Entrepreneurs make unrealistic business assumptions that ruin their start-ups even before take-off. This article explains. Please read and share.
People who start new businesses always do so based on some assumptions. The assumptions concern their products or services and the value they bring to the customers. It may be about customers, markets, and competition. Entrepreneurs also make business assumptions based on the prevailing economic or regulatory environments. However, they do not always materialize as expected; hence many start-ups collapse even before they take off.
This piece examines five business assumptions and how they may kill your start-up dreams.
THE 5 UNREALISTIC BUSINESS ASSUMPTIONS TO AVOID
1: I have a great business idea; I can turn it into the profitable business of my dreams.
Many unsuccessful start-ups are entrepreneurs who left paid employment in pursuit of ideas. But soon after setting up their businesses, they discover that the underlying assumptions upon which their businesses stand are wrong, obsolete, or changed.
Successful businesses are usually products of great ideas. It may be ideas from everyday experiences, the immediate environment, or interaction with people. Business ideas may originate from current or former employment relationships or an outcome of acquired knowledge or study. Ideas come raw and need proper evaluation to determine their usefulness as a driver of new business ventures. So having a business idea is not enough.
Every business idea holds out assumptions of what value it can bring to potential customers. Because start-ups believe so much in their business ideas, they are usually very anxious to translate them into budding businesses. Entrepreneurs are often quick to implement their business ideas even before they fully understand and explore every ramification of the business ideas.
Good ideas do not always result in the business of one’s dream. However, every business idea contains relevant information that can be extracted and transformed into productive business opportunities. Transforming ideas into viable business opportunities involves testing and challenging the underlying assumptions upon which the business will stand.
Testing and challenging business assumptions in actual business situations is the most effective way to identify the true worth of the idea. But the desire to earn profits drives entrepreneurs into a rush to set up their businesses. This action thus exposes the entrepreneurs and their businesses to avoidable risks.
2. I have passion for my business, and I will succeed.
Passion is the unseen force that leads to success. It drives entrepreneurs to work harder and persevere when there appears to be no hope. Without passion, an idea dries out and becomes incapable of materializing into a successful business. Starting a business is a lonely and complex journey; passion helps you through the rough ride. However, believing that passion alone is all it takes to succeed as an entrepreneur is another unrealistic business assumption.
Professor Noam Wasserman, formerly a professor of entrepreneurship at Harvard Business School, observed that passion is the force that drives everyone who starts a business. According to Professor Wasserman, passion motivates entrepreneurs to succeed and may lead to their ultimate destruction. Below are reasons for this apparent contradiction.
According to Professor Wasserman, passionate entrepreneurs exhibit “contagious enthusiasm” for their ideas and the value they will bring to prospective customers. Passion drives entrepreneurs into starting businesses without proper plans or strategy. They are anxious to start their businesses and usually very confident of succeeding. This anxiety often leads to avoidable mistakes that may ruin the business ultimately.
Passionate entrepreneurs often refuse to consult wider, seek help, or listen to contrary opinions. They believe doing so will attract criticism, douse their enthusiasm and kill their dreams. As a result, they make decisions without weighing all the options, thereby exposing their businesses to unnecessary risks.
3. Business Assumptions: It’s my business; I am capable of running it.
Entrepreneurs usually believe they have what it takes to run their businesses because they conceived the ideas, raised the capital, and set up the business venture. Unfortunately, this is another unrealistic business assumption. Beyond originating the business idea, providing the start-up capital, and setting up the business, running a business requires skill, experience, and discipline.
Aside from establishing relevant business contacts, you also need to understand the markets, the competition, and potential customer attributes. There is also the need to set up appropriate management, operational, financial, and marketing structures for running the business. These are day-to-day management responsibilities capable of overwhelming entrepreneurs who assume sole responsibility.
Entrepreneurs ought to be free to focus on the equally important responsibility of setting the strategic direction the business ought to follow. Thus, entrepreneurs may need to open up to new ideas and partnerships and explore other frontiers of success never before considered. Doing everything alone denies entrepreneurs valuable opportunities to enhance the prospects of their businesses.
Entrepreneurs who set up new businesses are naturally emotionally attached to such businesses. They see their businesses as products of their vision; hence, they are unwilling to surrender leadership and control. Many entrepreneurs find it difficult to admit that they do not have what it takes to run their businesses. But such sincerity is required to enable them to take on board people with other competencies. Unfortunately, many see this as a way of losing ownership and control. Thus, they often choose to do it all alone; to run the business and take all the risks and rewards.
4. Once I raise the needed capital, I will scale up and run the business profitably.
I always encounter entrepreneurs who pose this line of argument when seeking loans or capital investment into their businesses. They paint glowing pictures of their proposed businesses and how they will recoup the invested capital in a short time. They usually come fully prepared with the assurance to utilize the loan properly.
Investment in new businesses is usually risky. Financial institutions place very stringent conditions for loans to new businesses to reduce their risk exposure. Thus, it is always difficult for start-ups to obtain the required funds to boost their businesses.
Financial institutions adopt stringent measures for giving loans to start-ups for several reasons. One is that starting a business is not an easy task. As start-ups, many entrepreneurs lack the experience and discipline to manage the confounding risks associated with running their businesses. In addition, many do not understand how to manage the limited resources available at their disposal.
Many entrepreneurs also lack the financial management experience required to run their businesses. Unfortunately, such entrepreneurs may also find it uncomfortable or incapable of hiring qualified professionals to provide advice. Because there are many risks associated with the start-up period, it is usually very tasking to scale up and make profits with borrowed funds.
Despite their optimism, entrepreneurs understand how difficult it is to predict how new products or services will perform in the market. At inception, it is also difficult to predict the reaction of competitors to new products and services in the market. The start-up period is usually a time to test all business assumptions and fine-turn your strategies in line with the prevailing business environment. The experimentation and test run may fail, open new frontiers of success or lead to a completely unexpected turn of events.
5. I will attract customers; there are markets for my products and services
Start-up entrepreneurs are usually very optimistic about their prospects of finding ready markets for their products and services. They also believe that their products and services will create value for customers, thus keeping them loyal to the business. However, they usually overlook factors such as competition and the changing nature of demand. Entrepreneurs underestimate the impact of substitute products and services and the regulatory environment in which they operate. These also affect the performance of any product or service in the market.
If new products or services are in high demand, competitors will seek to put you out of business. They will copy and sell your products or services more cheaper. Some will attract your employees with better offers to steal your trade secrets. Big companies will apply economies of scale to under-price your products and put you out of business.
Entrepreneurs must constantly keep abreast of their customers’ changing demands and preferences. Being proactive makes it easier for entrepreneurs to quickly adjust their products and services to match the demands of their customers. Entrepreneurs who believe the market is stable and that their customers will remain loyal irrespective of the prevailing product or service conditions are engaged in yet another unrealistic business assumption.
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