As I outlined in the post RIPPING business owners who think you should shop local TO SHREDS, I’m convinced a full 90% of small business owners are disgruntled ex-employees who decided that they were going to be the boss, dargbloomit.
Because these folks aren’t entering the venture with the proper mindset, they make a lot of mistakes. Ultimately, they boil down to the same handful of things over and over (and over) again.
Here are 5 of the most common mistakes business owners make.
A local photography shop personifies this common business mistake.
They’ve got a nice studio and are only one of three locations in town that can take passport pictures. They do a reasonable passport business and a few family portraits, too.
Desperate to increase their business, the photography place decided to expand into retail. Soon the front of the studio was filled with used DVDs and other such nonsense. It’s not even photography related!
Why this place wanted to expand into retail is beyond me. Then, friends of mine went to ask the photographer for engagement/wedding photos. They had a budget of $500 for engagement shots and $2,500 for the wedding.
The response? “I’m not interested in dealing with Bridezillas.”
So to review, instead of expanding into the wedding picture business with 10 times the margin of passport photos, this photography studio decided to sell junk. Why expand into something you’re not good at when there’s a big opportunity in your core business staring you in the face?
This brings me to point two…
There’s a really easy way for the average small business to put themselves head and shoulders above the competition.
Be good at what you do.
An example? Don’t mind if I do. Most of the time, interactions with small business owners go something like this.
“Hey, I’d like (item). Can you get it in for me?”
“I don’t know. Can you give me a little time to check and I’ll call you?”
(two weeks later)
“Hey, did you look into that item for me?
“I’M WORKING ON IT. GOD. STOP HASSLING ME.”
If you’re providing a service, the way you present yourself is equally as important as actually doing the damn job. In Alberta, right now there are thousands of former oilfield employees who have decided to become handymen. Most of them struggle because they aren’t professional. They do things like providing verbal instead of written quotes and don’t show up when they’re supposed to.
There are a million ways to differentiate a business from its competitors. You can be cheaper than the rest. You can do a better job. You can offer a unique spin on a product or service. And so on. But — and this is crucially important — you can’t do all those things. Pick one and become incredibly good at it. Expansion should only be considered once you’ve mastered the original business.
A word of caution before committing to be the lowest priced operator. This is much tougher than you’d ever imagine. There’s a reason why your competitors charge what they do.
Easy payment solutions
I can’t believe how many businesses don’t make it easy for customers to pay them.
Getting back to the contractor example above, an incredibly straightforward way for a handyman or plumber to differentiate themselves would be to accept credit card payments. A good way to accept payments is with Paysafe, as they have everything you need to accept and process payments globally. Technology makes doing this incredibly easy. All you need is a smartphone reader and a 20-minute lesson on how to use the software.
It’s not just about credit cards, either. If none of your competitors offer payment by cheque, do that. Ideally, the more options you can offer, the better.
Don’t make it difficult for customers to pay you. It’s that simple.
Skipping on marketing
This was one of my big problems as the World’s Worst Mortgage Broker(TM). I assumed people would just find me because I was the only broker in town.
This was not a smart way to do business.
Here’s the math I didn’t get back then. Say the average mortgage paid me $1,500. If I spent $300 per mortgage transaction on marketing, I’d still make a net profit of $1,200 for approximately 5 hours of work.
Instead I dabbled in free stuff. I built a Twitter and Facebook page before abandoning both after a month. I started a mortgage blog that lasted about six posts (and wasn’t read by anyone except me, either).
Spend a minimum of 20% of revenue on marketing. Don’t have 20% to spare? Then you need to get into a better business.
Follow a simple rule when it comes to spending your precious capital. Track the return of every dollar meticulously.
Say it cost you $20,000 to open your own hair studio, cash that was borrowed at a 10% interest rate. Anxious to pay off the debt, you throw every extra nickel towards the $20,000. In a year, that bad boy is paid off.
But at what cost? Say that $20,000 could have been invested in fancy machines that do perms (Do ladies still get perms? Serious question). Those machines generate an additional $10,000 in annual profit.
Paying off the debt immediately saves our hero $2,000 in annual interest. But it comes at the cost of $10,000 in missed profits. As long as subsequent investments generate more than $2,000 each year in profits, the debt should remain as long as possible. Even at 10%.