Ruth King is a seasoned entrepreneur who has owned seven businesses in the past 25 years. She is an owner/partner of ProNetworkTV, which operates the Internet television station BusinessTVChannel.com. King speaks at national and local association meetings and trade shows.
Advice and inspiration for entrepreneurs.
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The Seven Greatest Myths of Business Operations
Excerpted from Ugly Truth About Small Business by Ruth King © 2005
As a result of the research and stories that our entrepreneurs graciously shared with me, I've distilled seven myths of operating a business that can quickly get you in trouble. Avoiding these myths won't keep you out of trouble. However, you can be the third type of businessperson and learn from the mistakes of others.
Myth #1: The product is so good it sells itself.
One of the mistakes made was to spend a lot of time on design of the product, the store location, and the services to be offered to customers. You open your doors and announce to the world "I'm here, come get me." You wait and get few sales. Or, you overestimate the space you need and overhead kills you.
You can have a great product, great production, and great cash reserves. If you don't have great sales and marketing, the other "greats" don't matter. No product sells itself.
You have to constantly promote. Everyone sells, from the person answering the telephone to you as the head of the company. If you-the owner, the CEO, the president-thinks, "I'm not a sales person," you're kidding yourself. You have the most important sales job. You have to convince customers why they should buy from you as well as sell your employees on the company so they will believe in and sell your company's products.
The best person at selling your products and services is you, the entrepreneur. Julia Barredo Willhite says that she shouldn't have hired an agency since she knew how to do it from experience. She feels that she is best at selling her products and services. You'll often be called in to close a difficult sale. Most people are impressed that the business owner is taking his or her time to be interested in the sale and the customer. The higher you go and the larger your company, the more critical the entrepreneur's sales skills. You can often make one telephone call to a president of the prospective customer's company or meet him at a trade association, or another venue outside the office, to agree to a deal. The details are left to lower ranking individuals. The message from the top is "do the deal."
No product sells itself. Constant attention and nurturing of customers and prospective customers is critical for success.
Myth #2: Start your own business to get rich fast.
Some of the entrepreneurs whose stories appear in this book were thrown into business from good paying jobs. They expected the same level of success and income from the outset of their business. They were rudely awakened. Some didn't adjust their standard of living and eventually filed bankruptcy before they learned to live on less income. Others had spouses who expected the same level of income when the businesses were started. This never happened. As a result, there were strained relationships in marriages. The entrepreneurs never gave up the belief that they were right, even when cash was extremely scarce. Their belief in themselves and the fact that they were right kept them going...sometimes to the detriment of the marriages.
None started their businesses with the intention of getting rich. All had something to prove, either to themselves or others. Some had a mission and wanted to do something important, as David Moscowitz and Tom Kemper did. In fact, they would have been richer had they stayed in the "corporate world." In most entrepreneurs' personalities, restlessness won't let them stay in the corporate world. They either leave or are kicked out because they no longer "fit in."
Some of the entrepreneurs, like Billie Redmond, knew that they were pioneers. They knew that it would take long, hard hours to achieve what they wanted to achieve. Some have hit it big; some have decided to stay small. All knew that by starting their own businesses, they were going to get rich slowly, if at all.
Myth #3: The perfect partnership: I have the concept and the bank has the money.
Bankers want to loan you money when you don't need it. Steve Saunders' bank had said on multiple occasions that they would increase the line of credit...right up to the day that Steve needed it. There are places that you can go for loans to start your business. These are usually referred to as friends, family, and fools. Unless you have a lot of collateral, bankers aren't willing to risk a loan.
In addition, venture capitalists and others who lend money (other than friends and family) want to see customers. They want to see that you have revenues and that your idea is not just an idea but also a living, breathing product or service that people will pay money for.
One entrepreneur learned this. He helped two software engineers who started in their garage build a business. The investors held all the cards. Initially it was a nice product with no customers. It was supposed to work; but did it? The investors were taking a chance on unproven technology. They had the money that the engineers needed to continue. From the engineers' position, they were between a "rock and a hard place"
and had no other choice but to accept the terms of the venture capitalists if they wanted to keep the company and their dream alive.
Concepts don't count in the real world. Customers do.
Myth #4: I'll give the customer a discount and make it up on the next sale.
Many times, we think that we can entice a customer to purchase our products by giving discounts and then get full price the next time the customer buys. Unfortunately, the next time the customer buys, he is expecting to pay the same price as he did before. He thinks that the discounted price is the normal price and you're stuck with the discounts. It is unlikely that you will ever make up the difference on the next sale. If you want several levels of prices, then you have to set up those tiers before you begin promoting your products and services.
If you want to give a discount, make sure there is a reason for the discount. The customer should be giving you something in return. For example, Pat Murphy sold service agreements in his heating and air-conditioning company. If a customer was willing to sign a piece of paper agreeing to a heating and a cooling check on his furnace and air-conditioning system each year, Pat gave that customer a discount on all service work.
You might also give discounts for volume. Karen Price routinely uses discounts for volume because she can buy at better prices when the customer orders a greater number of checks, business cards, or other printed materials.
One entrepreneur learned the hard way that you can't give it away. If someone said that they wanted her services and couldn't afford them, she often gave away the seminars and meetings hoping the customer would pay the next time. They customer didn't come back. She learned that something free has no value to the customer.
