Did you throw away your money due to making common business mistakes?
Sometimes it may seem like that is all you are succeeding at when you own or manage a business.For no matter what size business it is or how much expertise you have, you will make some costly mistakes once in awhile. Unfortunately, many proprietors and managers are completely unaware that they have made or are in the process of making costly errors. Thus, they may not know they are wasting or losing money, valuable resources or good business opportunities. This is especially true during the start-up stage, but can also occur at any stage of the enterprise’s development.
To demonstrate my point, I will present real-life scenarios utilising a fictional business with a fictional sole trader proprietor. Although the scenarios describe a small to medium sized business with a sole trader proprietor, these same errors apply to all business owners or managers of any size company. To make reading the article more enjoyable, see if you can spot all of Mr. Blunderhead’s mistakes before I reveal them at the end of the story.
Mr. Blunderhead’s Handy Handcrafts Shoppe
William Blunderhead lost his job when the local brewery closed its doors a year ago. Unable to find new employment within easy commuting distance, Mr. Blunderhead began doing paid odd jobs for family, friends and neighbours. In his spare time, William indulged in his hobby of making handcrafted items. He mostly used whatever scraps he could find lying around his property, so it did not cost much to craft the items.
His wife, Martha Blunderhead, started using the items as gifts due to being short on funds for purchasing new items. Wanting to help young couple out, many of their relatives, friends and neighbours began buying the handcrafted bird feeders, bird houses and picture frames that William made. They paid outrageous prices despite knowing that the products were made from inferior materials and were of low quality compared to similar items made by more expert craftsmen. However, these friends, relatives and neighbours never let on that they were only purchasing the items to help the couple out. They all made a big fuss over the handcrafted items and praised William for his craftsmanship.
This success selling items to people he knew gave Mr. Blunderhead the idea that he should turn his hobby into an official money-making activity. He decided to use the last of his savings to purchase the raw materials to craft a small variety of items. After spending many hours crafting several items, William took them to the local car-boot market to sell. He set the same outrageous prices for the products as he had received from his relatives, friends and neighbours for similar items.
At first, Mr. Blunderhead only succeeded at selling one or two lower-priced items. Then he noticed that his rivals were selling similar factory-made products at a lesser price than he was charging for the handcrafted items. Seeing his competitors were making more sales than he was, William decided to lower his products’ prices. Due to the lower prices and spending an entire weekend at the car-boot peddling his wares, he managed to sell his entire inventory.
After a few more successful weekends of selling his handcrafts at the local car-boot market, Mr. Blunderhead decided it was time to expand his business. He borrowed money from a relative to purchase a small travel trailer and more raw materials. William then increased the amount of items and variety of products. He started selling the handcrafts at a variety of venues, including art and craft festivals, car-boot markets, and on consignment in local shops. William based his product pricing on whatever similar factory-made products were currently selling for, no matter which venue or location he was at. Yet, despite his good intentions to run a business, Mr. Blunderhead still spent the majority of his time earning income from odd jobs for family, friends and neighbours. He did not consistently put crafts on consignment in shops. Nor did William consistently attend the festivals and car-booth events to sell his products.
After eight months of random self-employment and successfully randomly selling handcrafted items, William decided to officially become a business owner. He applied for the necessary permits and licenses, took out a small business loan, and rented a small shop close to his home. Then Mr. Blunderhead bought a previously-owned computer system to help with the administrative tasks. Thus, William became the sole proprietor of Blunderhead’s Handy Handcrafts Shoppe.
Not being used to being a full-time entrepreneur, Mr. Blunderhead sometimes found it hard to say focused on the handcrafting business. William made a few sales during the first month, but did not earn enough income to meet his personal and business needs. He also discovered that he disliked doing lots of paperwork and accounting.
Feeling pressured to make a more reliable income, Mr. Blunderhead once again turned to doing odd jobs. Since William was the sole employee of Blunderhead’s Handy Handcraft Shoppe, the shop was frequently closed whenever he was too busy with other projects. And he failed to set up a call service to field calls when he was too busy or away and could not answer the phone.
