It’s hard to avoid certain mistakes, especially when you’re facing a situation for the first time. In fact, many of the following mistakes are hard to avoid even if you’re an expert. Of course, these aren’t the only mistakes CEOs make, but they’re pretty common. Take the following self-assessment: Give yourself ten points for each of these business mistakes you’re making. Deduct five points for those you narrowly avoided. Your score will, of course, be kept confidential, but seek help. Fast!

1. Big Client Syndrome

If more than 50 percent of your revenue comes from a single customer, you may be headed for a crash. While it is easier and more profitable to deal with a small number of large clients, it becomes quite vulnerable when one of them contributes most of your cash flow. You tend to make silly trade-offs to keep your business. You make special investments to handle your special requirements. And you’re so busy servicing that big account that you’re failing to develop additional customers and revenue streams. Then all of a sudden, for one reason or another, that customer leaves and your business is on the verge of collapse.

Use that flourishing account as a cause for celebration and as a sign of danger. Always look for new business. And always seek to diversify your sources of income.

2. Create products in a vacuum.

You and your team have a great idea. A brilliant idea. You spend months, even years, implementing that idea. When you finally get it to market, no one is interested. Unfortunately, he was so enamored with the idea of ​​her that he never took the time to find out if anyone else cared enough to pay money for her. You have built the best classic mousetrap.

Don’t be a product in search of a market. Do the “market research” in advance. Try the idea. Talk to potential clients, at least a dozen of them. Find out if anyone wants to buy it. Do this before anything else. If enough people say “yes”, go ahead and build it. Better yet, sell the product at pre-launch prices. Finance it in advance. If you don’t get a good answer, move on to the next idea.

3. Equal associations

Suppose you are the best salesperson in the world, but you need an operations guy to take care of things in the office. Or you’re a technical genius, but you need someone to find the customers. Or maybe you and a friend start the business together. In each case, you and your new partner split the business 50/50. That seems right and fair at the moment, but as your personal and professional interests diverge, it’s a sure recipe for disaster. The veto power of either party can stop your company from growing and developing, and neither side has enough votes to change the situation. Almost as bad is property divided equally among a larger number of partners, or worse, friends. Everyone has the same vote and decisions are made by consensus. Or, worse still, unanimously. Oh! No one has the last word, every little decision turns into a debate and things quickly get bogged down.

To paraphrase Harry Truman, the buck has to stop somewhere. Someone has to be in charge. Make that person CEO and give them the biggest ownership stake, even if it’s just a little bit more. 51/49 works much better than 50/50. If you and your partner are to have full equality, give a one percent share to an outside adviser who becomes your tiebreaker.

4. Low prices

Some entrepreneurs think they can be the low price player in their market and make big profits on volume. Would you work for low wages? Why do you want to sell at low prices? Remember, gross margins pay for things like marketing and product development (and great vacation trips). So the nastier the better.

Set your prices as high as your market will support. Even if you can sell more units and generate more dollar volume at the lower price (which is not always the case), you may not be better off. Be sure to do all the math before deciding on a low pricing strategy. Calculate all your incremental costs. Figure on additional stress as well. For service companies, low pricing is almost never a good idea. How do you decide how tall? Raise prices. Then raise them again. When customers or clients stop buying, you’ve gone too far.

5. Insufficient capital

Check your trading assumptions. Optimistic sales projections, overly short product development timelines, and unrealistic expense forecasts are the norm. And don’t forget about weak competitors. Regardless of the cause, many companies are simply undercapitalized. Even mature companies often don’t have the cash reserves to weather a downturn.

Be conservative in all your projections. Make sure you have at least all the capital you need to get through the sales cycle or until the next round of planned funding. Or reduce your consumption rate so that you do.

6. Out of focus

If yours is like most businesses, you don’t have the time or the people to take advantage of all the exciting opportunities. But many entrepreneurs, hungry for cash and thinking that more is always better, feel the need to take advantage of every part of the business that comes their way, instead of focusing on their main product, service, market and distribution channel. Overextending results in below average performance.

Focusing your attention on a limited area leads to better-than-average results, almost always outweighing the gains generated by diversification. Al Reis, of Positioning fame, wrote a book dealing with precisely this topic. It’s called Focus.

There are so many good ideas in the world that your job is to choose only those that provide superior returns in your area of ​​focus. Don’t spread out. Be known in your niche for what you do best and do it extremely well.

7. Crazy and first-class infrastructure

Many startups die endlessly due to excessive overhead. Keep your home humble and your furniture cheap. Your management team should earn most of their compensation when the profits come in, not before. The best entrepreneurs know how to stretch their cash and use it for key business-building processes like product development, sales, and marketing. Skip that fancy phone system unless it really saves time and helps generate more sales. Spend all the money really necessary to achieve your goals. Ask yourself the question, will there be a sufficient return on this expense? Everything else is above.

8. Perfection-itis

This disease is often found in engineers who don’t release products until they are absolutely perfect. Do you remember the 80/20 rule? Following this rule to its logical conclusion, finishing the last 20 percent of the last 20 percent could cost you more than you spent on the rest of the project. When it comes to product development, the Zeno paradox rules. Perfection is unattainable and very expensive. Also, while you do well, the market is changing below you. On top of that, your customers put off buying your existing products waiting for the next new thing to arrive.

The antidote? Focus on creating a product that beats the market within the allotted time. Set a deadline and create a product development plan to match it. Know when you have to stop development to make a delivery date. When your time is up, it’s over. Release your product.

9. There is no clear return on investment

Can you articulate the return that comes from purchasing your product or service? How much additional business will you generate for your client? How much money will they save? What? Are you saying it’s too hard to quantify? Are there too many intangibles? If it’s too hard for you to notice, what do you expect your prospect to do? Do the analysis. Talk to your customers, create case studies. Think of ways to quantify the benefits. If you can’t justify the purchase, don’t expect your customer to. If you can demonstrate the great ROI your product provides, sales are a doddle.

10. Not admitting your mistakes.

Of all the mistakes, this might be the biggest. At some point you realize the terrible truth: you have made a mistake. Admit it quick. Correct the situation. If not, that mistake will get bigger and bigger and… Sometimes this is hard, but trust me, bankruptcy is harder.

Assume your costs are sunk. Your money is lost. There is good news: your basis is zero. From this perspective, would you invest fresh money in this idea? If the answer is no, walk away. Change race. Whatever. But don’t throw more good money after bad.

Okay, everyone makes mistakes. Just try to catch them quickly, before they kill your company.

To avoid some mistakes in the future, it sometimes helps to ask good questions ahead of time. Click the link if you would like a copy of my Fractal Strategic Planning Quiz.

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