Know why you are giving a discount. Give it for a specific reason. You won't make it up on the next sale.
Myth #5: If my competition can sell for that price, so can I.
Maybe. You've got to know your costs. Your competition may have determined a more cost-efficient way to sell what you are selling. She may have cheaper labor, a better supplier with better prices, or lower selling costs. If you automatically drop your price to meet the competition, you may quickly find yourself in a cash crunch and out of business.
Overhead can also kill your company. One anonymous entrepreneur looked at the competition that had larger stores and thought that his company had to increase the size of their stores to meet the competition. What they found was that the additional overhead was too costly and the larger stores caused larger cash flow problems.
Don't look at what your competition is doing with respect to pricing. If your price is higher, find the value to the customer in your higher price. Sell that value to the customer. This is what Larry Duckworth does all of the time. He finds hidden value in the companies he runs. His current learning-based software company competes head-on with other similar services. It uses some of the same educational programs that others can also sell. However, it's the extras that his company provides to its customers that make the valuable difference. The extraordinary way they take care of the customer and the customer's needs are critical to his company's success.
Always look at the competition to see what they are doing. Larry Scaff does this constantly. He goes into his competitors' stores to keep abreast of trends, current prices, and what products he will be providing. However, before you change prices or give discounts, find out how the competition can do that. Look at your costs and determine whether you should drop your price or add more value. An automatic assumption that you can meet your competition's price is an assumption that may get you out of business.
Myth #6: My employees are my friends.
Your employees are not your friends. Your employees are being paid to do a specific task. Your partners are not your friends. If you get into business with friends, many times the friendships are gone because you don't know how your friends will react under different stressful situations.
Gary Markle talks about this constantly. One of his businesses, which he started with friends, failed because the friends reacted very differently when cash flow was tight.
You have to balance friends with "friendly," because in today's workplace, people are looking for a place to have personal relationships. That's what makes drawing the line between friends and "friendly" so difficult. If you do things socially, you need to do things socially with everybody. Don't single out an employee for meals. If you have lunch or dinner with one person in your department, then you have to have lunch or dinner with everyone. This shows that you are being fair and not playing favorites.
Discipline with fairness. You can't let one person get away with doing something and the others not get away with it. If you are doing this with a perceived friend, then this will demoralize other employees. Everyone has to play by the same rules. And if someone isn't following the rules, the same discipline must adhere to all. If an employee comes to you with marital problems, financial problems, or other personal problems, these should never be discussed with anyone else. However, you need to know what is going on and how it may affect his or her job performance. Despite these problems, the employee still has a job...and must be reminded of this.
So, be friendly with the employees, just don't be friends. You have to interact socially. Just monitor your interactions and make sure that you aren't playing favorites.
Myth #7: I will have more free time and I won't have to answer to anybody.
All of the entrepreneurs interviewed for this book routinely put in more hours than they did working for another company that wasn't theirs. You have more freedom to schedule your time. If you have to leave during the day, normally you can do it. However, you'll often find yourself working longer that day to make up for the time that you missed during the day. You won't have to answer to anybody; you just have to answer to everybody-your employees, your customers, your banker, your insurance agent, and everyone else who wants to sell you something or you want to sell something to.
Everyone wants a piece of your time. Yes, you make the final decision. If you want to grow the business, then you have to learn to delegate some of those decisions and follow up. If you want to remain small and in control, then you don't have to delegate. Smaller businesses are totally dependent on your efforts. If something happens to you the likelihood is that the business will not survive. You have to make the right choice for your business and you.
The toughest thing for some of the entrepreneurs to do was to let go. Several tried and found that their employees "didn't do it like they did" and "didn't do it up to their standards." So, they went and did it themselves. Some, like Loretta Elbel, quit because they didn't want to work that hard anymore. Others shrunk their businesses so that they could have control and a family life. If you believe in what you are doing so strongly that it is more important than family, then you spend more time on what you are doing and suffer the consequences of divorce and children with emotional problems. Several of the entrepreneurs in this book have experienced this. One of the questions I was asked when I was applying for a membership in a business group was how many hours I worked. I told them zero because I don't consider what I do work. I love what I do and enjoy coming to the office as did most of the entrepreneurs...even in the tough times.
We also find a way to make it work with our families. Many, including myself, have raised our children in our offices. My daughter knew the UPS man, the FedEx man,
and the postal deliveryman before she really knew what a kid was. She started coming to the office when she was two weeks old. As a ten-year-old, she remarked to me when my partner left for a "safe" job, "Doesn't he know that there is nothing risk free in this world?" It surprised me at the time. However, I realized that she was learning more about life than any school could teach her.
Children of the entrepreneurs interviewed either become great business owners, marry business owners, or want nothing to do with a business of their own. Several, such as one manufacturer's daughter, have children who have gone on to create great businesses of their own. Others have married entrepreneurs and know what to expect. They may not be involved with the business themselves, but provide a great deal of support and understanding. Others have children who want nothing to do with business because they've watched their parents suffer and work too hard (from their perspectives).
You don't have more free time as an entrepreneur. You do have more ability to schedule your time. For most of the owners interviewed, their time was spent on something that they love and believe in. They are willing to put in longer, harder hours to accomplish what they want to accomplish. This love and belief helps them keep the faith and helps them work through the dark days and into the light.
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