10 Stupid Mistakes Made by the Newly Self-Employed

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Having been a non-employee for about 14 years now, I’ve made my share of stupid business mistakes. I’ve also coached a number of people to start their own businesses, and I’ve seen many of them make similar mistakes. This advice is geared towards small business owners, particularly people who are just starting (or about to start) their own business.

1. Selling to the wrong people.

While sales are important to the survival of any business, you don’t need to push your business on everyone you meet, including friends and family. Furthermore, it’s a waste of time to try selling to people who simply don’t need what you’re offering.

Selling to the wrong people includes trying to sell to everyone. Some customers are much easier to sell to than others. For example, my wife does web consulting for small businesses, and she’s learned that some clients are much harder to work with than others. If a potential customer is broke and obsessively worried about every nickel they spend, if they want a web site but don’t know why, or if they simply don’t understand the Internet well enough, they won’t be a good client in the long run. Feel free to say no to customers that are more trouble than they’re worth. Let your competitors sell to them instead. You’ll save yourself many headaches, and you’ll free up more time to focus on serving the best customers.

Just because someone is interested in doing business with you doesn’t mean you should accept. In my first year in business, I probably said yes to at least 50% of the people who approached me with a potential business relationship. I wasted a lot of time pursuing deals that were too much of a stretch to begin with. I accepted lunch invitations from random business people who just wanted to “see if there’s a way we could do something together.” Virtually none of them made me a dime. If you think a meeting is pointless, it probably is. Don’t network with random people just because you think you’re supposed to network. Today I accept such invitations less than 1/10 as often. If an offer doesn’t excite me right away, I usually decline or ignore it. Most relationships simply aren’t worth pursuing. Learn to say no to the weak opportunities so you have the capacity to say yes to the golden opportunities.

2. Spending too much money.

Until you have a steady cashflow coming in, don’t spend your precious start-up cash unless it’s absolutely necessary. I started my computer games business with about $20,000 cash (my own money), and it went fast; shortly thereafter I was using debt to finance the business. Unfortunately, the original business model didn’t work, and it took five years before the business was generating a positive cashflow. I soon learned that every dollar invested in the business was another dollar that eventually had to be recouped from sales.

In 2004 I started this personal development business with only $9 cash even though I could have spent much more on it. No fancy logo, no snazzy web design, no business cards or stationary. I paid to register the domain name, and that was it. That’s as much as I was willing to spend before I started generating a positive cashflow. All other business expenditures came out of that cashflow.

Your business should put cash into your pocket, so before you “invest” money into it, be clear on how you’re going to pull that cash back out again.

Obviously some businesses require lots of cash to start, but in the age of the Internet business, you can very easily start a lucrative business for pocket change.

3. Spending too little money.

It’s also a mistake to be too stingy with your cash. Don’t let frugality get in the way of efficiency. Take advantage of skilled contractors who can do certain tasks more efficiently than you can. Buy decent equipment when it’s clear you’ll get your money’s worth. You don’t have to overspend on fancy furniture, but get functional furniture that helps you be more productive. Don’t use an antiquated computer with outdated software that slows you down if you can afford something better.

It takes time to develop the wisdom to know when you’re being too tight or too loose with your cash, so if you’re just starting out, get a second opinion. Often the very thought of getting a second opinion makes the correct choice clear. If you can’t justify the expenditure to someone you respect, it’s probably a mistake. On the other hand, there are situations where it’s hard to justify not spending the cash.

4. Putting on a fake front.

Many one-person businesses refer to themselves as “we.” That’s something a lot of new entrepreneurs do, but it isn’t necessary. There’s nothing wrong with a one-person business, especially today. My games business has mostly been a we over the years, but my personal development business is still an I. My wife’s VegFamily Magazine business is a we, since she has a staff working for her, but her web consulting business is an I. It’s perfectly OK to refer to your business as an I when you’re the only one working in it. Pretending that you’re a we when you’re really an I is a bit silly. It’s not going to gain you any respect in a way that matters. Promoting yourself as an I may even be an advantage today, since people will know the buck stops with you, and if you make a promise, you’re the one who will carry it out. Promises from a we sometimes aren’t worth very much.

If you’re a newly self-employed person, don’t pretend you’re anything else. Price your products and services fairly for your level of skills and talents. Some newly self-employed people think they must become actors. The business they promote to the world is pure fantasy. Trying to fool your customers in this manner will only backfire. If you’re so desperate for business that you need to lie, you shouldn’t be starting your own business. If you can’t provide real value and charge fairly for it, don’t play the game of business. Develop your skills a bit more first.

5. Assuming a signed contract will be honored.

I’ve made this mistake more than I care to admit. I’ve had signed contracts with supposedly reputable corporations, and they weren’t worth squat when the CEO decided he wanted out of the deal, even for completely dishonorable reasons. Sure I was in the right, but did I want to go to court to enforce it? No, I’d rather continue doing meaningful work.

A signed contract is just a piece of paper. What’s behind a signed contract is a relationship. If the relationship goes sour, the contract won’t save you. The purpose of a contract is to clearly define everyone’s roles and commitments. But it’s the relationship, not the paper, that ultimately enforces those commitments. When I understood this, I focused more on relationships and worried less about what was on paper, and my business deals went much more smoothly. Once you start falling back on the paper, the deal is already in trouble. Creative (and lucrative) business deals almost always stray from the paper contracts that represent them. One of my attorneys, who had worked on dozens of game development deals, told me that no deal he worked on ever followed the contract exactly; most weren’t even close. And these were big money deals in many cases. Business relationships are similar to other personal relationships — they twist and turn all over the place.

Written contracts are still necessary, especially when dealing with larger corporations where people come and go, but they’re secondary to relationships. Just don’t make the mistake of assuming that the contract is the deal. The contract is only the deal’s shadow. The real deal is the relationship. Keep your business relationships in good order, and you won’t have to worry so much about what’s on paper.

It’s sad but true that there are loads of scoundrels in business. Many of them hold titles like CEO, President, and CFO. There are indeed people out there who seem to care about nothing but money, and they will lie, cheat, and steal to get it. In recent years some of the more despicable ones have gotten themselves indicted (or are already behind bars). But there are plenty of others to whom the word honor has no meaning. For example, in the computer gaming industry, it isn’t unusual for large publishers to feign interest in certain games and string the developers along. They give the developer every indication that a deal is pending, but all the developer sees are delays and false verbal promises. In reality the publisher only wants to keep the game off the market to keep it from competing with one of their own titles; they hope to cause the developer to miss the next Christmas season or to run out of cash and cancel the title altogether. It happens. Business, especially the entertainment industry, is not for the timid.