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Many of you have heard me talk about my mission statement, “Make money, make memories, make a difference.”
Part of that is giving back and sharing a legacy of lessons.
Today I’m going to share with you what I’ve discovered to be the 5 common mistakes business owners and entrepreneurs make.
I’ve always had a desire to pursue entrepreneurship. Almost immediately once I graduated high school I chose to jump right into the idea of starting a business. It’s sometimes been a painstaking process, but I’ve learned so much along the way.
Having been in business now for almost 30 years I’ve got lots of experience to share.
Whether you’re just starting out, you’ve been building a business for many years or you’re somewhere in between, my hope is to help you avoid mistakes that can be both emotionally and financially taxing.
Years ago, someone taught me that there are three kinds of people in the world. People are either stupid, smart or successful. Stupid people never learn from their mistakes, smart people do, and successful people learn from the mistakes of others.
There is value in not making the same mistakes over and over.
By learning from your mistakes, you’ll save yourself time and money, not to mention a lot of pain and frustration.
Costly Mistake Number 1:
Not investing in customer acquisition
The real world is investing. I’ve seen business owners and entrepreneurs look at advertising and marketing as an expense when really it is an investment. When you invest money in advertising or marketing and it results in new clients or customers that means you are going to see an increased return. Value is key.
If you understand the value of a client or customer, you will be able to make an informed choice about how much to invest to acquire them.
I have a formula that I use and I’m willing to share it with you.
If the average client does business with me for five years and on average they spent $1,000 per year then their average lifetime value is $5,000.
Now, let’s say that I have a 50% gross margin, then I can estimate a gross profit of $2,500 from this customer!
Using this formula, I now know I can invest up to $2,500 before I start to lose money. It’s important to look at client acquisition as an investment. You’re investing in a client who is worth more than you spent on them.
Let’s look together at what could happen if we talk to ten people who are interested in your business.
Each person has a problem and are ideal prospects as clients. If we apply my $2,500 scenario we know our gross margin on a new client over their lifetime is $2,500. In theory, we could spend $2,500 on acquisition, but we don’t want to.
Let’s consider spending $500 to get that first client. We’re going to call that $500 our acceptable CPA or cost per acquisition of a new client. Let’s assume we need to talk to at least ten people to acquire at least one new client.
With this information we can generate our lead cost by taking our CPA ($500) and dividing by the number of people we need to generate a client (10). At this rate we know our lead cost would be $50. Now we know we can invest $50 generating each lead.
At this point you could say to me (or your marketing team), “Hey, JP! I want to grow my company by one thousand new clients over the next ninety days (or whatever your time period is)”.
Because you’ve calculated your numbers I know that I can spend $50 per lead because ultimately, I can spend up to $500 acquiring a new client for you. This is surely an investment. You’ve paid $500 to generate $5000 worth of sales. Profits this high are like trading dimes for dollars.
If you had absolute certainty that every dollar you spent would investing in client acquisition would generate a profit, how often would you invest?
I owned ad agencies in the 90s, people used to talk about their ad budget. You would hear them say “What’s your advertising budget?”
These days it’s not useful to have an advertising budget.
As long as clients or customers are generating a profit for you why place a limit on how much to spend on their acquisition?
Whether you’re running your own ads, you have someone else doing your marketing or you’ve got a company like ours to generate leads for you, it’s important to be consistent and generate leads on a regular basis.
Client acquisition is the biggest investment you can make.
It will bring you a return again and again. It’s comparable to putting money in a bucket, dropping that bucket in a well, and then it comes back with more money inside.
Sometimes business owners and entrepreneurs don’t get their desired results from investing. I’ve heard people make assumptions that advertising doesn’t work in their particular industry or that Facebook or LinkedIn doesn’t work for their industry.
The fact is, if you have an audience with a problem and that problem is so intense that the audience is willing to trade dollars for a solution then you can reach them.
You just have to have the right formula.
Costly Mistake Number 2:
Building a business based on a clever idea instead of the market’s problem
New businesses are popping up everywhere as though it’s become trendy to be an entrepreneur. This is interesting because I remember a time when being an entrepreneur seemed too risky.
Most people thought it was wiser to go get a degree and then a Job and have a career. In the last decade or so entrepreneurship has really come in vogue. Guys like Bill Gates and Mark Zuckerberg and plenty of others have abandoned college all together and lived on to be incredibly successful. Those men and women helped pave the way for entrepreneurship to be widely accepted.
