In the previous lesson, we talked about the core business principles that you need to keep in mind for all your online projects. They were: vision, value, profits, strategy, action, and perseverance.
Apart from ignoring these basic principles, many companies and online entrepreneurs commit mistakes that end up compromising their businesses. And the interesting thing is that we are talking about a small number of mistakes that are repeated over and over again, and that are responsible for the majority of the failures.
In this lesson, we are going to cover the first five mistakes.
Mistake 1: Not solving a real problem or need
By now you should already know about the importance of creating value, right? One of the easiest ways to see if your product or service creates value is to evaluate whether or not it solves a real problem or addresses a real need.
Sometimes people get so excited about their ideas that they forget to perform this primary reality check.
The Iridium project launched by Motorola in the late 1990s illustrates this point perfectly. Around that time, the mobile market was in ferment, and service operators around the world were fighting to claim the increasing number of mobile subscribers.
Most mobile networks, however, were using base stations that could cover only a couple of kilometers each. Such technology obviously limited the range where operators could offer their services.
In order to address this limitation, Motorola tried to develop a network that would cover literally the whole world. It looked like a great innovation, and the management team was enthusiastic about the idea that people would be able to talk anywhere from the Sahara Desert to the North Pole. They thought that this would definitely create value for the customers.
The project required an investment of 7 billion dollars and it involved 88 satellites that were placed into orbit around Earth.
After the network was in place, they started selling the services. The handsets were large and clumsy because they required a more complex technology. They were also selling for $3000 one piece, and call charges were incredibly high. But, those devices would allow users to communicate anywhere in the globe!
A couple of months later, once the novelty wore off, people started to realize that there was not such a strong need to make calls from a remote city in Siberia or from an island in Polynesia, after all. But it was already too late. Motorola not only missed the sales expectations by far, but it was also forced to keep paying the maintenance of the satellites, which amounted to 200 million dollars, monthly….
Motorola invested in what its managers thought would be a promising innovation, but there was no customer need to be met or problem to be solved in the first place. In 1999 the Iridium project filed for bankruptcy under Chapter 11.
Before starting your website or business, therefore, make sure it will solve a real problem or address a real customer need.
If you need help to identify problems and customer needs, take a look around and see what people are complaining about, what products or services they ask for but are unable to find in the market, and so on.
Mistake 2: Lack of focus
The Internet is certainly erupting with opportunities. All it takes is an idea and passion to build a website around it, and in a matter of months, you could have a real business on your hands. Curiously enough, this abundance of opportunities is also what leads many online entrepreneurs to fail. How come? Because they end up trying to pursue too many things at the same time.
They start several blogs, promote affiliate programs, create mini websites for AdSense and offer consulting services on top of that. As a result, they end with average, if not mediocre results in each of these activities.
If you want to create something powerful, you need to concentrate your efforts on it. This is true for most things in life. Just think about light. When you have dispersed light beams, they are not that strong. When you concentrate the light beams, however, they become very powerful. So powerful that they can cut steel! This is the concept behind the laser.
Testing with different business models and ideas is fine, but once you decide what direction you want to go, you will need to focus all your time and energies on it.
As you probably know, the online marketplace is a crowded one. You have thousands of blogs in every niche, hundreds of websites on every segment and dozens of online companies offering similar services. If you want to be profitable, you need to be the best at what you do, and you will only achieve that if you have a laser sharp focus.
This obviously does not mean that you will need to stick with one project for the rest of your life. If you grow your business effectively there will be a point in time where it will pretty much walk alone, and you will be able to step back and pursue new ideas. Until you reach that point, however, you need to focus ALL your time and energies on that single project.
Mistake 3: Not finishing what you started
This mistake is connected with the previous one. People who lack focus usually have hard time finishing what they started. You probably have a friend who is always starting a new diet, only to give up on it one week later, right? Needless to say, that friend will have a hard time reaching his or her weight loss goals. The same is true for businesses. Entrepreneurs who can’t finish what they start don’t go very far.
On a macroscopic level, as we explained above, people who start several projects at the same time take few of them to completion. Even if a person manages to stay focused on a single project, though, he can still make the mistake of not finishing what he started.
Suppose that a certain person has a social media marketing business. He makes a living by helping companies reach customers through social media. One of his first marketing activities is the creation of a blog, where he will write about social media, showcasing his expertise and building an audience. He starts writing solid articles every day on the blog, but after a couple of weeks the posting frequency goes down, and within two months the blog is completely abandoned.
He then figures that writing and releasing a free report about social media marketing could generate some buzz and attract new customers. He starts writing it, but after ten pages or so the words stop flowing, and he decides to put that idea on hold.
Finally, he decides to run a Pay-per-click advertising campaign on Google AdWords. He spends some $50 buying clicks, but after that, he doesn’t analyze what keywords were converting better, how many customers he got out of the campaign, what was his return on investment and so on.
As you probably guessed, this business will have very small chances of succeeding.
Mistake 4: Underspending
Whether you plan to start a blog or an online company, you will need to spend some money along the way. New technologies and web 2.0 tools are certainly bringing down the costs to set up and manage any kind of business, but that doesn’t mean that you should start yours with zero investment. It would be possible, but most of the time not optimal and too risky.
People that underspend on their projects will often have a doomed venture right from the start.
Let’s consider the creation of a blog, for example, which is one the simplest and cheapest forms of web publishing. One could say: “Why not just buy an available domain name, get some cheap web hosting for $5 monthly or less, load a freely available WordPress theme and start writing?”
In theory, you could do it, but it would be much harder and take much longer to make such a blog profitable. Why? For several reasons. It is hard to find good domain names these days that are still available, so you would probably end up using a long and boring domain that would not help your brand at all. With a free WordPress theme, your site would look like thousands of others, again hurting your brand and making it more difficult to communicate credibility. Should you write a popular article and reach the front page of a social media site, your cheap web hosting would probably not be able to sustain the traffic load, and your server would crash. So on and so forth.
With a minimum investment, on the other hand, you could purchase a nice domain for your blog, hire a designer to draw your logo and customize your WordPress theme, and get a decent web hosting service. You could spend less than $400 on those items combined, but they would make a huge difference in terms of making your blog stand out from the crowd.
As you can see, we are not talking about investing tens of thousands of dollars into enterprise level software solutions and consulting services. This would be the other extreme. We are talking about investing the strictly necessary amount of money to ensure you will have a professional setup that will work towards your goals and not against them.
In future lessons we will cover the different items where you might need to invest money (e.g. the domain name, the web design, the web hosting, software solutions and the like), explaining how you can maximize your results while controlling the overall budget.
Mistake 5: Overspending
Admittedly this problem does not occur as frequently as underspending, but it does happen. It happens particularly with people that have money coming from other channels (e.g. offline entrepreneurs that want to start doing business online, 9 to 5 workers with big savings accounts or startups that have raised money from venture capital firms).
Why might having too much money laying around be a bad thing? Because money dumbs us down. When you have too much of it, you get too comfortable. You will hire people when there is no need to, you will invest in marketing campaigns that will not improve your bottom line, you will not work hard to find as many clients as possible and so on. When the money runs out (and it will!), you will find yourself with a business that can’t stand up on its own.
When money is scarce, on the other hand, you will literally get off your butt. You will get things done as quickly and efficiently as possible, you will find creative ways to reach your users and promote your services, and you will put a double effort into closing every sale.
If you happen to have too much money laying around, therefore, you need to limit it. Create a tight budget for your projects, and stick to it religiously. Your business needs to run by itself after all, and not with the money that you will be injecting into it from external sources.
- Refer back to the business ideas that you brainstormed in the previous lesson, and evaluate whether or not they solve a real problem or address a real customer need. Ask yourself if there are people out there looking for what you plan to offer, and how much they would be willing to spend to get it.
- If you are already pursuing several online projects or have several ideas that you want to kick start, choose one of them and focus on it. Testing them before you make a decision is fine, but choose one as soon as possible and stick with it.
- Make finishing what you start a habit. This applies to things at all levels, from large projects to your daily activities.
- Make a list of basic items that are necessary to getting your idea off the ground (e.g., domain name, web hosting, content management software), and them list the items that could be worth investing in because they would give you some competitive advantage or strengthen your brand (e.g., professional logo design, professional website design, custom coding of an application).
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