“It’s good to learn from your mistakes. It’s better to learn from other people’s mistakes.” ~ Warren Buffet
Taking a lesson from Warren Buffet the third richest man in the world, let’s look at the mistakes that even smart people make in business. We can learn from these mistakes, and you don’t have to make them too.
The kind of mistakes you’ll make will depend on where you are on that business journey. If you’ve already been in business for a while, you’ll probably recognise some of these. Perhaps you’re still doing them. Or you might have got out of that particular tar pit, and be heading right for the next one.
I’ve divided the potential mistakes into three kinds, depending on whether you’re a successful freelancer, a business owner who’s ready to step up a gear, or an established and ambitious business. You can find out which one you are with the Business Focus Quiz, which takes about 3 minutes.
Most common business mistake smart people make
The most common mistake I see smart people make every day is also the most dangerous one for your business
Over the years, I’ve talked in-depth to hundreds of business owners. I ask all kinds of nosey questions of my clients. My favourite one is “how much do you charge?”
And, out of all the times I’ve asked that question, I’d say there were about five people who I thought were overcharging their clients.
Now bear in mind that I only work with small businesses, so I’m not asking this of the CEO of Vodafone, who does overcharge. But that’s a ridiculously low percentage – five people in 18 years.
Some people have got it about right, so we can move on and work out other ways to increase their profits.
But I’d say that more than 90 per cent of the people I talk to are undercharging. Sometimes, the answer to this question makes me want to groan, cry and swear all at the same time. Usually, this is because the person is doing excellent work, but doesn’t realise just how unique their thing is. To them, it’s just not rocket science, because they know how to do it. They give it away at a ridiculous price, not recognising how valuable it is to their customers. The trouble is, their customers don’t realise the value either because they got it for such a low price they think it’s a bit crap.
If you have even the slightest feeling that you might be charging less than you could be, and you want some help to work out what the right price is (and how to get customers to pay that price) you should get a copy of my Sweetspot Pricing book right away. And read it.
And the hilarious thing here is – the book is massively underpriced for the value it can bring your business. I’m pretty much giving away my secret weapon in my crusade to help people build their businesses.
What everyone does wrong in the first six months
Almost everyone who starts with a service-based business makes this mistake.
Here’s Serena’s story.
Serena was made redundant from her job at Big Corporate Giant Ltd. She was glad to go, no more commute, no more office politics, no more wearing shoes with heels. Serena thought about what she was good at, which was marketing. She set up as a marketing consultant and started working her address book and her LinkedIn network. One week in, she’d got her first piece of work through an ex-colleague. Oh, yes, this freelancing game is easy peasy she thought.
Now, Serena was new to this. She was giving away her skills at far less than she could have got if she’d read my Sweetspot Pricing book. But that wasn’t the mistake we’re talking about here. The mistake Serena made was the one that I’ve seen dozens of people come to me when they’re 6-12 months into a new business.
Serena got started and created some fantastic work. She loved it. And she was able to pay her mortgage, so it was all going well. For a couple of months. Until this first client suddenly didn’t need her any more. And she had nothing. She repeated the cycle, hustling for work, getting some in, doing a great job…until that came to an end as well.
After six months, Serena added up that she’d made £12k. Then she had to do her tax return, and add up her expenses. And she realised that she’d only made £9k in profit
Serena had not worked out that she was running a business now. And that running a business means you have to do marketing, calculate cash flow and set targets. In particular, a goal for net profit which is higher than £9k for six months’ of work.
She was in feast or famine mode. Except there wasn’t that much of a feast because she’d only had one client at a time.
Avoid these three mistakes all rolled into one
I did a slightly different version of this when I first went self-employed, back in 2001. It’s made up of three separate mistakes, all of which are fuelled by the need to pay the bills in the short term. Rich people setting up businesses don’t make these mistakes, I’ve noticed.
This freelancer combination mistake is made up of:
- Over-servicing your clients when you don’t have a lot of clients not investing time or money in marketing
- Thinking that you’re making enough money because you’re only looking at turnover, not profit.
- And then getting a shock when you finally do your accounts, and you have to pay tax.
How to avoid the freelancer combination mistake
The first step is recognising all the forms of this mistake. If you see yourself in Serena’s story, you might want to read my Tales of Everyday Business Folk for another more detailed version of this. Plus some good jokes and a game of spot the Brighton location.
The mistakes smart people make when they’re stepping up
I work with lots of businesses where the owner is ready to step up a gear. That might be where you realise you need to earn more money, more consistently. Or it might be where your business is doing okay, but you can’t help thinking that you’re missing something and it could be doing a whole lot better.
The bit that is missing is usually the mistake of not treating your marketing as a system.
Most people think of marketing as a few activities that they need to do once in a while, maybe when you need some more clients.
Eric’s story is the classic version of this.
Eric spent £2k on a lovely brand and website. And he paid some guy from Egypt £600 to optimise it. But that was three years ago, and it’s challenging to find Eric on Google, even if you know his real/full name.
I met up with Eric when he had done the target income exercise in my Sweetspot Pricing book and realised that he was £30k short of earning what he needed to feel financially secure. He was just about to pay out for some Facebook ads to send traffic to his out of date website when I stopped him with a hard stare. The one with the raised eyebrow.
