Avoid these rookie start-up mistakes

2012-04-16 16:02

Young entrepreneurs’ mistakes may lead to wasteful expenditure, or worse, the collapse of their new businesses. Two experts give advice about the common mistakes entrepreneurs make and how to avoid them.

It is common for young entrepreneurs to investigate their product or service insufficiently, says Pavlo Phitidis, CEO of the Aurik Business Incubator in Johannesburg. “Most people come to me with an idea they say is novel, but a Google search shows they are wrong a few minutes later,” he says.

Entrepreneurs may also lack insight into who their customers are and build their business around what they think they want, therefore trying to impose their offering onto the market, Phitidis says.

“The right way is for an entrepreneur to take their idea to market and find out what the customers want. They need to listen carefully so they can tweak the idea to meet the customers’ needs and not what they think,” he says.

Allon Raiz, who heads Raizcorp, another business incubator in Johannesburg, says entrepreneurs tend to underestimate the time it takes to build a business and break even, which leads to entrepreneurs overestimating their projected revenue and underestimating their costs.

“To put it bluntly, the thing entrepreneurs underestimate the most is how hard it is to go into business,” he says.

It takes time to build a solid business and according to Phitidis, an entrepreneur may even take up to three years to reach goals they thought they would accomplish within the first year of business.

Managing cash flow may also be a challenge, with entrepreneurs spending money on nice-to-haves that are not crucial to the business in the initial stages.

“A young business does not need fancy offices and a fancy logo,” said Phitidis. “An entrepreneur will only understand the business 18 months later, so if they spend all their branding money up front, for example, it will end up costing twice as much to re-brand once they understand the business.”

That said, Phitidis also advised entrepreneurs to market their start-up businesses aggressively.

For entrepreneurs who are in the food business, like Penuel Mlotshwa, Phitidis says the following is key: “A good chef, great location and a fresh concept – all work hand in hand.”

Because what a restaurant needs is foot traffic, entrepreneurs in this sector should focus on building and keeping relationships with their customers. “Have a strategy – give customers free cocktails with meals, get their opinion on recipes the chef is trying out and ask and remember their names, for example. The best form of marketing for a restaurant is word of mouth; keep it fresh and delight your customers.”

Phitidis offers the following advice to prospective franchisees:
As a franchise “is a business system” he advises prospective franchisees to assess the systems of the franchise they want to buy into as they will be a large contributor to the success, or failure, they will experience as a franchisee.

“Before buying a franchise, find out how long the franchise has been around – it takes time to build a system that works,” said Phitidis. “Investigate the experience of the management team and talk to 10 to 20 franchisees to find out how they support franchisees.”

Phitidis says it is important to know what kind of litigation history the franchisor has, as well as exactly what the frachisor offers so the francisee could match it to what their needs are.

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