What is the worst mistake an entrepreneur would make when starting new business?

Thank you for your invite. My observation over the years has been that start ups make mistakes in estimating finance requirements as they most of the time do not accurately calculate the lead time before the project takes off .

Location, choosing location is very important and worst mistake, second is not differentiate their product/service from others, and finally choosing an perfect flow of information which makes competitiveness easy.

except collect benefit in first year without adv. and marketing plan

 

Here are six pitfalls to look out for, along with expert advice on how to avoid them.

Expensive mistake #1:

The wrong team Bill Aulet, managing director of the Martin Trust Center for MIT Entrepreneurship and author of Disciplined Entrepreneurship, says choosing the wrong team is the single costliest error entrepreneurs make, resulting in not only lost income and time but depleted morale.

"Choosing who to hire and work with in a startup is like playing basketball in the schoolyard; you can pick your friends and play for them, but if youwant to be good and continue to be on the court, you have to carefully pick your team," he explains.

It's crucial to choose people with varying skill sets. However, Aulet says, "much like a great sports team, they must also share some common values and the ability to trust each other in tough situations. That's why past experience working with your co-founders and early employees in stressful times is much more important than being friends."

Expensive mistake #2: Bad pricing

"My single biggest mistake with my first business--a handbag company--was in pricing," says Sarah Shaw, CEO of Entreprenette, a consulting firm in Durango, Colo. Hers is a common misstep for product manufacturers.

Entreprenette's Sarah Shaw

"I didn't understand that with any kind of clothing or accessories, you have to calculate the square footage of fabric, including the wasted fabric," Shaw explains. Without an accurate understanding of her costs, she couldn't price her products correctly.

"I thought you sort of doubled everything, but that's not correct," she says. "It's a2.5-times markup from cost to wholesale, which covers marketing, the showroom fee, all your expenses."

By the end of her first two years in business, Shaw had put in more than $, of her own money. Thanks to perseverance and media buzz (celebrities loved her bags), she ended up with $1 million in annual revenue and attracted investors, but she couldn't recover from the downturn after9/ and closed the business in.

Entreprenette's Sarah Shaw (left) misunderstood costs in her first startup, a handbag company.

Like Shaw, Tobin Booth, CEO of Blue Oak Energy, paid dearly for a pricing mistake. It occurred in when the California-based company, which engineers and constructs solar photovoltaic power systems, took on a contract to install solar units for a retail chain with stores in eight states.

"That was a level of complexity we had zero experience with, in a very competitive market," he says. "What we didn't understand across all these states were the tax consequences and how much variation there was in labor rates. Then there were delays because of weather and shipping."

The company, which also hadn't planned for project delays that led to incurring storage fees, lost about $, in. Booth says the miscalculation was one of the worst experiences he has been through as a business owner, but there were some positives: "The cliché is absolutely correct. The painful experiences are the ones you learn best from."

Expensive mistake #3: Waiting for perfect when good will do

When you've got a killer idea, it's natural to want to introduce it to the world in a fully formed state. But it doesn't take a CPA to figure out that the longer you take to launch, the longer you go without money coming in.

"This is a common mistake, especially for tech people," says Drew Williams, co-author of Feed the Startup Beast. "Many want to build an app and won't let it go until it's perfect, but then you take too long and spend too much." Specifically, this error will likely leave you with no "runway"--the cash you'll need to sustain you as you're trying to get your product off the ground once it's ready, but before you have customers.

"You need to come up with the simplest, basic version of your product that gets the idea across and try to find someone you can sell it to," Williams says. "Find one or two clients who are willing to do a pilot where you build, test and iterate it. Inevitably, your product will be different than what you expect, and then you build it. If you get a real, live client, you create a better product in a very cost-effective way."

Expensive mistake #4: Not understanding technology

Mary Juetten was no Luddite when she launched Traklight, a software company that helps individuals and businesses identify and protect intellectual property, but she didn't know everything. "I understood how to lay out what our software would do ... but I didn't know anything about coding software or web development," says Juetten, a CPA and Canadian chartered accountant.

Traklight's Mary Juetten.

She relied on a co-founder with that expertise, but when that relationship ended, she floundered. "This is where I made my biggest mistake: I looked for the best deal, and I didn't educate myself about different programming languages or bring someone else into the mix."