Entrepreneurship is a great thing but it’s not for everyone.
The problem many people have is that they don’t know where to start so they start with a clever idea. They think to themselves something like, “This could be really interesting, or fun, or popular.” They use those thoughts to launch their business while borrowing money from somewhere for startup fees. Then they use most of that money creating product, filing a patent, setting up the structure, hiring people and buying equipment.
When they are finished building they ask, “Where are all the customers?” But they have no money left for acquiring them. Another scenario is that they do have a budget for customer acquisition but they don’t know how to use it. This would be similar to deciding you want to learn archery. You buy bows and arrows, you find a safe field to practice in, but then you look around confused about where to aim; you have no target.
If you start a business based on a clever idea instead of the market’s problem, then you have no target.
You have to define your target audience first otherwise you’ll be in a field firing arrows all day and never hit a thing.
Figure out what the solution is first. Never create a product or service that people don’t want to buy.
Often the most successful products or services are things that seem really mundane. I know this incredibly wealthy family down in South Florida whose entire business is making nuts and bolts. It’s that simple, literally nuts and bolts! Another guy I know is successful from renting out storage containers and railroad car storage containers. Some of the most successful business ideas may not be the most exciting or the best conversation starter.
Create a business that solves a problem so big and frustrating that people are willing to exchange their dollars to buy your solution.
I guarantee that if you start here you have a chance of succeeding.
As I’ve said, I have been building companies now for almost 30 years. In that time not every idea I’ve come up has been successful.
Costly Mistake Number 3:
Not being willing to change directions or pivot away from an idea that’s not working
I remember seeing an interview with Elon Musk from Tesla, Space X, etc. where he said many great businesses, including Tesla, were founded on failed assumptions; two failed assumptions actually. The first was that they could build on an existing car frame.
They tried to build on the Lotus frame. The found out that they would have a better result if they built their own frame from scratch instead of trying to retrofit. Their second failed assumption was the cost of batteries.
All of us business owners and entrepreneurs face a challenge when our assumptions are wrong.
Shouldn’t we fight to make our idea work? It’s okay to give things a little time to gain traction. At some point though, we must be willing to admit when something is not working. I know this idea goes against all the cute memes we see on social media that say things like “never quit, never give up,” and all that. I’ve even shared messages like that myself.
The fact still remains that there are times when quitting or changing direction is necessary.
In those times, not making necessary changes would be a guaranteed formula for long term failure.
You have to be willing to pivot. Sometimes the pivots are easy and simple. Perhaps you thought your target market was men and women. Then you realize that women are the ones making decisions about your product or service, not men. At this point you need to pivot your marketing and AD dollars towards a female audience. Another time, you may create a product or service and it’s the right thing and you do all the right things.
Your utilizing marketing and targeting all the right people and still they’re just not responding. In this instance, I would tell you not to build the empire state building before you figure out if anybody wants to rent an office in it.
Try to find out if someone will pay for your product or service before you go all in.
When the writing is on the wall and you’ve tried all the logical pieces and things still aren’t working then it’s time to change direction. I’ve heard an analogy about the moon that makes sense now. If you’re going to the moon and your direction is off by just one or two degrees you’re still going to completely miss the moon.
Business can be like that too. You have to constantly be willing to make changes, check your compass. A lot of times ego is the culprit. you’ve already told everyone your product or service is the greatest thing since sliced bread. Now you’re afraid of feeling embarrassed when your idea doesn’t work.
Still, you have to be willing to admit to yourself and then to others when your assumptions are wrong.
At this point you will have prepared yourself to find a real solution.
Costly Mistake Number 4:
Not speaking their markets language
Not speaking your markets language could cost you everything. It can be the difference between failure and success. When creating a business sometimes you do get things right and create a solution that the market wants to purchase.
Then you go out and put together a marketing strategy using landing pages, advertisements, brochures and whatever else. At this point you have to know what your target market is thinking in order to craft a message that will resonate with them.
Good marketing enters the conversation in the mind of the prospect.
Many of us have made a mistake by thinking that think we, as entrepreneurs, are the market. This is only true when you’ve created a product or service around your own problem then discovered other people who share the same problem and want to buy your product. Other times you’re not the market. You must develop a profile about your true buyer.
