Three Big Mistakes Entrepreneurs Make When Starting Businesses

11-Oct-2010

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CPA/entrepreneur







Five years ago this month my wife and I sat at our dining table pondering what to do. The startup I had been working for had just been acquired for $180 million. I thought about going back into venture capital, but I realized I wanted to build my own firm again. So for the third time I became an entrepreneur. Seeing the increased investment that was flowing into China, we mapped out plans for a strategic market research firm that would charge more than big management consulting firms like McKinsey and Bain.

I wondered if I was making the right decision. How could our fledgling China Market Research Group take on the big consulting firms? Also I wanted to start a family soon and worried that I wouldn’t be able to provide for it. After all, one of the companies I’d started previously had made a total of $7,000 in profit over three years while I lived in a $200-a-month apartment.

After we made the decision that first night, I wrote an e-mail to two mentors, Bill Kirby, then dean of Harvard’s Faculty of Arts and Sciences, and Gregg Stone, managing partner of Kestrel Venture Management, informing them of my plans. Before I clicked Send, my wife looked at me and said, “There is no going back now if you tell them.”

She was right. I could not fail and lose face to them. Sending those e-mails, I knew I would have to do anything to make CMR successful.

Five years later success is not guaranteed, but CMR has remained profitable every year. We regularly beat Bain and McKinsey for deals, helping boardrooms from around the world develop China strategies. Most important, I have assembled what I consider to be the finest strategy consulting team focused on China.

How did I do it? Here are three key mistakes I did not make that many entrepreneurs do. Avoiding them helped me get over the five-year hump, when more than 50% of startups shutter.

First, far too many entrepreneurs focus too much on product development without thinking about building a brand. Obviously you need to have a great product or service, but don’t forget that you need to build your brand. That gives you pricing power and generates more leads.

For instance, in order to compete with the big management consulting firms, I knew we would have to be seen as thought leaders and have clients from different regions and sectors. I started off by publishing columns in publications like Forbes.com and appearing on CNBC and Bloomberg TV to gain credibility.

And I actually turned down deals those first three years if the projects would take up too much time or were in the same industry. I forged deals to work with clients from America, France, Italy, Australia, China, South Korea, Hong Kong and the U.K., in sectors ranging from cosmetics to chemicals, food and beverage, software, private equity, hedge funds, apparel and financial services, even if the deals were relatively small, to build credibility in different regions and industries.

This strategy saved us in 2009, when many big firms, like Marakon, declared bankruptcy, and others shut their China offices, as the retail consulting firm Kurt Salmon did. American firms had accounted for 40% to 50% of our revenue in the previous three years, but last year that dropped to a measly 5%. No single sector provided more than 25% of our revenue last year. Now American companies have bounced back to account for 60% of our revenue, and we are furiously adding head count.

The second key mistake many entrepreneurs make is not conserving enough cash. What enabled us to take on projects that might not have been hugely profitable but gave us a critical clients and credibility was our holding onto cash.

Whenever you spend money, triple-check to make sure you really need that item. Too many entrepreneurs buy everyone products from Research in Motion or Apple, or spend too much renovating their offices. At every office we move into, part of the deal is that we keep the renovation and furniture from the previous tenants. We save an estimated $50,000 a year using Skype for most of our phone needs, and we produce only e-brochures rather than expensive hard copies.

The third key mistake many entrepreneurs make is that they underestimate their stress levels and don’t take care of their health. I have never been one to succumb to stress. Perhaps my confidence, some would say arrogance, buttresses me with the belief that I will be a success at some point if I work harder than anyone else.

However, there was one morning, during the height of the financial crisis, after my son was born, when I woke up and looked in the mirror and saw that half my right eyebrow was gone. Also I was 20 pounds overweight, from too many late-night trips to McDonald’s and morning cappuccinos at Starbucks. The doctors told me that my body had reacted to the stress by causing my eyebrow to disappear literally overnight and that I had to hit the gym and rest more, or else. I am now back at my college weight, my brow is back, and I’m more productive at work.

I like the unpredictability and challenge of entrepreneurship. Although I strive to become a billionaire, I find that the fun of building a brand is more important than the money. I cannot imagine ever working in anything but a start-up. Still, failure always hovers like the smog clouds over Beijing. To maximize your chances of success, make sure you take vacations, exercise regularly and never forget to build a brand and count your pennies. If you do that, you will be on your way to becoming the next Steve Jobs or Bill Gates.

Shaun Rein is the founder and managing director of the China Market Research Group, a strategic market intelligence firm. He writes for Forbes on leadership, marketing and China. Follow him on Twitter @shaunrein.


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