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The 13 Self-Inflicted Failures Small Business Owners Experience (and How to Prevent Them!)

I recently spoke on a panel to small business owners and presented this material which was cleaned from an interview I had with an excellent attorney in my community (who also happens to be my father,).

Charles Davis is a senior partner at the law firm Davis Miles. He says that just knowing these common mistakes before starting a business is the first step to steering clear of them.

While many of these suggestions business-specific, they are good advice to all people who are looking to live more productive and fulfilling lives.

The suggestions below are not legal advice. Moreover, they are my notes from my interview, so some concepts or meanings may have been lost in translation.

1. Failure to get an Accounting System set up

a. Find a good accountant to help you set up QuickBooks or some other small-business accounting program.

b. Outsource your accounting. Get a good accountant right from the get-go, one who will get your accounts structured in a way that will give you useful information. Use one who understands your business. Ask people in similar business to yours who they use for their accounting (i.e. if you have a plumbing business, ask building contractors for accountant recommendations). Doing your accounting yourself saves money in the short term and gives you more of a sense of your business strengths, but it takes away from time you should be selling and marketing.

c. Don’t run your business out of a personal account and don’t ever mix personal funds and business funds.

2. Failure to understand all components of the business

a. A business is multi-faceted and owners need to understand and have at least some level of competence in finance and accounting, legal, marketing, facilities, staffing, distribution, customer service, and supplies.

b. If you’re weak in an area, seek out an expert; if you are short on funds, ask your friends who are strong in these areas or who work in these professions for advice.

3. Failure to choose the right form of business entity

a. The type of business entity you select with have implication about what kind of personal liability you have for the business, and will determine what kind of taxes you’ll pay; good attorneys and accountants can save you far more than you pay them to set up your organization, because they’ll help you avoid payment of unnecessary taxes and help you shield yourself from unnecessary liability exposure.

4. Failure to get licensed

a. Don’t operate your business illegally. It makes it hard to get legal recourse when your business has been wronged if you have skirted the rules yourself when setting up your business.

b. You need a Federal Tax ID number (for all entities except a sole proprietorship)

c. You need to get City and State Sales Tax Licenses to sell products in a given municipality and state.

5. Failure to protect intellectual property

a. Copyrights, trademarks, patents and trade secrets are all assets; the theft of these by other companies can put you out of business.

b. If you create something original, see an intellectual property attorney to help you protect that creation.

6. Failure to understand the role of technology

a. Technology doesn’t solve problems. It is a tool that can be used to help you to solve problems.  But it can also be a problem. Make sure that the technology actually saves you both time and money. If it costs you more in time and money to implement and use the software than in saves you in time and money, then it’s a bad investment.

b. People can get so enamored with spreadsheet modeling of the business that they fail to execute the plan.  Additionally, the real world will usually not resemble the world you model on spreadsheets, so be conservative in your estimates.

7. Failure to hire the right help

a. Hiring poor help can sink your business. Don’t hire family and friends just because they’re family and friends.

b. Also, don’t hire “charity cases” because someone “needs a job” - at least, don’t put these kinds of individuals into core areas of your business, and if you do hire them make sure there is regular accountability, training and supervision.   Your good intentions may result in you, and others, being out of work all because you’re trying to force a bad fit into the mix.

c. Be very careful hiring relatives. The family relationship is most important. Work conflicts between family members can jeopardize family relationships.

8. Failure to keep work at work

a. Don’t bring work home if you can avoid it. Don’t talk work at home if you can avoid it. Working at home and talking work at home, especially about work stresses, can transmit stress to family members unnecessarily and paradoxically make you less effective at work.

9. Failure to manage business relationships with friends, family, neighbors and other affiliates

a. Remember that any business relationship can sour and have conflict.

b. Many excellent business people refuse to do business with family, friends and neighbors to prevent any situation in which a falling out over business would affect harmony with their personal lives.

10. Failure to borrow the right amount

a. Don’t borrow too much.  Don’t borrow too little.  Borrow what you need and what you can afford to pay back (estimating conservatively).   Don’t borrow if you don’t have to.

b. Get a good accountant to help you figure out the right amount to borrow.

11. Failure to estimate employers responsibility for FICA tax and unemployment insurance

a. When creating budgets for employee expenses, don’t forget the extras you have to pay to the government on behalf of the employee.

12. Failure to insure

a. Insure yourself, your business operations, and your facilities.

13. Failure to understand tax consequences of owning your own building

a. If you are going to own a building or office space, rather than leasing it, make sure you understand what that ownership will do to your taxes.

February 11, 2010 | Filed Under Business 

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12 Books That Help You Win In Business and Life

I read a lot.  At any given time I’m reading between 3 to 20 books.  Below are 12 books that have been particularly vital - even essential - to me as I’ve worked with others to help build our business from just one of many scrapbooking sites on the web, to the largest, most-visited scrapbooking site and store on the internet. I’ve provided a link to them as well as a brief synopsis to help you identify whether you’d be interested.

Influence: The Psychology of Persuasion by Robert Cialdini

This book contains principles you can apply to influence any person in any situation to influence them (for better or worse). We are all “hard-wired” to respond certain ways to certain techniques. When we’re treated well, we respond. This book shows you how to effect change in your life and in any organization you belong to. It also will help you protect yourself from people who wield this techniques (pandering politicians! dishonest salespeople!) in manipulative ways - you will immediately be able to recognize when others are employing them to take advantage of you.

