Startup Entrepreneurship — Six Tips for Avoiding Common Pitfalls While Bootstrapping a New Firm

Entrepreneurs have always driven the American economy. They always will.

In fact, today’s economic dislocations, coupled with federal stimulus money, are creating fertile breeding grounds for another generation of startups.

This year, many folks will be stepping out on their own, partly out of necessity. Once a person has been laid off, those long-time dreams can look a lot more attractive than they did when looking out from a supposedly-secure job in the corner office, the cubicle, or on the factory floor.

The following are a few tips from experienced entrepreneurs to help new startup “bootstrappers” avoid some common pitfalls and keep them from joining the ranks of the many new businesses that fail in their early months and years.

Startup Pitfall #1 — Inadequate Awareness Employee Talent Is the Best Competitive Advantage You Have

Of course, a new business must have a unique selling proposition and marketing strategy. The business also needs and a product or service that better meets a need or does so at lower price or with better quality or customer attention.

But no matter what a startup sells, established or new competitors can easily overtake it. Success may ultimately depend on outworking and outmaneuvering everyone else.

This means your most important competitive advantage may ultimately be the talent you attract and retain.

Make sure employees know how grateful you are to have them. Invest in employee training, create a superior work environment, provide competitive benefits, and pay your employees as well as you can — given the constraints of your bootstrapping finances, of course.

Startup Pitfall #2 — Failure To Provide Appropriate Employee Incentives

Typically everyone at a bootstrapping start-up is working for less pay and benefits than they would receive at a more established company.

If they share your vision, employees will give up some compensation now in hopes that their hard work will pay off once the company grows.

Nonetheless, startup owners should provide financial incentives to motivate exempt salaried employees who are asked to put in long hours. (Of course, nonexempt hourly and salaried employees must be paid minimum wage and overtime, as applicable.)

Vague promises of future benefits and the great “experience” of working for a startup only go so far. Provide equity, commissions, or regular performance bonuses — or your best employees will be gone.

Startup Pitfall #3 — Lack of Respect for Employee Work-Life Balance

As the startup owner, you’ll undoubtedly burn the candle at both ends for quite a while. Of course there are limits, and small business owners must somehow create balance between work demands and their own personal lives.

But as a bootstrapper, you must also respect your employees’ work-life balance needs.

The expectation is generally that salaried employees will have less time off at a startup than peers at established companies. Nevertheless, don’t be hard on employees who ask for occasional days off just because you never take a day off. Your exempt salaried employees are probably already working long hours, and the company is ultimately your dream, not theirs — especially if they lack equity.

Startup Pitfall #4 — Failure to Keep Your First Customers Happy

Startup owners cannot afford to ignore their first customers. When sales are going well, it’s natural to put your best resources towards getting and keeping bigger customers as a means to grow the business.

But it’s surprisingly common — and a huge mistake — for amateur small business owners to tell employees to ignore smaller clients’ phone calls or delay work for those clients when everyone is working on landing or servicing a big new customer.

Even if the smaller customers never figure out that you don’t value their business as much as you once did, maintaining their high level of satisfaction is invaluable in word-of-mouth marketing — the cheapest and best kind!

Startup Pitfall #5 — Lack of Attention to Cash Flow

Cash flow is king, especially now that credit is so tight. Today’s customer may not even be in business in a few months. Wasting time on accounts payable calls hurts growth and morale.

As much as possible, startup owners should require that new customers pay up front and establish a payment record before being allowed to buy on account. Explain that as a new business, you’ve had to take this line because others were late with payments. Most customers will understand.

Startup Pitfall #6 — Overselling

An entrepreneur has to sell their vision to friends, family, customers and even themselves.

Optimism for your new startup will be contagious and may help seal some deals.

But while you must maintain a positive attitude to overcome startup challenges, don’t become blind to reality and start selling hype. There’s is a difference between optimistically promoting your company and selling hype — and you need to avoid the latter.

Additional Resources For Startup Bootstrappers

• Entrepreneurship & Self-Employment Books from our Employment Bookstore
• Bootstrapper’s Bible (pdf), by Seth Godin
• Inc. Magazine: Starting Up on a Shoestring (collection of many links)
• Bootstrap Online, (Similar to Facebook, MySpace, and LinkedIn, but specifically for Bootstrap Entrepreneurs)

Thanks to Down to Business Editor, Richard Stefan Deeran for providing content for this post.

Down to Business is a no-holds-barred interview show and website experience that cuts through all the jargon to give fresh insight into the world of business.

Serial entrepreneur and business personality Pat Croce hosts, profiling an entertaining mix of industry leaders and innovators. Though temporarily on hiatus pending search for sponsors, a number of past interviews and blog posts are available at www.DowntoBusiness.com