Startup mistakes – 5 lessons for your first year

5th June, 2015

Occupational burnout

I often compare the first 12 months of any new business to that of raising a child. It can give you periods of immense joy and satisfaction punctuated with moments of heartbreak and frustration. But you should never give up on doing whatever it takes to make sure your business grows and becomes successful.

When I started my business 15 years ago it was just me by myself in an ugly old office in a fairly depressing industrial estate. I had no staff, no receptionist and if I wanted to go to the bathroom I had to lock the office front door and walk around to the back of the building. However, I knew things were going to improve. I knew if I put in the hard work and paid my dues in the first year that the business would grow and that I would be able to move into bigger and better premises and employ staff to help me. Sure, I made plenty of mistakes in my first year — and I am going to share those mistakes with you so you don’t repeat them.

1. Thinking you can save money by not employing someone to do all the administrative work

You need to decide in the first year what you are good at that will earn you the greatest dollar return for your time spent. Is it typing up letters, posting the mail and answering the telephone? No. Get someone to do you admin work so you can focus on making money and growing your sales. Even if you just employ a part- time office junior, it’s worth spending the money so you can utilise your time better. When I started, I was doing everything from answering the phone to doing the work, to making the tea and coffee for clients when they came to the office. I was wasting a lot of time because I could have earned more income per hour than what it would have cost me in wages per hour to pay someone to do all these admin tasks.

2. Taking on all customers in your first year — and getting burnt

I know it is tempting not to turn away potential customers. After all, it is your first year of business, and you want as many customers as possible, right? Wrong! I made the mistake of not screening my customers, and I lost money as a result. I was happy just to take on any new customer who walked through the door. Bad mistake, and I paid dearly for it.

In your first year you can expect people to realise that you are a new business, and they will take advantage of this fact. They will want discounts or reduced prices. Stand firm and value what you do. Don’t be pushed around by new customers coming to you thinking they can get your products cheaper or your services for less simply because it’s your first year in business. I made the mistake of being too desperate. I took on customers who turned out to be bad debts, and I lost money. I also heavily discounted my prices just to build up a customer base, only to end up with a group of poor quality customers.

3. Underestimating the workload

Don’t start a business thinking that it will all be easy money and fewer hours of work. In your first year be prepared to put in the hours and build the necessary infrastructure to support yourself. Expect to create plenty of systems and processes so you can streamline your operations and become efficient. Once these are in place, things will become easier.

Try and systemise much of your procedures so when you eventually put on your first staff member, they know that this is the way things are done in your business. One of the first things I did — even when it was just me by myself — was to write a Policy & Procedures Manual. I did this even when I had no staff because I knew one day that I would grow and employ people to help me. I still use this Policy & Procedures Manual today, 15 years later.  It has obviously been updated, but I find it vital in training new staff and making sure my existing staff are doing the right thing every day. Create your own manual during your first year; it will give you clarity and direction so you can grow.

4. Not having enough working capital

I made the mistake of believing everyone would pay me on time and honour my payment terms. But sadly this was not the case. Expect customers to drag their feet when paying you.

Have a backup of spare cash to use as working capital to carry you through the months when cash flow is tight. Don’t underestimate how much spare cash you will need because you will get hit with unplanned business expenses, especially in your first year. As my business grew during my first year I had to invest significantly in new computers, which meant I had to source the additional working capital for this expenditure from family members.

Also make sure in the first year you implement a strong debt collection policy. Follow up overdue invoices quickly and relentlessly. I always say a customer is not really a customer until they pay your bill. If a customer has an unpaid bill but wants additional work from you, then do not agree to do it until they settle their existing account.

READ: A quick guide to startup funding

5. Expecting customers to come to you

In your first year expect to wear out a couple of pairs of shoes by walking around your local community, drumming up new business. Don’t expect to sit in your office and think new work will just flood in. I made the mistake of believing that if I put up a nice sign at the front of my office, I would attract a lot of new customers, but it didn’t work. I had to get up and walk the streets and introduce myself to all the other business owners in my area.

Once a week, grab a handful of your business cards and spend your lunchtime knocking on doors of other businesses and introducing yourself. If you plant these seeds in the first year by promoting your business through good old-fashioned face-to-face contact with other business owners in the area, you will reap the rewards later.

Your first year of business will be hard, but it can be very rewarding if you are willing to put in the time and effort at the beginning. It’s much smoother sailing after the first couple of years once you have built the infrastructure, systems and processes. This doesn’t mean you still won’t have problems with customers, staff and suppliers, but what it does mean is that you will have the experience and knowledge to tackle and overcome these obstacles. Make the effort and put in the hard work, and you will be rewarded.

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