the start. Before you commit
yourself, check everything. There
are three fundamental mistakes a
new business owner can make:
underestimating the cost of running
a business; overestimating
revenues and underestimating the
timescales for becoming profitable.
You need to get to know the
business thoroughly before you
commit to it. Who are your
customers? What do they need,
and how much are they prepared to
pay? There is no room for words
like `maybe' and `perhaps'.
decisions an entrepreneur may
ever need to make is what to do
when a business declines; is it
best to simply cut your losses,
or to persevere and risk wasting
scarce resources, potentially
even drifting towards insolvency
as the cost of changing direction
becomes too high?
risk-seeking entrepreneurs are
more likely to pour resources into
failing businesses than to walk
away, but why?
Drummond and Julia Hodgson,
both experts in the social and
psychological aspects of risk and
decision-making, have investigated
this trend through their book
Escalation in Decision- Making:
Behavioural Economics in Business,
by examining the behaviour of a
group of indoor market traders.
route to entrepreneurial success,
many market traders are now
feeling the effects of a slow
economy and increasingly fierce
competition from supermarket
giants and chain stores. Each week
traders across the country are
forced to close, yet new traders
continue to set up, many of whom
fail within months or even weeks.
But what is it that makes some
traders believe they can succeed
where others have failed? And what
can we learn from their mistakes?
numerous traders about their
planning and expectations prior to
setting up, their profit margins and,
where applicable, their decision to
close the business, and their
assessment of what went wrong.
business
starts to flow out of the business.
Usually it takes at least six months
to a year to become established.
Where is that money going to
come from in the meantime?
Try and compute a realistic cash
flow. For instance, how are you
going to replenish stock?
No stock = no business.
bit. Any business can look good on
paper, but there are no guarantees
that optimistic forecasts will be met.
Where is the planned success
going to come from? Running a
business is a full-time commitment
and can be very stressful. Plan how
you will cope.
Escalation in Decision-Making: Behavioural Economics in Business, London, Gower.
marketing, and so forth are
important, but they are just a
means to an end. Enquiries about
your products or services are
encouraging. Web hits are nice to
have. But sales are all that count.
Exert maximum effort. Be pro-active,
grab attention, get your message
across and get the sale.
best thing to do with a successful
business is sell it. Clever
entrepreneurs never try to wring
the last drop of gain from the
business; they sell out early and
leave that for someone else.
important lessons for
success that they
discovered during the
course of their research: