…That May Not Seem Like Mistakes at All
Tom Panaggio says the costliest mistakes entrepreneurs can make are
often disguised as smart business decisions. Here, he shares some of the
not-so-obvious missteps to avoid as you grow your business.
Tampa, FL (May 2014)—The entrepreneurial life is rife with potential pitfalls. You can pour your heart and soul (and life savings) into a venture, do all your due diligence, toil 80- and 90-hour weeks, and just when you’re on the verge of a breakthrough, a dark horse competitor sweeps in and decimates your market share. Or a key vendor declares bankruptcy. Or a partner defects with your top client. Or a new law undermines your viability.
So yeah…a lot can go wrong. And that’s why Tom Panaggio says the least you can do is avoid the not-so-obvious mistakes that have derailed so many of your brethren. (Call it the “best odds” strategy for entrepreneurial success.)
“There are certain predictable mistakes that will derail a new company,” says Panaggio, author of The Risk Advantage: Embracing the Entrepreneur’s Unexpected Edge . “A lot of them have to do with misguided attempts to minimize risk. Others are based on misconceptions about how the business world works, what motivates customers, and so forth. And here’s the thing—many of them seem perfectly harmless, even smart, on the surface.
“Yet when evidence shows something is a mistake—a proven mistake—you must avoid it,” he adds. “Don’t assume that because it doesn’t feel like a mistake that it isn’t. And don’t believe that your case is somehow different or special. It isn’t.”
Along with several partners, Panaggio has built two thriving companies: Direct Mail Express (which now employs over 400 people) and Response Mail Express (which was eventually sold to an equity fund, Huron Capital Partners). He wrote The Risk Advantage to help entrepreneurs face the many situations, predicaments, and crises they’ll encounter during their lives and to help formulate their leadership style and business strategy.
In other words, he has seen and done enough to know what the big mistakes are—especially those that don’t seem like mistakes. Here he identifies a baker’s dozen of them:
Playing it too safe in general
Yes, risk is scary. But the truth is, unless you continually embrace risk, your business will never emerge from mediocrity. Panaggio insists that risk is the only thing that can give you the edge you need to distinguish yourself from the competition and reach your full potential…and that’s worth making a few mistakes along the way.
“Experience has taught me that some of the biggest mistakes you can make are the result of overly cautious decision making,” he shares. “You might think that you’re covering your bases, or taking the prudent path forward, but in reality you’re sabotaging yourself. Sometimes that sabotage might cost you ‘only’ a customer or a sale…but over time, a few customers here and a few dollars there can lead to your closing your doors forever.”
Holding resources in reserve
Putting it all on the line is a frightening prospect. That’s why most entrepreneurs (understandably) want to keep some cash in reserve for a rainy day. And yes, Panaggio acknowledges that giving up your hard-earned money is the ultimate risk. To pour your life savings into an entrepreneurial pursuit is like walking the tightrope without the benefit of a safety net. But even though the commitment is substantial, you need to find the courage to take that first step into the void.
“Likewise, don’t skimp on the time and energy you pour into your business,” he advises. “They are even more precious than money and even more costly to waste. Never forget that a successful entrepreneur’s commitment is personal; it includes an investment of money, time, and loss of opportunity from forgoing other opportunities. The life of an entrepreneur is not glamorous; it can be stressful, and you probably won’t be as successful as you’d like if you try to hold back, hedge your bets, and settle for ‘good enough.’ Unless you’re willing to go all in with all of your resources, you are placing limits on your fledgling business that could keep it from staying afloat.”
Not allocating a marketing budget
Yes, it’s hard to know what consumers think and what their day-to-day needs are, but a business void of a long-term and consistent marketing effort is doomed. Especially in a global economy that is becoming flatter and more competitive by the day, skimping on marketing is not the way to save money, because you’ll quickly find yourself out-publicized and out-advertised by the competition.
“At RME, we actually used marketing risk as a competitive edge,” Panaggio shares. “Anyone wanting to become a potential competitor had to be willing to match our marketing investment and commitment—just doing the bare minimum wouldn’t have been enough. As a result, competitors were forced to divert resources from other areas of their business to keep up with RME’s aggressive marketing strategy. And since most of our competitors weren’t willing to embrace the risk of marketing at our level, they were never able to seize our market share.
“I do want to acknowledge that accepting marketing risk also means recognizing that some degree of failure is both inherent and necessary to find your right path,” Panaggio adds. “At RME, we knew that our marketing message was going to be received by some who were not ready to buy. Therefore we committed to a consistent, ongoing strategy to ensure that our message got in front of prospects when they were ready to buy. You can’t accomplish this by sending a single message and hoping prospects individually remember you and then respond months later.”
Keeping it all business, all the time
Many protective business owners live by the mantra “It’s not personal; it’s business” because they assume that customers have unreasonable expectations, or that their demands will increase once you open the door of a relationship. After all, what if you start talking to them and they start wanting better pricing, extended credit, or other special considerations? That might happen with a few individuals, Panaggio acknowledges, but for the most part “getting personal” is actually one of the most effective ways to earn your customers’ long-term loyalty.
