When running a business, making mistakes is unavoidable and can be extremely painful. But if entrepreneurs learn from them, mistakes and blunders can be badges of honor that are accumulated during the course of a career.
The following are my three biggest entrepreneurial mistakes and what I learned from them.
Mistake 1: When Betting on a New Product, Think Big
In the early 1990s, I ran a large regional trade association called the Eastern Technology Council. One of my top people understood the implications of the Internet early on and she suggested that we get into the Internet access business, with a large regional telecommunications company.
I suggested that we test market the concept with a small group and then roll it out to all of our members, once we proved it worked flawlessly. However, my colleague strongly felt we would miss a great opportunity if we didn't offer the service to everyone --
as soon as possible
. Her feeling was that we if we partnered with a large successful telecom, then "what could go wrong?"
What we learned was that the size of a company doesn't matter as much as its experience -- in this case, the know-how to launch new products.
The large telecom that we partnered with had never rolled out a new technology product like Internet access. At the time, telephone companies were only offering traditional data services that everyone was familiar with. There was no educational component to their product offerings. So when it came to this Internet service, our telecom partner underestimated the number of interested users and the amount of hand-holding involved to set those users up and service them properly. Our members were so angry over this debacle that instead of complaining to the telecom, they called me and my board.
We ended up shutting down the joint venture.
If there is one thing you can be assured of in a new product roll-out is that half of your plan will end up being wrong. As in battle, situations change and often inexperienced people miscalculate what it will take to succeed.
Plus, when rolling out a new product, it's better to miss the mark with a small group of customers rather than a larger group. With a small group, when you make a mistake, the damage to your reputation will be minimal and you will have the opportunity to fix any problems (there were a lot of glitches in the early days of Internet access), so you will have a smoother mass market roll-out.
Mistake 2: Keep the Old Guard in Place
The most painful business mistake I ever made was not getting rid of the top people in a company I was brought in to fix.
I was once on the board of a regional magazine company that was losing buckets of money. The chairman of this company was a well-respected retired business executive and his son ran one of the two magazines the company owned. When the board asked me to take over as the CEO and president, the chairman begged me to keep his son on board and assured me that we could work together.
However, the son was resistant to change and was closed to new ideas. As a result, the business suffered.
I learned that when you take over an ailing business with the goal of improving its health, you have to totally "clean house." Otherwise, the company's old guard will try to manipulate you into following the (failing) status quo. And, since the existing managers are not your hires, why should you expect them to be loyal to you?
So when revitalizing a company, bring in your own people, because they will be loyal and carry out your orders with enthusiasm. Whereas the old guard will sometimes undercut or ignore your efforts because you're seen as an outsider.
, lopping off the top people happens every day with companies that have to be turned around.
Mistake 3: Thinking All Capital Is Good Capital
I was once involved with a company that was trying to get the rights to sell lottery tickets through the Internet. The company was run by a hard-working weekend entrepreneur who worked full-time as a mid-level executive with a
500 company. To raise
capital for the company, he recruited friends and family to invest.
At the time, you could only sell tickets to in-state residents online, but even that was in question because of the federal law prohibiting online gaming. Trying to get the government to work with you on a new idea is like laying siege to a well-fortified castle -- it requires a long-term view and a tremendous amount of patience. Patience is something small and novice investors usually don't have.
Unfortunately, the entrepreneur's friends and family who invested in this company fell in this category of inexperienced and impatient investors who simply could not afford to lose their investment.
Three months after investing in the company, they started calling my client to find out when the deal with the state would happen, when they could get their money and whether they could be refunded.
When investors are constantly calling the president asking for their money, the president winds up spending more time on the phone and in meetings, explaining why some deals take a long time instead of actually working on closing those deals. Plus, if the company has to provide refunds -- which rarely ever happen -- the company's treasury will be drained of much-needed capital to keep the company going.
A seasoned, professional investor understands that when it comes to building a business, things usually take twice as long as originally estimated, so he or she is prepared for the ups and downs that go with investing in a start-up.
Don't beat yourself up over mistakes. Instead, learn from them and move on. You will probably continue to make mistakes, but over time and with experience, the mistakes will be smaller and less costly.
Marc Kramer, a serial entrepreneur, is the author of five books and is an instructor at the University of Pennsylvania's Wharton's Global Consulting Practicum, where he serves as Country Manager for Chile.