You will have to ask some questions about your target market: What is it they say to themselves? How do they talk to other people about their problem or frustration? Which words do they use? Your marketing will become much more effective if you use the answers to these questions in your strategy.
I hold a lot of webinars. Often when I have people register for a webinar I’ll add a little extra field that asks, “What are your toughest, most burning questions about (and then insert whatever the topic of the webinar is here)?” If I were doing a webinar on increasing sales in your business I would say, “What is your toughest most burning questions about how to increase sales in your business?”
This will produce all kinds of answers from real people. I’ll then put their answers automatically into a spreadsheet, and then a database. Once that spreadsheet is exported I can study line by line what they see to be problematic. I can study the language real people use to their problems and frustrations. It’s simple!
You just need to figure out what the market is saying and then say it back to them.
It’s useful to study places where people are asking questions. Back in the day we had forums; today we have things like Amazon and Facebook where people are asking questions about a product or service or topic. We can see exactly how they articulate their concerns.
For example: If you sold some sort of debt settlement solution, you could research all the books on debt on Amazon and then read the customer comments. Even looking at reviews is helpful. You’re looking to see how people articulate their frustration or problem. When you understand your target markets dialect then you can use that in your advertising.
It’s been said, “People don’t want to buy a drill or a drill bit, they want a hole in the wood.” What people are thinking about is completely different than what the manufacturer is thinking. The drill manufacturer is thinking about types of steel or wood and the effectiveness of their product. Meanwhile the market is concerned with, “Will it make the hole the right size and accurate so that it stays together, and my kids swing set will be beautiful, and I’ll look like the coolest dad in the neighborhood…”
The market cares about results. Some things to consider are: What is your market saying to themselves? What are they waking up at night thinking about? What are their frustrations as it relates to whatever your selling?
Get on the phone with some of your potential prospects or clients and just talk with them. You could ask things like, “What was your solution before you found us?” “What was it that you liked about what we have to offer?” What problem did we solve for you and why did you make a decision to buy or invest in our product or service?” Their answer will enable you to create a message for others facing the same problem. You will have found how to say the same thing back to them.
You absolutely must be able to connect with your target audience and resonate with what they’re thinking.
Costly Mistake Number 5:
As a business owner or entrepreneur it may seem like you’re required to be a jack of all trades in the beginning.
Thinking that you can do it all
It’s helpful to surround yourself with people who can offset your weaknesses. If you really want to grow as a business, you’ll have to define your strengths and weaknesses. Most of us are really good at one, two or three things. Everything else we are either mediocre or really, truly bad at.
The moment you admit you’re not good at everything is the moment you will elevate yourself and your business to a whole new level.
I’ve often said that the richer I get the less I try to be an expert in all areas and the more I try to find people who are much smarter, more capable and skilled than me. Sometimes it’s a real challenge letting go of things that you are actually good at. For example: I’ve come up in a graphics background. I’ve created thousands of logos in my lifetime. I’ve done tons of magazines, flyers and brochures.
I’m very capable at creating graphics, but is that the best use of my time? It would be better to allow someone else to handle this task; someone who can do it as well or even better than me. There are some things I’m just really terrible at, like filling out forms or paperwork. I tend to just gloss over it or will do anything to procrastinate paperwork. I’ve found it’s best to have someone else handle it. I’m good at strategy, figuring out what the moving parts should be. Other people are really good at managing others.
I’ve had to figure all of these things out about myself; my strengths and weaknesses. When entrepreneurs don’t figure out their strengths and weaknesses early on then they have a long hard road ahead of them.
When your unwilling to step aside from roles you’re not good at its costly.
You won’t build a business quickly, you’re not producing at your highest level and you’ll make many mistakes.
There are some really amazing, smart people just waiting to be utilized by another with a great vision; they would love for someone with a great vision to come along and invite them to be a part of something cool.
People want to be a part of something that’s happening and moving forward. You can be that entrepreneur, that business owner who figures out what all the pieces and parts should be and then finds which people can make your vision happen.
I believe that with knowledge of these costly mistakes you now have an advantage as you move forward in your business ventures.
Here are the 5 costly mistakes we’ve discussed:
Because I want you to be successful and I know how useful these tips will be for your business, I have already made a YouTube series about these 5 costly mistakes for you to check out! Watch here:
If you would like to see the rest of my tips about opportunity inside your existing business, follow this link: JPMARONEY.com/CASHFLOW