Roughly half of all new businesses close their doors within five years. It’s therefore very important for entrepreneurs to learn from the experiences of their forbearers
Odysseas Papadimitriou is the founder and CEO of the personal finance websites CardHub and WalletHub. He previously worked as a senior director at Capital One.
The United States is a highly entrepreneurial country, with an estimated 39 million people starting or running their own businesses as of 2013, producing roughly 476,000 new companies on a monthly basis.
One thing that all of these new businesses have in common is long odds of success. Roughly half of all new businesses close their doors within five years. It’s therefore very important for entrepreneurs to learn from the experiences of their forbearers and to adopt tried-and-true best practices in the interest of maximizing their chances.
With that in mind, I have assembled a list of entrepreneurial advice gleaned through my conversations with countless small business owners over the years as well as my experiences building the credit card comparison website CardHub and the personal finance social network WalletHub from the ground up. Hopefully these tips will help you turn your business into a resounding success with a great deal of staying power.
1. Wait to Raise Professional Money
One thing I hear time and again from entrepreneurs is that too much money too early can dull the mind. Another is that sacrificing control at the wrong time is a recipe for both disaster and personal unhappiness. So while it may be tempting to get in bed with venture capital as soon as possible and thereby maximize your immediate growth potential, doing so is actually inadvisable in the early going since your company might not be ready for the big time and you might not be ready to cede strategic control to the money men.
“Too many entrepreneurs view raising venture capital as an end in itself,” says Aneglo Santinelli, adjunct professor of entrepreneurship at Babson College. “They place too much emphasis on the signaling benefits of raising capital and think short-term rather than long-term about issues of control, dilution and strategic direction of the business.”
2. Don’t Use Business Plastic for Funding Purposes
Roughly 30% of small businesses use credit cards as their primary source of funding, given the accessibility of credit relative to many other financing methods available to entrepreneurs. That’s often problematic because business credit cards are not protected by the Credit Card Act of 2009. Most importantly, that means issuers can jack up the interest rates on existing business card debt whenever they want to, rather than having to wait until the cardholder becomes at least 60 days delinquent, as they would with a consumer card.
While it might still be tempting to use a business credit card given how inherently risky running a small business already is, it’s important to note that small business credit card users are actually personally liable for unpaid balances, contrary to what many people think. So, if you must use plastic as a financing vehicle, rely on a personal credit card offering a 0% introductory interest rate rather than a business-branded product.
3. Remember That Persistence Pays Off
Entrepreneurs must be able to learn from and move past rejection because even the most successful among us will encounter a great deal of it. Business creation is naturally disruptive, after all, as it involves making room in the market for a new entity and necessitates change on the part of both the consumer and competing companies.
That is why you need to be completely confident in your abilities as well as your idea from the very start and remain steadfastly assured of these things as long as the fundamental reasons for your belief remain unchanged. The road to business success is both long and difficult, and those who take no for an answer or give up too easily will quickly become skeletons on the path to prominence.
4. Focus on Focus
Entrepreneurship is hectic. There is never a shortage of things to get done and never enough time to complete them. By that same token, there are seemingly endless possibilities to the strategies and initiatives that a business can undertake. Spreading your limited resources too thin can be devastating for a startup, however, so it’s important to understand that once you launch your company, you must transition from idea mode to focused execution mode until a milestone is reached, at which point you can move on to your next idea.
5. Become a Scientist
While much of your path to profit has already been mapped out by similar companies that have come before you, every startup ultimately has its own recipe for success. Most nascent companies do not enjoy the luxury of time either and must move nimbly either to beat others to market or compete with more established firms. When you put those two things together, it becomes clear that young companies must operate on a trial-and-error basis, putting theories to the test and measuring results on the fly like a scientist.
This has become much easier in recent times given the proliferation of big data and the accessibility of analytical tools. That’s a powerful development because decisions informed by quantifiable consumer feedback are much more likely to pay off.
6. Hire Wisely and Use Equity to Promote Loyalty
Staffing decisions are some of the most critical choices that entrepreneurs must confront, as they can either catapult a company’s growth by enabling the entire team to get more done or represent a waste of both time and money. It’s therefore very important that you take hiring extremely seriously, carefully considering the necessity of each position as well as the type of candidate best suited to fill it. This also necessitates knowing yourself well since you’ll have to spend long hours in close proximity with whomever you hire and they will have to be receptive to your management technique.
When it comes to compensation, there are a couple of things worth bearing in mind. For starters, while it may be tough to part with the money needed to attract new talent, it’s important to view this expenditure through the lens of not only what this new team member will accomplish directly but also how much of your time will be freed up to focus on other things. What’s more, strategically using equity options to attract and ultimately retain talent is a relatively low-cost way of sweetening the pot where traditional salary and bonuses cannot compete with the rest of the market. Owners are also more invested in a company’s future and typically harder working.
This post was originally published on Fiverr‘s blog.
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