What Not To Do: Key slip-ups every startup should avoid
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SAGE ADVICE: John Rainey, regional director of the Massachusetts Small Business Development Center at Clark University in Worcester, warns new small business owners about hiring family.
Mervyn "Merv" Weich has learned countless lessons in his five decades in business, a career in which he founded BJ's Wholesale Club, designed computer systems for military spy planes and built one of the first electronic cash registers.
After he sold the company that made the cash register, Weich said the buyer installed a random number generator and turned it into one of the first state lottery machines.
“I probably walked away from a lot of zeroes,” Weich said.
But he did end up with his first Mercedes from the proceeds of the sale, which made him feel a bit better.
Now retired and living in Framingham, Weich, 72, volunteers for the Worcester chapter of SCORE, an organization that provides free business counseling to people looking to start a business.
Some of the businesses that Weich helped start are now massive companies, like BJ’s. Others failed for various reasons and some had decent success.
But they all had something in common: They started as small businesses.
Danger Approaching
Drawing on his history of starting and overseeing several dozen companies and venture capital investments all over the world, Weich now helps would-be small business owners avoid major strategic errors early on by coaching them on cash flow, financing and the inevitable ups and downs of business.
And there are many mistakes to make, according to a recent survey by Hiscox USA, a specialty insurer based in Bermuda with operations in the United States.
The 2011 Hiscox survey found that the top mistake cited by small business executives is underestimating what monthly expenses will be. Related, and also on the list, is getting too little financing up front.
Weich said that running out of money, in his experience, is the reason for most business failures.
“Everybody needs money,” Weich said. “You’ve got to know how much you need and you have to know what the range is.”
Some people who want to start a business don’t think about and budget for worst-case scenarios — the times when business is going poorly. That those times will come is nearly a guarantee, Weich said.
“In every business you have these cycles,” he said.
Going to a bank and asking for a loan when you have run out of capital is not going to work, he said. Banks almost never offer credit in that situation.
It may be as important as ever right now to help entrepreneurs avoid pitfalls, Weich said, because more people tend to try going into business when the economy is poor because they cannot find employment.
Weich said that he is starting to see some clients that are down on their luck from the economic crash and might not have the necessary business acumen or haven’t thought out their ideas well enough to be a successful business owner.
“There’s tremendous pressure on these people,” Weich said.
Weich said that the success stories he has seen often come from when he or other counselors are able to talk someone out of an idea and help them look at the business concept in a new way.
Résumé Reviews
The other two mistakes identified by small business owners in the Hiscox survey are hiring the wrong people and not knowing how to market or sell your product.
John Rainey, regional director of the Massachusetts Small Business Development Center at Clark University in Worcester, said that many clients come to him with the idea that they are going to sell their product on the Internet.
That is a fine idea, Rainey said, but a potential small business owner needs to analyze the competition, invest in a good website and make sure it ranks high in search results.
“The beauty of the Internet is it’s easy to get into the mall,” Rainey said. “The problem is, it’s the largest mall in the world and you have thousands of competitors there.”
As for good hiring practices, Rainey said that a business owner needs to make sure that potential hire will get along with a small group of employees and that they have a relevant skill set.
Rainey also advises that fledgling businesses to use a temp agency to find employees. He said it is easier to get rid of an employee who is a bad fit if they are only a temporary worker. It lets the business owner try that person out.
And finally, Rainey cautions against hiring family and friends. Though for some people it works, many times it doesn’t, he said.
“Hire people that are qualified for the job and write a job description,” he said.
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