Eventually, Martha took over managing the shop so William could focus on making the bigger crafted items and doing odd jobs. She started adding in her own small handcrafted items and taking in consignments from other craft persons. Under Martha’s diligent care, Blunderhead’s Handy Handcrafts became a flourishing business.
Once the business became viable, William decided that they could double their income if they just had a way of speeding up the crafting process so they could maintain a bigger inventory. He also decided that it was time to start promoting the business, so he took out adverts in the local newspaper and set up a website. For the website, he chose to design his own site, utilising the free online web hosting and web design tools. He created a nice looking website and then sat back, waiting for all the new orders to arrive from people flocking to his website.
Expecting there to be a big influx in orders due to the new website and newspaper ads, William also hired two new employees. He’s planning on relocating Blunderhead’s Handy Handcrafts Shoppe to an empty shop on London’s High Street next year, if everything goes as planned. William thinks that if he can sell a few products at a higher price to London’s most elite citizens, then he and Martha will no longer have to work such long hours as they are currently working.
Mr. Blunderhead’s Mistakes
Mr. Blunderhead has made several errors that are common amongst business start-ups. However, he also made some that occur in well-established enterprises, as well as some that occur in much larger businesses. Were you able to find all of William’s errors?
Here’s a list of the errors he has made:
- Reaction vs. planned action – Mr. Blunderhead did not carefully plan out his entire business operation prior to start-up. Instead, he was merely reacting to his circumstances. A successful entrepreneur takes time to plan out the various phases of the business, and prepares for the various possible consequences of all actions. He or she also sets attainable goals and reasonable deadlines for achieving them, and then re-evaluates the goals and business plan frequently. He or she then makes any necessary changes to the business operation or goals to fit his or her current and future needs and lifestyle. William also failed to take into consideration his lack of commitment, dedication, knowledge, training, and skills for being the owner of a handcrafting business. He should have found ways to compensate for these prior to opening the business.
- Market research – Mr. Blunderhead did not conduct any market research prior to producing or pricing the products. He did not bother to find out what the current demand was or what his potential customers had a need for. William also did not research the true value of his products prior to pricing them.
- One-size-fits-all, did not select a target market for each product – Mr. Blunderhead assumed that his products and prices were suited to everyone and did not select a specific target market for his sales pitch campaigns. He simply tried to sell his products to the whole world, or at least to everyone he came in contact with. He also mistakenly assumed that the customers who shop in High Street shops would want the same type of crafts as those who shop at car-boot markets. A successful entrepreneur focuses attention on a specific group of potential customers and gears the entire business towards satisfying that specific group’s needs and desires. Each individual is a unique being and likes to be treated as one. Not every person in the world needs each and every product or service, so it is a waste of resources to try to sell everyone those products and services. Nor is every person in the world willing to pay the same price for any particular product. Some customers are willing to pay higher prices while others will demand lower prices due to their particular life circumstances and how much value they place on the product.
- Liability insurance – Mr. Blunderhead did not purchase adequate amounts of public and product liability insurance prior to selling his very first handcrafted items. He made himself and his family vulnerable to law suits, which could cost them everything they own. It could also cost him future assets as well.
- Upsized too soon – Mr. Blunderhead opened a business and went into a large amount of debt without first considering all of the consequences of his actions. He did not take into consideration possible failure or the amount of time (usually at least two years) and effort it takes to establish a profitable business. Mr. Blunderhead also upsized at times when he was short on funds and ill-prepared for taking more orders for his products. He also placed himself in the position of needing to hire someone else at a time when he could not afford to do so. Moreover, Mr. Blunderhead upsized his business based off of pure hope instead of facts. He based it off the hope of having more customers rather than off the fact of actually having those customers. So if he fails to acquire more customers, then he has also placed himself in the position of facing a forced downsizing.
- Lack of dedication and commitment – Mr. Blunderhead was not fully dedicated or fully committed to his business. He failed to be consistent in his hours of operation, and in his work ethics. Having erratic business hours drives away potential customers as well as establishes a poor reputation. It certainly creates a bad impression, especially if it is the first impression. A successful entrepreneur finds reasons to stay motivated, to stick to a routine work schedule, and to love his or her business on a daily basis. A successful entrepreneur also learns how to balance personal and business routines so that one does not interfere with the other.