The team she hired to create Traklight's software told her that it "couldn't" be built in one programming language and "had" to be built in another. "If someone designing my website came up to me and said, 'You should use this color instead of that color,' I'd be asking questions about why," Juetten says. "But I never asked why about this, because it was technology."

The four-month window for software development turned into eight months, then nine more. "With technology, it's all about time to market," she says. "So entrepreneurs who are not technical should educate themselves."

Eventually Juetten took a "tech speak for entrepreneurs" class. She suggests other startup founders who need more expertise find similar instruction at Codecademy or General Assembly.

Expensive mistake #5: Skimping on attorneys

Booth of Blue Oak Energy might like a do-over on pricing that multistate order, but he's also sorry about skimping on legal fees in his company's infancy.

"If I could do some of the early stuff over, it would have been to pay a few thousand dollars to have an attorney write up a proper contract," he says. "I didn't have the right attorney who really understood my business."

A few early customers simply didn't pay up, so Booth tried to move matters to a collections agency. "I found out that there were some clauses [in the contract] that didn't allow me to collect on attorneys' fees," says Booth, whose company now does nearly $ million in annual revenue.

Shaw, meanwhile, unknowingly signed a contract that gave her handbag company the trademark to her name, so when investors came in, her name belonged to them. "I can't use my own name in business again," she says. "I wish I had hired an attorney to watch out for me."

Expensive mistake #6: Being cheap about marketing

"People think, everyone else has to market their product or service, but I don't because this is so good," says author Williams. The related myth is that you can rely on social media to build virality and attract customers for free. "Social media is not free," he says. "To do it properly takes unbelievable amounts of time, and it'll typically take six months to a year before you've got even slight momentum--it's not fast."

If you're not sure how much money to budget for marketing, Williams suggests aiming for to percent of your targeted gross revenue. "As you become a more established business, that drops to5 percent to percent of gross revenue, and for the largest businesses it's typically5 percent or a bit less," he says.

After launching Traklight, Juetten found that her website wasn't indexed properly for search engines. "No one was finding us," she recalls. So she decided to invest in an inbound marketing program. "That initial payment is scary for a small company, but we don't have to pay developers to make changes to our site, and they do e-mail marketing and CRM," she explains. So far it's working: In April the Traklight site recorded just visits per month; by the end of the year it was getting2,.

How much does Juetten estimate she lost early on between the missteps in software development and inbound marketing? "As far as dollars thrown away--actual checks written for useless things--that would be in the tens of thousands," she admits. "As far as lost time [and] products not developed on time, it's in the hundreds of thousands. We would be much further ahead now."

In the end, the best way to avoid costly mistakes is obvious: Save and spend wisely. "Keep spending really, really tight," Williams advises. "Leverage everything you can and give yourself as long a runway as possible. You're going to need it."

Giving up totally if it fails or investing more if it succeeds.  One needs to know how to strike the right balance.

Location, products, marketing  plan or even price are not the worst mistake for an entrepreneur at the beginning. PRADEEP MEHRA had the nice answer when he said that "entrepreneurs do not accurately calculate the lead time before the project takes off" but I will go further. The lead time before project takes off need money and in some of them doesn't think about this cost. But it's more than this cost. It's about cash-flow! An entrepreneur could have enough money to cover the lead time before projects takes off but it could not have enough money from a month to another. You need a very accurate forecasting about cash-flow because most of businesses failed when the entrepreneur is out of cash-flow. He could have a profitable business but when he's out of cash he can not paid vendors, employees and other fixed or variable costs so he have to close the business. So it's very very important to have an accurate forecast about cash-flow because it can make the difference between a good business which grow up and develop further or a good business which die when the entrepreneur is out of cash.

According to my opinion, Entrepreneur sometimes does not concentrate on the trends of the markets, economy and culture.  Moreover he wrongly allocate resources from where to get and where to invest. These are the much important things that should be in consideration.

First of all analyze the Demand of the product or service in the particular location before plan to start the business.

There are many mistake which can entrepreneur can make;

1) Improper/insufficent market research

2) Selection of wrong market/product.

3) Improper infrastructure

4) lack of facility

 

Given above are few of the crucial mistakes which an entrepreneur commit while starting a new business.

 

Thanks for the Invite. Well in my experience most of start ups fail due to estimating finances and most of them rely heavily on the knowledge that drives them to be entrepreneur. Taking risks being a character of entrepreneurs, risks should calculated and quantified.

Doesn't analyze the market trends etc.