. " Now you have lower sales, higher costs and too much overhead. These

are

the things that you see every day in companies that fail. And they all grow

out of that first mistake: failing to research the size and viability of the

opportunity. "

 

Mistake 7: Lacking a contingency plan for a shortfall in expectations. " Even

if you're realistic in your estimates to start, there are things that happen

when you start a new business. Your sales ideas may be no good; bank rates may

go up; there may be a shipping strike. These aren't the result of poor

planning, but they happen. More often than not, entrepreneurs just feel that

something will come along when they need it. They don't have contingency plans

for it

not working out at the size and time they want. "

 

Mistake 8: Bringing in unnecessary partners. " There are certain partners you

need. For instance, you often need money, so you're going to need money

partners. But too many times, the guy with the idea takes on all his friends as

partners. Many people don't provide strategic advantages and don't warrant

ownership. But they're all going to get 25 percent of the company. It's totally

unnecessary, and it's a mistake. Before people are made partners, they have to

earn

it. "

 

Mistake 9: Hiring for convenience rather than skill requirements. " In my

first business or two, I hired relatives. It was easy to do, but in many cases,

they were the wrong people [for the job]. And it's hard to fire people,

especially if they're relatives or friends. More time needs to be spent

handpicking

people based on skill requirements. You really need super-skilled people who can

wear more than one hat. It just bogs you down when you hire people who can't

do the job. "

 

Mistake 10: Neglecting to manage the entire company as a whole. " You see this

happen all the time. They'll spend half their time doing something that

represents 5 percent of their business. You have to have a view of your whole

company. But too often, the person running it loses that view. They get involved

in

a part, and they don't manage the whole. Whether I do this product or that

product, whether I hire somebody, [i consider] how they [will] fit long term and

short term in the big picture. Constantly try to see your big picture. "

 

Mistake 11: Accepting that it's " not possible " too easily rather than finding

a way. " I had an engineer who was a very good engineer, but with every toy we

developed, he would say, 'You can't do it that way.' I had to be careful not

to accept this too easily. I had to look further. If you're an entrepreneur,

you're going to break new ground. A lot of people are going to say it's not

possible. You can't accept that too easily. A good entrepreneur is going to find

a way. "

 

Mistake 12: Focusing too much on sales volume and company size rather than

profit. " Too much of your management is often based on volume and size. So many

entrepreneurs want to say 'I have a company that's this big, with this many

people, this many square feet of space, and this much sales.' It's too much

[emphasis] on how fast and big you can build a business rather than how much

profit it can make. Bankers and investors don't like this. Entrepreneurs are so

into creating and building, but they also have to learn to become good

[businesspeople]. "

 

Mistake 13: Seeking confirmation of your actions rather than seeking the

truth. " This often happens: You want to do something, so you talk about it with

people who work for you. You talk to [your] family and friends. But you're only

looking for confirmation; you're not looking for the truth. You're looking for

somebody to tell you you're right. But the truth always comes out. So we

[test] our products, and we listen to what [the testers] say. We give much more

value to the truth than to people saying what we're doing is great. "

 

Mistake 14: Lacking simplicity in your vision. " Many entrepreneurs go in too

many directions at once and do not execute anything well. Rather than focusing

on doing everything right to sell to their biggest markets, they divide the

attention of their people and their time, trying to do too many things at [one

time]. Then their main product isn't done properly because they're doing so

many different things. They have an idea and say they're going to sell it to

Wal-Mart. Then they say they're going to sell to [the] Home Shopping Network.

And

then the gift market looks good. And so on. "

 

Mistake 15: Lacking clarity of your long-term aim and business purpose. " You

should have an idea of what your long-term aim is. It doesn't mean that won't

change, but when you aim an arrow, you have to be aiming at a target. This

[concept will] often come up when people ask 'How do I pick a product?' The

answer depends on what you're trying to do. If you're trying to [create] a

billion-dollar company with this product, it may not have a chance. But if

you're

trying to make a $5 million company, it can work. Or if you're trying to create

a

company [in which] family members can be employed, it can work. Clarity of

your business purpose is very important [but] is often not really part of the

thought process. "

 

Mistake 16: Lacking focus and identity. " This was written from the viewpoint

of building the company as a valuable entity. The company itself is also a

product. Too many companies try to go after too many targets at once and end up

with a potpourri rather than a focused business entity with an identity. When

you try to make a business, it's very important to maintain a focus and an

identity. Don't let it become a potpourri, or it loses its power. For instance,

you say, 'We're already selling to Kmart, so we might as well make a toy because

Kmart buys toys.' If you do that, the company becomes weaker. A company needs

to be focused on what it is. Then its power builds from that. "

 

Mistake 17: Lacking an exit strategy. " Have an exit plan, and create your

business to satisfy that plan. For instance, I am thinking I might run my new

business for two years and then get out of it. I think it's an opportunity to

make a tremendous amount of money for two years, but I'm not sure [whether] it's

proprietary enough to stop the competition from getting in. So I'm in with an

exit strategy of doing it for two years and then winding down. I won't commit

to long-term leases, and after the first year, we'll start watching the

marketplace very closely and start watching inventories.

 

Simultaneously, I will keep the option open to sell it in case I can't get

something more proprietary. That means I won't sign international agreements

that would kill any opportunity to sell it to a multinational. I will make sure

that the patent work is done properly. And I'll try to make sure manufacturing

is up to the standards of any multinational company that I might try to sell

it to.

 

Another exit strategy can be to hand the company to [your] kids someday. The

most important thing to do is to build a company with value and profits so you

have all the options: Keep the company, sell the company, go public, raise

private money [and so on]. A business can be a product, too. "

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K

 

Cheers!

Kathleen Petrides

The Woobey Queen

Our Candles are the Cat's Meow!

http://www.fatcatcandleco.com