Common Rookie Mistakes that Start Ups Make

Last Updated May 18, 2011 1:42 PM EDT

"Those who tread the narrow road
Walk in single file--
Shadows plague each wary step,
Hazard haunts each mile."

This lyric opens The Narrow Road: A Brief Guide to the Getting of Money (Viking Portfolio US, April 2011), a handbook of 88 chapters on entrepreneurship, success, and wealth by Felix Dennis, UK media mogul and founder of Dennis Publishing. Dennis' 2006 hit How to Get Rich was in his sardonic words, "an anti self-help book written to dissuade the majority of readers from making the attempt to acquire real wealth."

Dennis can be an acquired taste. A mop haired UK hybrid of Donald Trump and Martin Amis, Dennis is equipped with a plush ego, lacerating prose style, and heaps of charming arrogance. While you may find his style to be way brash and purposely eccentric, Dennis' knowledge of entrepreneurship and business is not to be missed.

Dennis spent his early years on the bricks of London as a musician before starting an underground youth magazine, then branching into computer and lifestyle magazines in the 1980s and expanding to Maxim, the global newsmag The Week, and dozens more properties. He is an entrepreneur of ruthless ambition and no apologies. His advice on success, therefore, is to be trusted.

Here are what he sees as the five most common start-up errors:

1. Confusing desire with compulsion. Wanting success is not enough. You must have the determination to reach the finish line, no matter what. Failure is never, ever an option: "The road to riches is a marathon, not a sprint. While it may fleetingly boost one's ego to line up at the start of a race with bona fide marathon runners, the consequences of exhaustion and collapse can be catastrophic when the inevitable occurs. ... Only the participant's absolute certainty that the goal can be achieved makes such a marathon tolerable."

2. Failing to monitor cash flow. Dennis urges you to obsess over your cash flow, monitor it constantly, and educate yourself about how cash flow works before you get too far in your business. This means spending more time on bookkeeping than may be comfortable and consulting with trusted advisors who have been down the narrow road. Why? Because when the heartbeat of a business stops, the body dies: "you will be relegated to the status of minority investor or salaried employee, or tossed onto the scrapheap."

3. Having excessive overhead. Entrepreneurs have limited control over customers and the revenue they generate. Your sales are affected by many exogenous factors including the economy, competitors, raw materials, suppliers, and so forth. The entrepreneur, however, has nearly total control over the incurred costs in running the business, and the biggest source of overhead walks on two legs. Dennis urges you to keep the numbers in mind with every additional hire you make: to generate profit to pay a new hire $30,000, you need to generate revenues between $150,000 to $300,000 just to stand still. "Always ask yourself: Is this hire really necessary? So necessary that I feel certain that employing this person will enable us to generate additional income amounting to seven to ten times the new employee's base salary?"

4. Not analyzing your failures. As an entrepreneur, you will love and believe in your products, projects, and people. But you must be a ruthless evaluator. If you see evidence of failure, get your radar up, and prepare to cut your losses. Projects need time to launch, but there are few true slow burn successes. You must analyze events to grasp whether the failure is about the product or service itself, or its implementation: "Does nobody want it, or have you hired the wrong team to produce or sell it?"

5. Paying too much for talent. Hire the best talent you can afford. Be flexible in making offers to candidates who will be attracted not only by money, but new opportunities and challenges. Don't fear recruiting young talent. New professionals are hungry, highly energetic, and should be cultivated until they burn out or coast on their laurels (if they do). Dennis observes, "There are six simple rules concerning talent: identify it, hire it, nurture it, reward it, protect it from being poached. And when the time comes, fire it."

Note to business professors: give The Narrow Road to your graduate students on their first day of class. It'll straighten their spines. For any entrepreneur, it will focus your attention on the questions that matter.

Related posts:
Herb Schaffner is president of Schaffner Media Partners, a consultancy specializing in business, finance, and public affairs publishing expertise, and is found on Facebook. He has been a publisher and editor-in-chief at McGraw-Hill, and a senior editor at HarperCollins. Follow him on Twitter.
photo by Dewaltbob.
  • Herb Schaffner

    Herb Schaffner is the president of Schaffner Media Partners, which develops business book and media projects. He is the former Publisher of Business and Finance at McGraw-Hill Professional, and Senior Editor at HarperCollins/HarperBusiness. Books that Schaffner edited, developed, and supervised during his years in publishing won best book awards from The Economist, 800-CEO Read, BusinessWeek, The Financial Times/Goldman Sachs, Strategy+Business Magazine, and the Toronto Globe & Mail. He has acquired and edited dozens of bestselling books including Secrets of the Millionaire Mind, Always On, Make or Break, Freedom from Oil, and many others. During his career Schaffner also worked as director of speechwriting and public affairs to a governor, as a communications director at two universities, and for the highly influential Center on Budget and Policy Priorities in Washington, DC. He also coauthored leading reference works on labor and the workforce.