My favorite research subject for the last several years has been studying why seemingly promising companies failed. These companies were started by smart, innovative and hard working entrepreneurs. Yet, certain events and miscalculations turned their enterprising dreams into money-losing nightmares.
Can aspiring 20-something entrepreneurs learn from the mistakes of others? Absolutely!
Here's my top 10 list of recommendations.
- Risk is a four letter word. Too many first-time entrepreneurs are extremely naive about entrepreneurial risk-taking. Some even believe that the entrepreneurial experience is all about taking on big risks. Actually, the opposite is true. The most accomplished entrepreneurs I know consider the downside of every initiative just as much as they fanaticize about the upside. They don't relish risk, they avoid it.
- Avoid 50%-50% partnerships. Don't go into business with someone just because you like to hang out together. If a business idea is yours, don't give up operating control so easily. Startups generally work best when one person has the authority to make final decisions in a two-person enterprise.
- Know what you need to succeed. Don't minimize your funding needs or current expenses to impress potential investors or lenders. Be honest. Once funding sources identify blatant misrepresentations, it will be hard for a 20-something entrepreneur to gain their confidence again.
- Good buzz is not enough. During a company's first year in business, maximum effort should be placed on communicating directly with potential customers. Press releases and buzz don't bring in business, entrepreneurs do.
- Your numbers count. In one way or another, every business decision involves money and numbers. If basic financial terms are unfamiliar to you, take an evening accounting class and keep some easy financial reference books close at hand. Entrepreneurs who rely on others to do all the financial thinking are definitely headed for trouble.
- Piggy-back others. Young companies can gain operating strength quickly through operating, technology or product distribution partnerships. Make a list of potential partners and the reasons why each company can benefit from an alliance. Pursue the most compelling opportunities.
- Read all agreements. It's not enough to read an agreement; you should understand its implications. Look closely at performance, exit and payment clauses. Also, read the fine print for hidden personal guarantees that obligate owners to payoff outstanding business debts.
- Don't duck. 20-something entrepreneurs have a choice in how they face nasty business problems. They can hide or they can communicate with related business partners, vendors, customers, lenders, board members and investors in a proactive, responsible manner.
- Take taxes seriously. Even though you may own 100% of your business, the IRS will always take a good share of your hard-earned profits. On a quarterly or annual basis, most revenue-generating companies have to file wage and payroll tax returns as well as state and federal income tax returns. Don't delay. Mounting tax penalties and interest can quickly absorb a company's profits.
- Seek specialized experts. There will be times when even the most cash-strapped entrepreneur should engage attorneys, accountants and other professionals. My preference is to hire specialists rather than generalists. Why? Because specialists understand nuance and can reach conclusions faster with less extra research. This translates into better service and typically a lower bill.
If you are a 20-something startup entrepreneur, what is your biggest frustration about starting up? Write to me.
Susan Schreter is a 20-year veteran of the venture finance community, MBA-level educator and policy advocate for small business owners. Her work is dedicated to improving startup operating performance with reduced personal risk to entrepreneurs. She is the founder of www.takecommand.org, which offers the largest centralized database of regional and national small business funding sources in the U.S., including angel clubs, micro-finance lenders, venture capital funds and more. Follow Susan on Twitter @TakeCommand