Entrepreneur’s Errors

My mistakes you should avoid

Listening to bankers

Leigh Court:my error

Leigh Court
my error

Entrepreneur’s errors are easy to commit. One of them involves listening too closely to your banker, whose approval of course you want. Banks want to work with people they can trust, or assets they (think) they can rely on. Hence they want to see a track record that shows you know what you are doing. That makes sense. I recommend that venture builders stick to what they know, or collaborate with others who do.

Banks also want you to do other things that may lead to them having a false sense of security and lead you astray. They ask for personal guarantees that mean that they can be round your neck for the rest of your life, if you fail. Avoid that like the plague, unless you negotiate conditions that can get rid of it when you start succeeding.

They like to have you mortgage y0ur house, so that they can foreclose on it when you go bust! If you do, you may regret it, given the amount of additional pressure that you will put on yourself and your family. Only accept this as a last resort. Don’t worry so much if you have to mortgage the business, by a lien on your balance sheet or something else that you and your banker can create as collateral.

If the asset side of your balance sheet is weak, bankers will encourage you to strengthen it for their own misplaced reassurance–not for your benefit. They may encourage the purchase of things that could be re-sold if the business goes bankrupt. Many if not all businesses these days avoid bolstering their balance sheets with things that are not money makers themselves. An example is real estate. Don’t let your corporate pride mislead you.

I did! See the beautiful nineteenth century mansion in the picture: my business had been going successfully for nine years, had retained earnings, but I succumbed. The bank bit my ear for years wanting to see some assets other than cash. I thought that a corporate HQ would impress the clients and I fancied being the ‘lord of the manor’. So we bought the building. Or rather the bank bought the building and granted us a mortgage.

A year after we sold the business, the mortgage was crippling. The business went bust. People were out of work. The bank had trouble liquidating the asset.

Assuming you can’t sell

The normal pattern for those setting up in business is to multitask at the outset. That is not one of the entrepreneur’s errors. You can’t afford to hire the specialists. You make and pack the goods yourself, jump in the car and sell them, write out the invoice and pop a copy in the shoebox.

After a while you get into division of labor. Someone else makes the goods, they are packed professionally–and worst of all, you think someone else can sell better than you do. This is an easily made entrepreneur’s error. Sure it is probably good to get a bookkeeper. You don’t add much value by doing bookkeeping youirself.

As a salesman you will add value as well as revenue. You may not think of yourself as a professional sales person, but you are the one with the passion,. who will go the extra mile and stand by your product. You know more than you think.

Of course, learn the basics and even refine your technique,  you can get help to make your task easier, but don’t kid yourself that simply hiring a sales person will enable you to sit back and watch the sales roll in. I was a lousy salesman at the outset and just my sheer energy was what enabled survival. Then I started to appreciate that asking the prospect some questions might work better than rolling out my samples the moment I got through the door.

Sales were increasing well in year three and we thought that we could keep the healthy upwards curve by hiring qualified sales people. We did–and sales did increase, but the volume sold by those people did not match what we could do ourselves. We had discovered that we were unconscious competents.

Normally the passage of learning is from unconscious incompetence to unconscious competence. We often do not credit ourselves for having learned to go through the steps.

The successful entrepreneur will learn very quickly and will not do so through training, by rather by experience. If we had the time to reflect upon our on-the-job learning, we’d pretty soon come to the realization. Don not sell yourself short!

Chopping and Changing

When I was a Board member of a regional venture capital company, we backed a business in the fast food business. We knew the owners, the business plan looked good and we could identify the need in the local economy.

We started working with them having subscribed for shares as well as providing loan capital. Since the underlying purpose our investments was to promote employment, we were somewhat indulgent early on, when the number were not cutting the mustard.

As the months progressed and the flow of information from the company started to be late and erratic, we decided to call fro monthly P&Ls and balance sheets, but also for a table of variances against plan.

With the numbers for the second month of close scrutiny, I noticed that the plan numbers had changed. The head of finance took the view that it was OK to revise the business plan on the go. One month was acceptable, but when it started happening every month, so that the results would look ‘nicer’, I called a halt. An entrepreneur’s error that was easy enough to slip into, However, I think he was making it mainly so he could feel good about performance (and avoid corrective action). Not only was I unable to monitor performance, but they had no clue where they were. We had no means of evaluating how they were doing.

In the end the VC company had to pull the plug and demand repayment of the loan capital. Our shares became worthless and suffice it to say it was not long before the only solution open to the owners was to close the company.

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