An increasingly global world means there is more business competition than ever. With the availability of skill sets and technology, small businesses are marching to take charge in every industry.
When businesses scale the right way, they are positioned to increase market value as weaker players are sifted out.
Whether small businesses aim to scale in terms of revenue, are looking to make their business more automated, or have hopes to expand their ventures shortly, they will make some mistakes sooner or later. But if they are aware of these pitfalls from the start, they can scale with more profit, more ease and less stress.
Curious as to what these mistakes are? Let us dive in.
1. Unwillingness to delegate
In his book “Turn that Ship Around”, Navy Captain L. David Marquet describes how the USS Santa Fe was the worst-ranking nuclear submarine when he first took command. He vowed to never give any order except to direct the firing of a weapon and delegated and empowered other people to act without approvals for everything else. With this simple approach of delegating tasks rather than taking control over everything, the Santa Fe went from worst to first.
The tendency of micromanaging led by the fear of failure and losing control only promotes stagnancy. Every business consists of people with clarity of intent and the ability to take low-risk day-to-day decisions. This also gives senior leaders more mind space to take cross-edge and big-bet decisions.
The empowerment mindset needs to be instilled into the work culture of a business from the start. Empowered employees are also more aware and engaged; they tend to work harder and remain more loyal to the company. Efficient delegation leads to fast and efficient workflow with more accountability and overall growth.
2. Less emphasis on specialisation
One of the temptations of start-ups is trying to wear multiple hats. The obvious reasons may be financial gain and access to a diverse client pool, but businesses may not play safe too long for scalable growth.
A good example is Lefty’s San Francisco, a premium store that is dedicated to products for left-handed people. While the products in themselves are everyday items, what makes them unique is they target a niche market. They have an extensive online presence and a loyal customer base because they identify and offer a solution for a specific problem rather than being generic.
Being niche allows a business to get better at their craft through constant repetition and practice, making them subject-matter experts in their industry. Engaging in the same tasks and processes repeatedly also makes it much easier to train employees and is one of the easiest ways to scale.
3. Not collecting genuine feedback
Brands that are solely focused on offering what they think is best for their customers rather than understanding their customers’ feelings end up becoming stagnant sooner or later.
For taxi-hailing service Uber, customer feedback is a priority to help them correct large and minor issues, ensuring that only the best drivers work for the brand. The feedback essentially determines the quality of service and experience the driver provides and the reasons for downvotes or bad reviews. The ratings create a channel of accountability for the Uber drivers and encourage them to avoid any trouble.
For customer-centric start-ups, a sound feedback system is a way to show customers that they care about the latter’s opinion - a factor that may influence the rate of customer retention.
4. Planning to scale too quickly
Every start-up with a growth mindset focuses on brand reputation and revenue. But chasing growth beyond the resources or workforce to handle the processes is like running towards the horizon. Growth comes with a lot of stress, added responsibilities, expenses and risks. Businesses must equip themselves first.
When Starbucks opened hundreds of stores around the world, they believed they could scale faster by adding sandwiches and other fancier drinks to their offerings. The rapid expansion ended up diluting the Starbucks brand, forcing the company to close 900 stores. Starbucks learned their lesson and returned their focus to doing the one thing they are good at - coffee.
At times, scaling too fast may be as problematic as expanding too slowly. There is no harm in starting small, defining growth and continue learning to become more prominent eventually.
5. Overspending from the start
Start-ups and small businesses are relatively fragile by nature. It may be tempting to overspend to make the business look and feel professional, anticipating that the revenue will catch up to spending. More often than not, this is seldom the case.
A few years ago, the social media management tool Buffer got caught up in a hiring frenzy. They started bootstrapped, then raised multiple rounds of funding to capture more of the market share and hit new revenue targets for investors. They ended up hiring more people than they had the resources to pay. Even after securing funding, they had to lay off 11% of the team. The CEO believed in hiring according to resources, whereas the COO and CTO were more motivated by high stakes. In the end, the COO and CTO left the company while Buffer moved on and thrived with their economic growth model.
When a business turns good profit within a given budget, it must eventually identify the areas to spend more and invest in those profitable channels.
6. Poorly defined work culture
Agility and scalability are second nature to any growing business, but all the energy and success may turn into chaos if they are not channelled purposefully. Leaders must be systematic about setting up work cultures and communicating ethics that will continue to be reflected in the team and the work they produce.
On a fateful night in 1912, the Titanic’s captain was able to see just the tip of the iceberg ahead of him. The real gigantic force lay underneath that led to the catastrophe. Similarly, in many instances, the lack of business growth and failure in the workspace can be attributed to finances or leadership challenges. The problem, however, may turn out to be the underlying mindsets and beliefs that shape how people work and interact every day.
