Our business culture revolves around studying successes. Read any tech blog and you will drown in a sea of stories of founders who made it. Therein lies the survivorship bias.
As entrepreneurs, we over-attribute success to things done by the successful. We need to also study the strategies that did not work to make better business decisions. Let's take a short break from the winners and learn from the wisdom of what Nassim Taleb, author of The Black Swan, calls the “silent grave.”
The five mistakes below are so common that every entrepreneur has made at least one of them.
1. Not Knowing Who Your Best Customers Are
When you're starting a new business, any customer is a good customer. But as you grow, you need to be more strategic by looking at your data.
Identify who your best customers are by looking at return on investment (ROI), who you love working with and which people are easy to work with. Factor in hidden costs like customer service resources for those customers.
Keep an updated list of customer personas that you revisit at least once a quarter. The smartest businesses owners understand their ideal customer is always evolving.
Your goal then becomes to adjust your marketing efforts to bring in more prospects that match your ideal persona.
Pro tip: The trick is to make sure to create, share and solicit feedback on these marketing personas. You want to do this efficiently. Here is a great example of how one company creates these personas.
2. Blowing Through Your Marketing Budget Too Fast
Even the most seasoned tech entrepreneurs fall into this trap. I have seen far too many small businesses do a little keyword research, set up some Facebook Ads and call it a day. Sure, the ads received clicks. But they did result in customers?
Do small tests and keep an eye on ROI.
Identify two to three marketing channels that you want to test. Allocate a small budget to these tests and track conversions to ensure they are profitable. Only then scale them to spend your budget on channels that worked.
Pro tip: Always have retargeting campaigns set up for prospects that visit your website. The cost to keep those campaigns going is cents on the dollar as compared to your base ad campaigns.
3. Not Understanding The Importance Of Having Working Capital
Far too many small businesses defer looking at the finances on a regular basis. Unless you raised $100 trillion dollars from venture capitalists (VCs), your leeway for throwing things at the wall to see what sticks is much shorter. Without the needed working capital, a business owner won’t be able to grow their company or pay bills, employees and vendors.
Identity if you need extra working capital besides the cash you already have. If you do, you can either trim down on the needed resources, seek out investors or apply for a business loan.
Each option has its pros and cons.
Getting a business loan can seem overwhelming at first. There are many options you need to be aware of. The biggest benefit with a business loan is that you maintain full ownership of your company and call all the shots.
Pro tip: Get your financial documents in order prior to seeking funding. That will speed up the process so you can focus on the business.
4. Hiring The Wrong People
Be aware of the halo effect: The pitfall of liking a potential candidate based on a few traits while glancing over red flags and missing skills.
Your job as the owner of a tech business is to hire people smarter than yourself.
Craft job postings that are unique to what you need in a candidate and fits your company's culture. Don't copy another company's job description.
Pro tip: Always ask for references and follow up with them. Small businesses often overlook this when starting out. Reference checks remain one of the best sources of information about candidates.
5. Underpricing Your Product
Speak to any small business and 9 out of 10 times they will say, "I wish I charged more from the start." You should test out different pricing strategies to maximize profitability.
You will also see a side effect of increasing the prices of your software or services -- better customers. The lower your prices, the more likely you are to attract prospects that eat up customer support resources. Contrary to common belief, customers who are willing to pay more money are often easier to work with.
Pro tip: Use an A/B split testing tool like Optimizely or VWO to safely try out different pricing and conversion rates.
Conclusion
Every business owner makes mistakes. The key is being aware when something is not working and taking conscious steps to fix it. Even though every industry is different, most problems you come across have been solved for in the past by another entrepreneur.
Failure serves as the greatest lesson in business and in life. If you remain persistent about recognizing and proactively fixing problems, the world is your oyster.
