Wealthy people own their own businesses. In order to have a basic understanding of how they became successful, you also have to have an understanding of some of the biggest mistakes they have made. Bob Proctor has built the following list from his own experience, as well as the experience of other wealthy people. As he coaches people to start their own businesses, he often sees many of them make the same mistakes. These tips are geared toward small business owners, particularly people who are just starting (or about to start) their own business.
WE ALL SELL
Every person sells. It does not matter if you sell a product or not. A mother sells the idea that vegetables are great to their children. Politicians sell their idea of change to the voters. Charities sell the idea of their cause to donors. Sales simply involves bringing others around to your way of thinking. While sales are important to the survival of any business, you do not need to push your business on everyone you meet, including friends and family. Furthermore, it is a waste of time to try selling to people who simply do not need what you are offering.
One of the first mistakes some new business owners make is trying to sell to everyone. Some customers are much easier to sell to than others. For example, business consultants that if a potential customer is broke and obsessively worried about every penny they spend, or if they are convinced that the problem is outside their company and resist the idea of changing their mindset, they will not be a good client in the long run. The 80/20 rule applies to customers the same as it does other areas of life: 20% of your clients will cause 80% of your problems. Do not feel like you have to say yes to everyone you meet. By being selective,you will save yourself many headaches and free up more time to focus on serving the best customers.
BUYING A JOB
To create real wealth, you must understand that cash flow is king. Many new business people start up or purchase a retail business that not only takes all their available cash, but also takes all of their time. In effect, they have done nothing but buy themselves a new job. Since many traditional businesses take 3 to 5 years to start being profitable, owners spend a great deal of time working for free. Until you have steady cash flow coming in, do not spend your precious start-up cash unless it is absolutely necessary.
Your business should put cash into your pocket. Before you “invest”money in it, be clear on how you are going to pull that cash back out again.In the age of the internet business, you can very easily start a lucrative business for pocket change. That cash flow can then support any other business ventures you might wish to undertake.
BEING TOO CHEAP
Just because you can get things started relatively cheaply, that does not mean you should remain tight fisted. If you want your business to grow, there are things that are worth paying for. Do not let frugality get in the way of efficiency. Take advantage of skilled contractors who can do certain tasks more efficiently than you can. Buy good equipment when it isclear you will get your money’s worth. You do not have to go overboard with office furnishings, but get something functional that helps you be more productive. Do not use an old computer with outdated software that slows you down if you can afford something better.
It takes time to develop the wisdom to know when you are being too cheap or too free with your cash. If you are just starting out, ask someone with more experience. Often the very thought of getting a second opinion makes the correct choice clear in your mind. If you cannot justify the expenditure to someone you respect, it is probably a mistake. On the other hand, there are situations where it is hard to justify not spending the cash.
THE REAL YOU
If you are new to business, do not pretend you are anything else. Do not fake your experience level. Some newly self-employed people think they must become actors and create an aura of experience that they do not really have. Trying to fool your clients in this way will come back to haunt you. People can sense when someone is less than honest and even those that believe you will find out the truth at some point. If you are so desperate for business that you need to lie, you should not be starting your own business.If you cannot provide real value and charge fairly for it, then you are not ready to open your business. Develop your skills a bit more first.
FORGETTING THE RELATIONSHIP
Sometimes it is easy to forget that a contract is not a relationship. No matter how much legalese you put on paper, it comes down to a relationship between people. In the end, a contract is just paper and ink.It is common for contracts not to be honoured; but it usually has to do with a breakdown of the relationship.
Often when a dispute arises, it can be worked out with a face-to-face meeting. News that a client is not doing what they promised is your first sign that the relationship is in trouble. You should take the extra time required to correct the problem.
Bob Proctor puts it poignantly: “If the relationship is destroyed, the contract will not save you. The purpose of a contract is to clearly define everyone’s roles and commitments. However, it is the relationship, not the threat of legal action that ultimately enforces those commitments.”
The most creative and lucrative business deals usually stray from the paper contracts that represent them. Business relationships are similar to other personal relationships—they are dynamic and change all the time. That is not to say that written contracts are unnecessary, but they are secondary to relationships. Just do not make the mistake of assuming that the contract is the deal. The real deal is the relationship. Keep your business relationships in good order and you will not have to worry so much about what is on paper.
IGNORING YOUR GUT
Perhaps logic is not the underlying driver of business. “If you base all your business deals on hard logic and ignore your intuition, you will not become wealthy. You may do okay but you will not do great.”
Humans never use as much logic as we like to think we do. We simply do not have enough data to make truly logical decisions. Business deals depend on human beings and we do not have a logical system for accurately predicting human behavior. Not being able to predict how other people will behave in a given situation removes logic as a tool. Intuition has to fill that gap.
Intuition is a critical part of the decision-making process in business. Since business deals depend on relationships, you must learn to read the other people involved in any deal you consider. If you get a bad feeling from them, walk away. If you get a good feeling, proceed.
Thinking the purpose of a business is to make money, Proctor believes, can be an easy trap to fall into. “Remember it is not about money. The real purpose of a business is to create value. In the short run, you might be able to make money without creating much value. However, in the long run, it is unsustainable.”
Your business has to provide some sort of value, to both you and your clients. The better you understand the value you are trying to provide, the better you will be able to define the clients you want. Too often, business owners are not clear on the value they are trying to provide—they just want to sell products. The world does not need more products—but it always needs and wants genuine value creation; and that is where you should direct your efforts.
Although value creation is essential to a sustainable business, it is not the only significant factor. You have to find a way to deliver your value cost-effectively.
It takes significant effort to build a successful business, but it is also a tremendous growth experience. Sometimes you will wish there were shortcuts, but the lessons learned and experience gained will push you that much further along the path to wealth.