“To a small business owner who has a small number of customers, losing just one customer has a significant impact on organizational health,” he explains. “If you lose a customer due to price or other circumstances beyond your control, then fine. However, losing a customer because they felt unappreciated or underserved is inexcusable; it indicates serious flaws in your internal business processes. The easiest way to avoid customer churn is by continuously reaching out and communicating; in other words, making customers feel like more than a number. The best news is, getting personal doesn’t have to be time consuming or expensive. A short thank-you note after a customer places an order, or sending birthday or holiday cards, can go a long way.”
Refusing to hire people who are smarter than you
Of course I shouldn’t hire people who are smarter than me, you might think. That would undermine my authority and make me seem redundant in my own organization, where I’m supposed to be the boss! Not so, says Panaggio. Yes, an employee might know more than you about a particular aspect of your business, but that doesn’t mean she and the rest of the team won’t respect you as a leader (as long as you earn their respect, that is).
“The best advice I got when I became the CEO of RME was to hire people who were better and smarter than I was,” Panaggio shares. “At first I thought it was a condescending suggestion, but the more I thought about it, the more sense it made. Just like in sports, your ability to win depends on surrounding yourself with a solid, capable team who can perform without your constant oversight. By spreading the workload among team members who, yes, might be smarter or more accomplished than you in some areas, you can maximize strengths, reduce weakness, and minimize stress. So stop worrying about your ego and look for people whose talent and expertise complement your passion and goals.”
Being cheap about the wrong things
As a small business owner, of course you’re going to try to cut costs and stretch the budget wherever possible. And for each dollar you save, you (justifiably!) pat yourself on the back. But according to Panaggio, if you get too carried away with saving money, you might end up losing opportunities and customers. To put it another way: You can’t save your way to greatness.
“I’m not saying you should waste money or go into more debt than necessary; I’m just warning you not to be cheap about the wrong things,” he clarifies. “When you’re mulling over how much money to spend, think about how your decision might affect the customer. For instance, it’s fine to fly economy and stay in a budget hotel on a business trip, but don’t take the client you’re meeting out to a cheap chain restaurant. Likewise, you can furnish your back office with the bare minimum, but make sure your retail space is attractive and comfortable.
“In particular, don’t be cheap with your people,” he specifies. “What I mean is, be willing to pay for top talent, and don’t skimp on training. Never forget that your employees—especially those on the front lines with customers—can make or break your business, so investing in their development is always the right decision.”
Treating technology as a magic bullet
In so many ways, technology has made it easier to connect with customers. Used wisely, it can draw in potential buyers, cement the loyalty of existing customers, facilitate referrals, answer questions, and solve problems. So it’s understandable that many business owners automatically assume that more technology is always better. But if you’re not careful, technology can also be used as a barrier that keeps customers at arm’s length. Or, on the opposite end of the spectrum, it can allow you to get too cozy with customers: an inbox or newsfeed dominated by unwanted promotions, anyone?
“Again, the measuring stick here is simple: If it improves the customer’s experience, use it; if it doesn’t, save your time and money,” says Panaggio. “Be careful not to make the mistake of believing that all technological advances will work for your business. The fact that a gadget, app, or upgrade exists doesn’t automatically make it better than what you’re currently using. For instance, that fancy website redesign might look amazing, but it also might cause your homepage to load slowly or freeze up for many users. In that case, sticking with a simpler, but more universally functional, design would be smarter.”
Believing that if nothing is broken, it doesn’t need fixing
When you’re facing a crisis that could damage or even sink your business, it’s (fairly) easy to take risks. After all, if you don’t act, you’re doomed—and in that situation, there’s probably not much to gain by holding back. But what about the times when things are going smoothly, when you may have more to lose by going out on a limb? Well, then it’s much easier to convince yourself that there’s no need to tamper with the status quo.
“When nothing is actively going down the toilet, it’s easy to tell yourself that things are fine, that the future is rosy, and that you don’t need to put yourself out there to improve,” observes Panaggio. “However, that kind of thinking is a good way to be left behind or to become irrelevant. Customers don’t always leave because they had a bad experience with your company…the reason is often that they simply had a better one with someone else. Remember, risks need to be taken when business is good and bad if you want to stay cutting-edge and competitive.
“Note that you should also apply the ‘fix things even when they aren’t broken’ concept to your employees,” he adds. “Don’t allow them to settle for ‘good enough.’ Even if their performance is perfectly adequate, encourage them to learn more and to hone their expertise—and give them the tools to do so.”
Waiting for “the right time”
All over the country, there are entrepreneurs—or wannabe entrepreneurs—who are waiting for “the right time” to make their big move. They’re waiting for funding, free time, better economic conditions, etc. No doubt these business owners believe they’re being smart by waiting for the stars to perfectly align—but all too often, they’re only stagnating.
