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Moisés Alcántara Ayre wrote: ↑November 4th, 2023, 10:44 am
I'm starting my own business in a few more weeks. I've been giving it my best shot thus far. However, I was wondering what the most common mistake is for people who start their own business.
Hi, Moisés Alcántara Ayre
Thank you for your question!
In a broader sense than you probably mean, I do my best to avoid the word 'mistake'
altogether. I explain that and the reasons for it in this Instagram post
The word 'mistake'
is not always quite as dangerous and misery-inducing as words like 'should have'
and 'ought have'
, but it can be, namely to the degree it is being used to imply or mean those things. For instance, when one says, "I made a mistake
", they might mean the same thing as saying, "I shouldn't have
done that" or saying "the past me is bad
for having done that". If they say to their child or friend or coworker, "you made a mistake
", they might mean the same thing as saying, with resentment
, "You shouldn't have
done that", or "you are bad
", or "you did bad
I don't think you are saying that, but instead I just mention it so you (and any other readers) can be aware
) of that potentially dangerous use of the word 'mistake'
So I recommend you check out that Instagram post
, and moving forward instead of using the word 'mistake'
, use a phrase like 'learning opportunity'
or 'growth catalyst'
, or even just a more descriptive objective term like 'typo'
. You can even skip any possibly oversimplifying label entirely, and just say things like, "I did X, and I learned Y, so next time I encounter a Z, I will do A instead of X, thanks to that helpful lesson I learned by doing X."
In another example, instead of unhappily saying, "I made a mistake
," you can just happily say, "I won't do that again."
Moving on, most new businesses go out of business within less than 10 years.
Starting a business is a little like getting in the boxing ring to fight Mike Tyson. It's brave, and most likely you are going to get your butt kicked brutally.
Most new businesses go out of business very fast, often leading to the entrepreneur who started the business declaring bankruptcy or being left with extreme debt. In fact, "most" is an understatement. 65% of new businesses go out of business within the first 10 years.
Even of those few that stay in business, many just lose money, meaning they don't make profit.
I think what you are asking is something like this: "What are some of the most common things that most new business owners do that significantly increase the chances of their business going out of business or that otherwise significantly reduce their profits (or increase their losses)?"
I don't know what is literally the most common one statistically, and presumably nobody does and nobody can. But, here are some of the most common and significant ones that I suggest you watch out for and do your best to avoid:
- Throwing Good Money After Bad
-- Example: Imagine you own 10 lemonade stands, and 8-9 make a decent profit per month, and 1-2 of them are losing money or not doing well. Many business owners make the financially foolish move of spending 90% of their free capital and free time on that one worst lemonade stand, desperately attempting to fix it and make it perform as well as the others, or at least pay the increased expense of repeatedly bailing it out and repeatedly repairing the many expensive headaches it causes for you. Instead, it's usually more profitable to re-invest your time and money in your most successful businesses/stocks/endeavors/employees/etc. as opposed to proverbially throwing good money and time after bad. It sounds so simple on paper: re-invest in what works (i.e. your good investments) rather than throwing good money after bad by investing even more in your worst performers. But you might be surprised how common it is for people to do this. Even at the casino you will see people foolishly chase their losses until they go bankrupt. But it's not even just in business and fiances. Consider how codependent and addicted people become in toxic romantic relationships; People often take for granted a good easy low-maintenance partner while in contrast investing tons of time and effort and loyalty into a melodramatic, high-maintenance, and/or toxic one. They chase their losses; and the more they lose the more emotionally stuck and addicted they get. Even outside of romance, and into the realm of friends, family, and neighbors, people will often spend tons of time, money, and effort giving even more to ungrateful people in a desperate attempt to finally get their overpriced gratitude, which typically never comes, instead of cutting them off and spending that valuable time, money, and effort re-investing in the already grateful people who are easy to please. In other words, typically it's better to invest your expensive oil on the non-squeaky wheels, and throw away the squeaky wheel, rather than waste tons and tons of oil on a high-maintenance low-performing squeaky wheel and thereby neglecting the high-performing non-squeaking low-maintenance wheels that actually bring in the oil. Know when to cut your losses. Know when to fold. Do less, better.