Influencer: The Power to Change Anything by Kerry Patterson

Just read it. It will blow your mind. Despite the similar titles, this book is very different than the book by Cialdini. This book is the blueprint for how to bring about lasting change. It actually walks you step-by-step through the process to develop your own change program (in business, in your community, etc.), and helps you understand best practices and avoid pitfalls, whereas Cialdini’s book helps you understand human psychology. My #1 read this year. In fact, it’s the reason I founded www.SBABG.org!

The Science of Success: How Market-Based Management Built the World’s Largest Private Company by Charles Koch

A must own for any small-business person. Koch Industries started as a small businesses and is now the second largest privately owned company in the United States. The Chairman, Charles Koch, runs the company based on free-market principles - a system they’ve developed over many years of trial and error which they call “Market Based Management” - and they credit their success to adhering to the system through good times and bad. Bottom line, you do not want to be competing with Koch in any industry, because it will outclass and out-compete you.

Leadership and Self-Deception: Getting out of the Box by The Arbinger Group

We are our own worst enemies. We seem to have a pathological ability to take relationships of conflict and make them worse through never-ending battles with others that leave them and us worse off. Some companies (and groups, and families) get paralyzed by infighting and contention. This book teaches you how to “get out of the box” and bring an environment to the workplace - or any organization -  that is both peaceful and productive.

The Tipping Point: How Little Things Can Make a Big Difference by Malcolm Gladwell

It’s the little things that make all the difference in our lives, and in our businesses. It is awareness of, and attention to, these things that will often determine whether we experience success or failure. This book explains how to identify those little things that make a big different.  By small and simple things great things come to pass. Don’t think that big results need come from big effort. Big results come from the right effort at the right time.

The Breakthrough Imperative: How the Best Managers Get Outstanding Results by Mark Gottfredson

Learn what competitive dangers await every business, and how you can prepare and overcome these dangers.

Value Investing: From Graham to Buffett and Beyond by Bruce Greenwald

Business people need to understand the value of the assets and businesses they own, work with, and purchase. This book teaches business valuation better than any of the formal textbooks I have read on the subject, and does so in a radically more simple way by applying timeless techniques first established by Benjamin Graham, who was Warren Buffett’s mentor (and we all know how that worked out for Buffett.)

Competition Demystified: A Radically Simplified Approach to Business Strategy by Bruce Greenwald

Written by the same author as the book above, this changed the way I approached building a business. Many business people learn Porter’s Five Competitive Forces and derive strategy from analysis of such; this book radically simplifies Porter’s work (in my opinion) and is more useful to small-businesses looking to grow.

Cable Cowboy: John Malone and the Rise of the Modern Cable Business by Mark Robichaux

John Malone was a brilliant man, building a bleeding-edge business on the frontiers of America, outfoxing the governmental forces-that-be every step of the way. A great story of risk, opportunity, and what can happen when a person chooses to see the world differently than everyone else and stick with that vision. Particularly fascinating are the chapters that discuss the acquisition strategies, employment of debt, accelerated depreciation strategies, and wars with banks and bankers that couldn’t seem to see the value Malone was building right before their eyes (and so distrusted and fought him every step of the way). If you’ve ever spent a sleepless night because you’re warding off creditors while you’re building a businesses, know you’re in good company - Malone spent more than a decade fighting with them and he turned out OK!

The Ultimate Question: Driving Good Profits and True Growth by Fred Reichheld

Contains and immediate, practical strategy that you can use in your business today to make sure that your customers are not only happy with you, but turn into promoters for your business. To repeat a phrase I used above,  by small and simple things great things come to pass.  In this book, you’ll learn one of those small and simple things you can do to make great things come to pass in your business.

Moneyball: The Art of Winning an Unfair Game by Michael Lewis

If you want an edge, you can’t play the game the same way as others. To play the game differently, measure things differently. This page-turning story shows how Billy Beane, the general manager of the A’s, used his relatively paltry $41M payroll and unique measuring system to identify overlooked players and assemble teams that routinely beat other teams that employed $100M+ in payroll and bought up the “obvious” talent. Small businesses everywhere can learn from this story and uses it’s principles to slay the Goliaths they go up against each day.

Stumbling on Happiness by Daniel Gilbert.

Be a Happy Warrior.  Lots of studies about what makes people unhappy or happy find that our brains constantly trick us into making decision we think will make us happy but have the adverse effect.  The cure to this “blindness” is provided in this fantastic book.  Look at people who are happy, who have died happy, and do what they were doing when they were your age.  Hint: It’s kind of commonsensical - work hard at something you love, stay married through good times and bad, don’t do drugs and all that.  All that stuff that sounds great but is actually “hard” at times and which your brains sometimes tries to tell you won’t make you happy.  Happiness is not pleasure seeking.  And pleasure seeking does not equate to happiness, especially long term.  You will have a happy life if you stick to the principles of living that lead to long-term happiness, and that’s the surprise. Doing the stuff your brain often tell you wouldn’t make you happy, does.

Disclosure: If you click on any of the books above, then buy it, I get paid a small portion of the sale from Amazon.com.  I’m not trying to sell books, just tell you about them.  But if you do decide this information is valuable to you and do purchase the book from Amazon, I will recieve some modest compensation for providing this resource free to you.

July 21, 2009 | Filed Under Books, Business, Happiness, Performance 

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