A healthy work culture correlates with performance. The cumulative effect of what is done and how it is done eventually determines the business’ performance.
7. Underestimating the competition
Start-ups with a sound business model, plenty of funds and necessary management skills still face one daunting challenge: the competition. Businesses always regret it when they don’t foresee the motivations and actions of their competitors or the likelihood that these rivals may enter the same market they have targeted. Businesses that are too focused on their own products and services without proper market evaluation suffer from competitive blindness.
This happened to British Satellite Broadcasting (BSB) in 1988 after it outbid Rupert Murdoch's Sky Television. As BSB was preparing to launch its service, Murdoch obtained the rights to broadcast from a Spanish satellite that could reach Great Britain. Murdoch's Sky Television went on air, beating BSB to the market by 13 months. BSB was so focused on securing the bid that it failed to pay attention to the competition that took everybody by surprise.
For enhancing opportunities for success, start-ups must conduct timely competitive analysis as part of their overall market strategy. It is also reasonable to not ignore new market entry and low-cost rivals. Businesses that are alert enough to identify the nature and magnitude of their competitor’s strengths and weaknesses will be in a better position to improve competitive advantage and hold the rivals at bay.
8. Neglecting to honour the right talent
Ryan Buell, an associate professor at Harvard Business School, conducted a cafeteria experiment. In many cafeterias, diners would interact with waiters, not the chefs. Buell set up a live video feed of the cafeteria in the kitchen. Now the chefs could see the customers who were ordering the food. This had a personal impact on the cooks. They began preparing eggs freshly for each customer instead of grilling several eggs in advance. Being able to see their customers enjoy the meals resulted in a change of attitude among the cooks, and the customer satisfaction went up 14.4%.
Humans are collaborators by nature, and a great customer and employee experience always go hand in hand. When employees feel valued, they move from “It is beneath me” to “I know why I am doing this” mindset.
9. Not having a mentor in the journey
The most successful entrepreneurs and start-up owners have mentors and coaches that help them get to the next level by encouraging, guiding and teaching them how to avoid mistakes. Mentors provide valuable insight into creating a successful brand that comes from their first-hand experience and hard-earned knowledge in the industry. Mentors can introduce entrepreneurs to the right connections who may then prove to be fruitful.
Richard Branson will surely agree on this principle. Branson sought the guidance of British airline entrepreneur Sir Freddie Laker during Branson’s struggle to get Virgin Atlantic off the ground. Branson later shared: “It is always good to have a helping hand at the start. I wouldn’t have got anywhere in the airline industry without the mentorship of Sir Freddie Laker.”
The first step to finding a great mentor is acknowledging that one needs a mentor. Just like investing in the business leads to agile growth, a mentor investing in the business owner helps him or her to stand out in the crowd.
10. Avoiding and ignoring criticism
Criticism helps any start-up to see things in a new light. If a business is altogether avoiding criticism, it often implies that they value their notions and ego over customers. Criticism is not particularly easy to deal with, but if the feedback is empathetically accepted and resolved in the early stages, this saves the brand’s reputation from sinking.
As the world’s largest fast-food chain, McDonald’s has always faced criticism over its unhealthy food options. But after the documentary “Super Size Me” aired in 2004, a particularly large wave of criticism hit them. Morgan Spurlock directed this documentary about a social experiment on how the chain’s food affected health. Spurlock ate nothing but McDonald’s Supersize meals for one month. Each of these meals included around 200 grams of french fries and 1.25 litres of soft drink.
Within a month, Spurlock gained almost 25 pounds and alarmingly increased his body mass and cholesterol. The diet was harming his liver, and the doctor recommended he stop. Following the release of the documentary, McDonald’s UK sales dropped to one of their lowest levels because of concerns about eating junk food.
The chain revamped its menu by phasing out its supersize portions and including healthier options such as salad and milk. It also launched its “Every Step Counts” campaign that promoted the benefits of healthy exercise by giving away pedometers.
Even though McDonald’s is an established brand, the same principles of integrity apply to every business. When products or services violate the belief and opinions of people, they trigger negative emotions. Businesses must find creative ways to remind customers why they had the trust in the first place.
It is easy to be fascinated with success stories about people who hit it big by starting up independently. But when we dig into these stories, we rarely get any relevant insight into becoming a successful entrepreneur and running an agile start-up.
While there is no foolproof plan for success, if entrepreneurs pay attention to the reasons listed above, the chances are that they may foresee some pitfalls early in the start-up cycle. Mistakes may still happen, but they don’t have to become the reason for the failure of a company. Ultimately, it is better to avoid these common mistakes because one will make plenty of unique ones in their own business as well.