Many businesses start out extremely well and then suddenly are up to their ears in trouble. If they survive at all, they are forever stunted.
Are there typical mistakes entrepreneurs make?
Peter Drucker pointed out in his book, Managing in the Next Society, that there are four entrepreneurial pitfalls where the new and growing business typically gets into trouble.
The first pitfall is that it is often entrepreneurs reject success. The majority of successful new product or service does not succeed in the market the founder-entrepreneur thought it would be. But it succeeds in a totally different market. Many businesses fail because the founder-entrepreneur is so obsessed with his or her original plan and refuse to grab the opportunity in the unexpected market.
The second pitfall is that entrepreneurs do not pay enough attention to cash flow. Entrepreneurs believe that profit is what matters most in a new enterprise. But profit is secondary. Cash flow matters most. Many businesses are getting caught in a cash crunch because entrepreneurs are financially illiterate and have a hard time grasping the concept of cash flow.
The third pitfall is that the entrepreneur outgrows his management base when business grows rapidly beyond expectations. Starting out, the typical founder does everything himself. When business grows, the entrepreneur begins running around like the proverbial one-armed paperhanger. Unfortunately, the entrepreneur does not realize he outgrows his management capabilities. He does not get the management team in place quick enough. Then all the sudden, everything goes wrong. The quality falls out of bed. Customers don’t pay. Deliveries are missed. The business is eventually hid hard by manage crunch.
The fourth pitfall is the entrepreneur begins to put himself and his needs before his business when the business is a success. He has worked eighteen hours a day for fourteen years. He does not enjoy it anymore. He knows he’s not concentrating on the right things. But it is difficult for him to face up the harsh reality and start asking “What does the business need at this stage?” and “Do I have those qualities?” He does not realize that it is time to bring in an outsider. He ends up killing himself and the business.
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