Almost all entrepreneurs have been inspired by innovative ideas that created fortunes for the investors who conceived them. The entrepreneurs who came up with ideas for seemingly boring products such as push pins and paper clips became millions. Many business owners want to believe that their new idea could make them a bundle.
There is nothing wrong with being inspired by business success stories. However, you need to be realistic about whether or not you can emulate their success.
Entrepreneurs who are unrealistic about the future value of their business can make poor decisions that will haunt them later. They may ask for more financing than they can repay or purchase more capital than they can afford. Many good business ideas fail because their founders couldn’t set realistic goals.
Make sure that you know how much your business could really be worth.
The Biggest Mistake Most Entrepreneurs Make
The biggest mistake entrepreneurs make is starting a business they are passionate about without understanding if it will make money. I might have been a little cavalier with my wording here, because there are other major mistakes that entrepreneurs make. However, far too many people start a business without:
- Making sure that there is a market for the product or service.
- Making sure that there is a good return on investment.
You need to make sure that you have a profitable business model before you go into business.
Is there a Market for Your Business?
Many entrepreneurs want to make a living doing something that they love. What’s wrong with this? Nothing. At least not most of the time.
The issue is that some people have unique interests that aren’t shared by most of the population. They will have a very difficult (or more likely impossible) time making money from a business idea that doesn’t already have a strong demand.
One of my old business school professors told our class that his brother started a company that sold parrots in the city he lived. After giving it a go for a few months he came to realize that there wasn’t enough demand for parrots for him to create a sustainable business. He had to launch a dog cleaning business instead, because there was enough of a market for him to make a living off of it.
I don’t mean to tell you to give up on your dream of selling parrots in the city you live. Just make sure that people will actually buy them first.
Make Sure There is a Reasonable Return on Your Investment
Many people also start businesses without knowing what they can get in return. The New York Times published an interesting story on this topic a couple of months ago. The article told a story about a woman who started a company that produced specialty cookies. Her accountant told her that she was losing money, but didn’t explain why.
This woman spoke with a renowned business consultant who explained that she wasn’t even meeting her costs with the price she was charging. He said that she would need to target much higher end clients to sell her cookies if she intended to make a living with what she did. The article didn’t say whether or not she was successful with that. However, it does seem like the deck was stacked against her.
Entrepreneurs need to be passionate about what they do to succeed with it. However, you can’t create a business solely on passion. Make sure you understand how you can monetize your business idea. Doing what you love is great, but you still need to pay the bills at the end of the day.
Andrew Mitchell is a passionate Forex trader. He is committed to helping people learn more about developing the proper business model through his site.
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Category: Startup Advice