- Poor customer service, lack of communication – Mr. Blunderhead failed to give his customers, suppliers and other businesses a way to communicate with him. Old and potential new customers could not place orders or obtain information. Nor could they give positive feedback or express their dissatisfaction with a product. Suppliers could not ask questions about his orders or let him know when there was a problem with the order he had placed. And other businesses could not contact him with offers to network or outsource work orders to him. Even when he was in the shop, Mr. Blunderhead could miss some of these important calls if he happened to be too busy to answer the phone in a timely manner or was tied up on another line. A successful entrepreneur always makes it easy for customers, suppliers and other businesses to contact him or her via phone calls, emails, text messages and/or in-person visits.
- Utilising used equipment vs. new equipment – Mr. Blunderhead failed to properly determine which tools and equipment he should purchase brand new and which to purchase as previously-owned. Although he could probably safely buy a used scroll saw, Mr. Blunderhead should not have bought an outdated computer system that did not come with a minimum warranty and tech support. William does not have enough computer skills, training or knowledge to repair the system or the funds to pay for repairs if the computer crashes. He should have also ensured the computer came with all the correct programs and applications installed that he required for his business use, since he did not have that much computer knowledge.
- Methods of promoting business – William did not carefully select the methods for promoting his business. He did not think of a specific target market when advertising. Nor did William fully understand how to set up and use a website for commercial purposes. He did not understand the need for proper website maintenance, nor did he understand how search engine optimization plays into the website’s ranking in search results. He allowed his website to become stagnant over time. He also failed to take advantage of low-cost marketing strategies, such as utilising press releases.
There are numerous other mistakes that are commonly made by businesses of all sizes. Some of them are made due to not seeking expert advice and others are made from following the advice from other people. Many are made by overestimating or underestimating a person’s skills, knowledge, talents and capabilities. For instance, Mr. Blunderhead overestimated his business management abilities and underestimated his wife’s abilities, talents and knowledge.
Biggest Mistake Business People Make
However, one of the biggest mistakes that are made, yet seldom recognized is simply failing to perceive the situation through the other person’s eyes. All people tend to cope with any given situation by drawing upon their own perspectives of the situation and what they believe is the truth. And no two people perceive anything in an identical manner, including absolute truths.
For instance, say a customer claims that a chair that Mr. Blunderhead crafted had fell apart when she sat down, without there being any mitigating circumstances. Mr. Blunderhead does not believe the customer’s claim, since he had crafted the chair to hold a large, heavy person and this customer was very petite. He insists there must have been some type of mitigating circumstances, which may have voided the product’s warranty.
The truth is that a supplier had provided Mr. Blunderhead with defective waterproofing sealants. Not realising the sealant was defective; William had coated the chair with the sealant and claimed it was safe to leave the chair outdoors. The customer had then purchased the chair and placed the allegedly waterproof chair in her garden. After repeatedly being exposed to rain showers, the moisture seeped through and began to weaken the wood. Eventually, the wood was weakened enough that the chair fell apart when the customer sat down. So as far as the customer knows, there were no mitigating circumstances. She truly believes the chair fell apart merely due to her sitting down in it.
As Mr. Blunderhead keeps trying to negate her claims, the customer becomes angry and threatens to file a lawsuit if Mr. Blunderhead does not honour the warranty. They have reached a standoff due to each person believing they are right and the other one must be wrong.
Nevertheless, if Mr. Blunderhead wants to save his business and reputation, he must act as if he believed the customer’s claim is true. Otherwise, the miffed customer may indeed follow through on her threat to sue. At the very least, she will spread the word that Mr. Blunderhead does not keep his word. She will spread her version of the truth to whoever will listen to her, who in turn will spread the rumours to everyone they know. This will most likely cause Mr. Blunderhead to lose potential customers and many sales.
However, this principle applies to all the various aspects of business operations and not just the customer care aspect. It should be applied when conducting market research, advertising, developing products, managing employees, and networking with suppliers and other businesses. Nevertheless, this principle does not apply to making mistakes. It really does not matter whether someone else thinks you are wasting valuable resources or throwing away your money. Only you can determine whether you are wasting these resources or throwing away your money due to making common business mistakes.