“I’ve seen too many businesses remain less successful than their owners would like because those very same owners were hoping that tomorrow conditions would be just a little bit better for advancing their goals,” Panaggio says. “I can’t emphasize enough that an imperfect action taken today is better than a perfect action taken tomorrow…or never. Also, keep in mind that being a ‘prisoner of hope’ doesn’t just apply to your company’s growth. Besides forgoing an opportunity for success because they are waiting for ideal conditions, many leaders fail to solve problems or correct mistakes because, in their minds, the timing wasn’t right. And when you’re bootstrapping a business, a mistake can be even more costly than not leveraging a chance for advancement.”
Refusing to “try, try again”
It’s a fair bet that at some point in time, you’ve employed a business tactic that just didn’t work. Maybe you allocated a large part of your budget to producing a television commercial, for instance, but barely noticed any increase in your business. Or maybe you offered an online deal to new customers, only to realize that the discount you advertised was a little too generous and wouldn’t allow you to make any profits. So now, if you’re like many business owners, you’ve vowed never to try again.
“Business is far from certain, and sometimes even the best ideas don’t have the desired results—but that doesn’t mean they don’t have merit,” Panaggio says. “Just because you weren’t able to break into a new market the first time around doesn’t mean that you’ll never attract those new customers, for example. My point is, don’t let your own stubbornness place limits on your potential. If you know a tactic or idea is fundamentally a good one, learn what you can from your first failure, figure out how to make improvements, and try, try again.”
Developing the “perfect” plan
Let’s say that you want to move to the next level, whatever that happens to be for your business. So you begin planning, preparing for every possible scenario. You define contingencies with backup plans full of redundancies. You sometimes wonder how anyone could fail with a plan that covers all possibilities and that offers each a solution. But here’s what you’re not taking into account: While your perfect plan might prevent you from failing, it will also hold you back from succeeding if it’s never executed.
“To be absolutely clear, planning is a good thing,” Panaggio clarifies. “However, for many entrepreneurs, the solution to avoiding the risk of reality is to keep planning. After all, they tell themselves, you must have a plan to be successful; ‘winging it’ is a blueprint for failure. But the truth is, with planning as a comfort zone, you can easily replace the reality of execution with theoretical forecasting and ‘what-if’ modeling. For that reason, many risk-averse entrepreneurs miss opportunities and fail to build actual businesses in the act of building virtual businesses. Don’t make that mistake.”
Confusing “invention” with “innovation”
Many business owners lie awake at night worrying that their businesses will become obsolete if they don’t innovate. And so they bang their heads against their desks each day, driving themselves crazy trying to build a new mousetrap. What they don’t realize is that all they need to do is take the existing mousetrap and make it better.
“Yes, ‘invention’ and ‘innovation’ sound similar, but they’re two distinct concepts,” Panaggio explains. “Invention involves creating something totally new from scratch. Meanwhile, innovation takes preexisting products, processes, services, technologies, and ideas and makes them better. Think of companies like Netflix, which took our culture’s thoroughly established love of renting movies and brought the process online, or Amazon, which ‘techified’ the millennia-old tradition of reading books with the introduction of its e-reader. There’s certainly nothing wrong with invention, especially if a brilliant, industry-changing idea hits you out of nowhere, but bear in mind that innovation often takes much less time, energy, and resources.”
Requiring hard evidence
Sometimes, identifying the right decision is clear as day: All of your mentors and team members are in agreement. The numbers indisputably point in a single direction. You receive an opportunity you know the competition would kill for. But other times, the right decision is murkier than the liquid in a Magic 8 Ball. How do you proceed?
“Many business leaders simply avoid making a decision at all if the information they have isn’t pointing clearly in one direction,” Panaggio says. “But in my personal opinion, that’s a mistake. You have to keep your business moving forward regardless of whether you have the hard evidence you’d prefer. Sometimes, you’ll have to bring intuition into the equation, make a gut call, and then embrace the risks that come with that move. If your gut call turns out to be the wrong one, it doesn’t mean you’re defeated—it’s simply a part of leadership.”
“Ultimately, a willingness to seek out opportunity and accept responsibility for all outcomes—including mistakes—is the mark of a true leader,” Panaggio concludes. “If you can learn to live with risk and even use it to your advantage, you’ll be setting yourself up for entrepreneurial success.”
About the Author:
Tom has enjoyed a 30-year entrepreneurial career as cofounder of two successful direct marketing companies. As a result, he can give a true perspective on starting and running a small business. His practical approach to business concepts and leadership is grounded in the belief that success is the result of a commitment to embracing risk as a way to ensure opportunity.
For more information, please visit www.TheRiskAdvantage.com.
About the Book:
The Risk Advantage: Embracing the Entrepreneur’s Unexpected Edge (River Grove Books, 2013, ISBN: 978-1-938-41644-6, $14.95, www.TheRiskAdvantage.com) is available at bookstores nationwide, from major online booksellers, and at www.TheRiskAdvantage.com.