I rarely see a poker player lose by folding too often, but I often see the opposite: I often see them lose even bigger by foolishly chasing small losses and throwing good money after bad, when they could have just smartly folded and instantly stopped the bleeding. It doesn't matter how much money you already wasted training and re-training a poorly performing employee; maybe it's time to fire them. It doesn't matter how much effort you put into that department or side business or new product line in your business; if it's not as profitable as your others, then it might be time to fold. It doesn't matter how much you wish you could keep your left arm like an addict addicted to having it; if the infection is creeping up your fingers and past your wrist and past your elbow, it's probably time to amputate the whole arm. Some people would give up their whole business trying to fix an expensive broken unfixable pinky toe, just one little useless toe that eats up more than its fair share of the resources; Just cut it off and let it go.
- Not Considering Opportunity Cost
-- This is similar to the previous one. And, again, it's something that comes in life in general, in many non-business and non-financial contexts. It's also why it is so important in business to remember that time is money
and time is your most valuable resource
because that helps you calculate the true full opportunity cost
. However, opportunity cost come ups in solely financial senses too (i.e. even when time isn't much of a factor). For example, you cannot buy every stock. So when--with the same risk--one stock is returning 4% per year, and the average stock is returning 7%, and some great stocks are returning 10%-20%+, you are effectively losing money if you buy the 4% stock or even the above-average 8% stock due to the opportunity cost. Above average is not good enough. Above average businesses still go out of business. Choosing merely above average investments is still bad business. This heavily relates to the chapter in my book
titled, "Do Less, Better". While I avoid calling anything a "mistake", I would call it a miscalculation. You don't want the average option; you don't want the option that is not the worst option. Even a slightly above average option is still a losing option when you properly calculate the opportunity cost. You want the absolute #1 best option, and you choose that by properly considering and calculating the opportunity cost, which most people don't do, and which is thus a common miscalculation. As an example, you can see many people make that miscalculation when they reply in my topic, Don't Take Any Advice from Unhappy People
. Whenever someone replies in that topic with something like, "I disagree because poor people don't always give bad financial advice and don't always give the worst financial advice ever and aren't always wrong...", then they are clearly making this exact miscalculation of not considering the opportunity cost.
- Not Delegating Like Crazy
-- Most businesses would make a lot more profit if their owner was better at delegating and delegated a lot more. I'm not just telling you to delegate. I'm telling to delegate like crazy
. This, again, by no coincidence, is related to those common two wise phrases: time is money
and time is your most valuable resource
. There is a reason successful business-people often say phrases like that.
-- Delegating is counter-productive and self-deceiving if you micro-manage. Granted, this can be tricky to implement because training is important, and training can look identical to micro-managing. But, if you are really training it's very temporary, and you keep that in mind while you do it. The successful delegater keeps it firmly in mind and constantly repeatedly asks themself while working (especially while training or seeming to micro-manage): how can I avoid doing this thing I'm doing in the future?
Likewise, by no coincidence, this heavily relates to what I call intentional laziness and the chapter, "Do Less, Better" from my book.
- Thinking Good is Good Enough; or Otherwise Not Giving It Your All, Day In & Day Out
-- In business, you need to be the best to not die (i.e. go out of business). Customer don't want the second best option. They aren't going to buy your product if there is one that is just as good but cost a little less. They are going to buy your product if they can get one that is even a little better for the same price from someone else. Most business owners drastically underestimate how competitive and cutthroat the market is, and that's why they die (i.e. go out of business). For more on that, please do read this Facebook post of mine
- Becoming Complacent; Not Growing; or Not Giving It Your All Consistently Long-Term
-- Sometimes people give it their all for a little while, and then think they can rest. Again, this isn't just something you see in business. The epitome in the non-business world might be what you see at the gym on January 2nd: many people can give it their all for a day or two; but, as the days of the year go by, the gym gets emptier and emptier. In the business world, you often don't get a second chance or any leeway. In the business world, even a little tiny small lack of consistency tends to be much more lethal. Just a little bit of complacency will quickly kill you in business. For more on this, please see this other Facebook post of mine
Needless to say, the above list is not exhaustive. Nonetheless, I hope it is helpful!
However, let me also summarize some of the key philosophy behind all of the above in a much shorter and memorable 12-word mantra you can use:
Time is your most valuable resource. Do less, better. Practice intentional laziness.
Eckhart Aurelius Hughes
In addition to having authored his book, In It Together, Eckhart Aurelius Hughes (a.k.a. Scott) runs a mentoring program, with a free option, that guarantees success. Success is guaranteed for anyone who follows the program.