Five Mistakes Entrepreneurs Make

Rather than go through the usual "5 reasons why businesses fail" formula, which are typically related to the businesses plan and operational aspects, I'd like to approach the issues from more of a governance and succession planning perspective.

Enterprise Longevity

A business that fails in the first year, or less, is not a failure, it is a lesson - it is a mistake that you can recover from. A business that fails within a few minutes of the final whistle at the end of the game is a disaster, because there is no time to learn the lessons and start again. It's too late.?

I commonly deal with businesses that are mature i.e. that have been in operation for much longer than the critical first three years that precious few start-ups survive for. What I want to talk about is how to reduce the chances of failing at the very last hurdle, just before all the years of blood, sweat and tears come to an end and you can start to think about the fruits of your labour.

Start-Ups vs Mature Businesses

In a start-up, there is high energy and everyone realises that they need to make sacrifices because there just aren't the resources to pay market salaries and bonuses etc.

In a more mature business there is now some significant value involved and much more to lose in terms of reputation, money, assets, and opportunities that may never be repeated, and there may be a lack of time to rebuild.?

Obstacles to Longevity

Let’s look at typical mistakes that such entrepreneurial businesses make.?

Mistake 1: Not understanding what game you are playing i.e. what type of business you are building.?

There are two types of business – or games:

• The Game of “Craft”: Being a "Master Craftsman" or "Master Craftswoman" with a particular skill does not mean that you have the skills and ability to build a successful business that enjoys longevity beyond yourself. The business is reliant on you being involved and often fails if you are unavailable for a significant period.
• The Game of Enterprise: An ‘Enterprise’ is very different from a ‘Craft’ business because it is built around a team and is not reliant exclusively on the presence or contribution of the founder to operate on a daily basis. Legally, and ideally operationally, there is also a much clearer distinction between the three hats of shareholder, director and manager. With a succession strategy and plan for each of these groups, the business is much more robust and more likely to survive to at least the second generation.?

While this mistake does not necessarily lead to "failure" in the short term, it will definitely lead to disillusionment, wasted time, wasted resources and often having vastly unrealistic expectations of the value of the asset that you think you have built and intend to use to retire on.?

The business is more likely to be successful if your most dominant skill is delegation or time management, but especially sales and innovation. Two tips here:

• Find people better than you at something - quickly!!
• Build a team of the best people that you can find, not the cheapest.?

This leads into the next mistake…?

Mistake 2: Employing the wrong people?

If you are building a ‘Craft’, then you need to employ other craftsmen and women to either allow you to leverage your own time, or to duplicate yourself. Good examples of this approach might be a dental practice, or a plumbing firm. You have a business selling a service, but ultimately you have created a job for yourself, because if you are off for the day, or sick for an extended period, then the service cannot be delivered. Essentially a ‘Craft’ business is like being a professional tennis player. You have employed a team of a nutritionist, a coach, a physio etc., but if you can’t go out on court and win then there is no income and they will ultimately leave to find work elsewhere.?

For an ‘Enterprise’ you also need to build a team of individuals with specific skills, but just like a rugby team, it works best when there is less reliance on any one individual and there are reserves available to fill any gaps during the game. The game doesn’t stop when one player is injured, but in a ‘Craft’, it does.?

When picking the right team for an Enterprise, there are three main aspects that need to be considered and the most common mistake that entrepreneurs make is that they only consider two of them, at best, and end up with a performance management headache and ineffective delivery.?

The three are:

• Personality profile: We developed a profiling tool called ‘Contribution Compass’ a number of years ago because we struggled to find a practical and simple to understand tool that we could use to identify the gaps in the make-up of a board. It has since been adopted as the preferred tool by consultants across the world working in all aspects of coaching, team building, recruitment etc. Identifying the profiles of the current team and the profiles of job applicants is critical as they can’t change their profile – they were born that way. Yes, an individual can become more mature in their profile and learn how to cope with their challenges and play more to their strengths, but those preferences don’t fundamentally change. It’s imperative that everyone’s role in the organisation is aligned to their profile, or they will be low on energy because they are constantly operating in a place where discipline is required rather than having high energy because they are ‘in flow’ and doing things that they enjoy doing.
• Values, attitude and aptitude: The way that someone approaches life (attitude), what they are naturally good at (aptitude) and the things that they value (values), are aspects that they need to be open to changing, or they must be a good fit with the values and culture of the business from the start – otherwise the individual will cause disharmony on the team. It is very difficult for the organisation to influence a fundamental change in someone’s attitude and values, or to develop a skill when they don’t have the aptitude for it. We’ve all experienced it and it can be massively costly and disruptive. All three of these aspects can be examined as part of an interview process, but often aren’t. The person who is the wrong ‘fit’ then ultimately leaves and costs the company a significant amount of time and money managing them and finding a replacement.
• Skills and experience: Ironically, the only one of the three that a business leader can change is an employee’s skills and experience, yet this is often the only aspect that we check when bringing a new person into the team. Sure, they need to be able to at least do the job, but often there will be elements that they will need to unlearn and bringing in an ‘expert’ is not always useful because they might impose their ways of doing things and have a negative impact.

The bottom line is that entrepreneurs often don’t value people enough and struggle to work with individuals who are critical of them, or have differences of opinion. However, without other people, there is no business, or you are a Craft and have to (or want to!!) do everything yourself.?

When recruiting, hiring is often too fast and not well thought through. Rather hire slow and fire fast.

Mistake 3: Wrong Partners or Shareholders?

Shareholder and partner disputes destroy many businesses.?

Before going into a partnership, or bringing in additional shareholders, it is important to determine the game rules and agree on them in writing. Try to put a value on what each partner is bringing to the business before it starts and then define the high-level roles in writing. Avoid being treated as equals and being paid the same. No-one in a large organisation is treated completely equally (except maybe if they have pay grades), so why do it in a small business??

Thinking long-term forces shareholders to align more.?

In a private business, equity has very little liquidity, so everyone needs to be pulling together in order to achieve long-term success. This is often the main conflict that occurs when Venture Capital investors come into a business. They have a three- to five-year exit strategy, while the founder may be thinking 20-30 years in the future.?

Mistake 4: Not getting help and advice?

Many entrepreneurs think that they know best and that only they can do what needs to be done. The truth is that it can be wise to seek out criticism.?

Accessing mentors and advisors can be a game-changer for an entrepreneur. In fact, 95% of successful family businesses in America have an advisory or formal board (where they are a standard requirement). While advisory boards are less prevalent in Africa compared to the U.S, there is growing recognition of their value, especially among start-ups and family-owned businesses seeking external expertise without formal governance changes. The approach in Africa is more varied, with a mix of formal boards, advisory boards, and businesses operating without any board structure – which reflects diverse regulatory environments and cultural practices.?

Such boards support seeking out other people's experiences and stories of struggle and success so that you realise that this is not an original mistake and that many other people are in the same boat, or were in it but have found a way to get into a bigger and better one. Test your assumptions: They may be completely wrong!!!?

Never stop learning. If you're not growing, then neither is the business.?

Mistake 5: Lack of Succession?

According to the Conway Center for Family Business, more than 30% of all family-owned businesses transition to the second generation, and when it comes to the third generation, only 12% succeed. By the fourth generation, only 3% will still be operating as a next-generation family business. This statistic is confirmed by the finding that approximately 70% of global family businesses do not have a formal succession plan in place.?

Next-generation transitions can be difficult due to fear, intimidation, unpreparedness or lack of communication. This makes it even more important to overcome our EGO and have the difficult conversations. Rather have siblings know what the plan is early, than only when they read it in your will.?

Across all areas of the business, including clients and suppliers, start thinking about a back-up plan or successor early, and continuously revise and develop the details. Each operational department is like a Craft business: You have the Master Craftsperson who is the most skilled at e.g. marketing and they have a Junior Marketer who they are training up. As the business grows, you start bringing in interns and apprentices who work their way up through the organisation which provides individuals with clear role development plans. Recruiting successors internally is also most often cheaper and more effective than having to bring people in from outside.?

Think of succession at all levels: Shareholder, director, manager (key person/s), supervisor etc.?

Conclusion?

Be prepared for the unexpected and try to build in back-up plans and risk mitigation systems in as many areas as possible. Very much like climbing a mountain, always have three points of contact and avoid needing to put your full weight on one fixture in the cliff face. If it slips or breaks, that is the end.