Instead, we worked out a much better marketing system for Eric. One where he had to do just three things every day.
Just like working on your health or fitness, you need to do the right things for you, in the correct order. And do them consistently. When you start to see marketing as a system of things you do regularly, and you stick to this, it has a cumulative effect on your business. And things start happening.
It’s too easy to have a big push on marketing, and then let it go when you get busy with clients. And then get out of the habit. That can leave you £30k short of the income you need for a good life, let alone what you need to feel successful and secure.
The other big mistake you might make when you’re stepping up a gear
Ever felt overloaded? Knackered by Friday? Wished that you could clone yourself so you could get some sleep while your clone went to that sales meeting for you?
Yup, me too.
This is definitely the mistake I see even the most business-like of business people make. And I’ve done it too. We put off getting help to do the work and overload ourselves. And then we’re at the point where we can’t see straight. And we’re too busy to go through the tedious business of recruiting someone.
There’s a big difference between these two scenarios.
“Julia, I’ve set myself a rule that if I can delegate something, I will. Even if it’s just printing out an invoice, I’m going to ask Emily to do it from now on.”
This guy went on to have a business which sold for £1.2m. His “retirement” is spent giving talks on his specialist subject, which he charges £2.5k a time for.
“I’m worried that if I employ someone, I might not have enough work for them to do, and then I’ll be paying them to do nothing.”
This guy did okay too and is still in business ten years later. But he did employ two freelancers when he’d got busy, even though it took me months to persuade him that everything would be okay if he did. And that if they were quiet, it would be great to get the freelancers to work on the marketing system we were also setting up.
Blunders to avoid when you want to build something big
When you’re building a bigger business, you probably accept that you’ll have to work with other people to get to where you want to be.
The mistake I see everyone making here is expecting people to know what to do and how to do it. Many of the things we do in our businesses have become second nature to us, because we’ve done them hundreds of times We don’t have to think about them. Which is good because there’s plenty more to think about without me having to work out how to book a meeting room at my co-working space every time a client comes in.
But then we employ someone and assume that they’ll know how to do this. And then be surprised when they’ve booked the Tangerine Room, not the Olive Room. It sounds obvious, but you have to invest in your people by explaining and writing down all those little things that you don’t even think about. And you have to tell them why you want it done that way, especially if you don’t want to appear like a curmudgeonly old control freak.
I’m right in the middle of making this mistake for the third time now. Luckily, I have some great tips on how to make this easy.
How to avoid assuming your staff are telepathic
Spend five minutes thinking back over the last couple of weeks and note down all the little things you did. Like the VAT return, booking a networking event, uploading a blog, buying a train ticket. The things that suck up your time. No, don’t include the time you spent on browsing the Internet, reading interesting articles like this one.
And then next time you find yourself doing one of these, record yourself doing it. You can use Loom or Snagit to record your screen, and talk someone through you booking a ticket between London and Paris on trainline.eu and pointing out that you like a window seat but prefer facing. Give this video to your new member of staff and get them to write it up as a Standard Operating Procedure. Then anyone can do it for you, and you never have to do it again.
Next, spend an hour writing five pages of your business snapshot. It’s not a full business plan for the bank. It’s a description of the business as it is right now. This is a very therapeutic exercise because you can include all the frustrating areas at the moment. These are super useful for the new person because they’ll either find the same things frustrating or be able to solve these issue for you. But do also include your plans for the future, and at least jot down some numerical targets.
And put some dates in your diary for getting together with the new staff. And the ones who have been around for a while. Sit with them and go over what they need to do. You’ll feel the desire to avoid doing this because you want to get on with your work – but remember that your staff are not any more telepathic than your partner is.
The last mistake you need to avoid
When you’re growing your business from a little business to a bigger business, it’s difficult to suddenly develop an investment mindset out of nowhere. Primarily when you’re investing money that you’ve had to work for and that you’d otherwise be paying yourself in dividends.
And you’ve been used to keeping an eye on the pennies and keeping your overheads low. But the companies I work with where the owner is happy to shell out decent money for a website or to spend time on thinking about their Key Performance Indicators are the ones which leap ahead fastest. I don’t encourage you to buy fancy software when you don’t need it, or get that fish tank for the office, but feeling free to invest in training, paying other people to do things for you, or a new computer which will boot up in less than 10 minutes will help you to get to where you want to go faster.
How I’m going to help you to avoid these mistakes
I’ve made most of these mistakes over the last 20 years of running companies. And I’ve watched hundreds of people on the point of making mistakes and pulled them back from the precipice. I like writing these up, and I put them into an email I send out every week. These business stories are little chunks of advice, things I’ve learnt, and examples of mistakes I’ve made or seen others make. There’s some great stuff in there, and it’s all exclusive content I don’t put on the blog. You can get them here and see what you think.
The emails are also the best way to find out about the specific tips and advice I write up on the blog, the new videos and to get invitations to the workshops I run regularly.
Some of these business stories have helped save quite a few businesses from making these same mistakes. You can read about how they’ve made a difference to business here, or you can get the first one straight away in the box below:
There’s some more great advice to help you avoid small business mistakes in these blogs here:
Photo credits: Brighton pier by Marianna at Pexels.com