Ajarn Mark Caldwell Blog

Bringing Business Sense to the IT World…

Top 15 Myths About Business

There are a lot of misconceptions, myths, bad advice and outright lies about what it takes to be successful in business.  And most of those are continually spread by people who have never gone into business for themselves.  Unfortunately, some of them are spread by people who went into business, failed at their business, and then were looking for an excuse to shift the blame away from themselves.  Regardless of where you heard them, you will no doubt be familiar with some of the following myths.  You may even have been guilty of passing them along to someone else with the best of intentions.  I used to believe several of these myself, but my own experience, and better yet, learning from others' experiences, I found that they were false.  Let me share with you 15 of the most common myths about doing business.

In no particular order, the are:

  1. To be successful you have to be first.  This is also sometimes reworded as “the first in, wins”.  While there are some cases where there is such thing as “first mover advantage” it does not guarantee success.  Remember the leading edge is also known as the bleeding edge.  If you had to be first, then explain to me the success of Dell and Microsoft.  Dell was not first in the PC market.  Microsoft was not first with the GUI or the word processor or the spreadsheet, yet it dominates in all those areas.
  2. To be successful, you have to be cheaper.  Oh really?  Please explain to me the success of Nordstrom, Mercedes, and Ferrari.  None of them are the price leader (cheapest) yet all have successful pieces of the market.  Take an SBA (Small Business Administration) course and they will tell you that if your only competetive point is to be cheaper, don't bother starting your business.  Any dominant company can start a price war and likely wipe you out.  One notable exception to this is Southwest Airlines where they survived price wars because they also had an advantage in lower costs of doing business.  And they are known for friendly service, not just low prices.
  3. I'm a good cook so I should start a restaurant.  This is one of the most abused myths.  It is often brought on or exacerbated by well-meaning friends and family who say things like, “Hey, this meal is fantastic!  You should start a restaurant!”  There is more to running a restaurant than having a good recipe and being able to cook well.  You will also be involved in buying, budgeting, payroll, managing employees, and taxes, just to name a few.  Do you enjoy cooking or do you enjoy running a business?  Maybe you'd make a great chef in someone else's business.  Or maybe you should get a partner to help with the rest of the business.  Or maybe you'll learn everything you need to do.  Whatever it is, rest assured there's more to the restaurant business than just cooking.  This of course is true of every business.  There is more to running an independent programming firm than just writing software.
  4. The customer is always right.  No.  No they're not.  And sometimes you have to tell them so.  In fact, sometimes they are so wrong that you will actually have to tell them you don't want them as a customer any more.  It's a tough thing to do if you only have a couple of customers, but sometimes they cost you more money than you make from them.
  5. I'll just open my store and people will stream in off the sidewalks and buy from me.  This is also known as the “If you build it, they will come” approach to business.  HA!  You will more likely be out on the sidewalk begging people to come into your store just to look around.  Consider advertising.  Word-of-mouth is the best because it is the most effective and the cheapest.  If you can get personal referrals from friends and family, great!  If you can get free publicity, awesome!  One of the reasons that Amazon.com does as much business as they do is that they have a loud-mouth CEO who went around for several years telling every reporter or anyone who would listen that Amazon is “the world's largest book store”.  It got them business.  Now they need to work on that profitability thing.
  6. It's a cool idea.  Everyone will love this.  That may be true, but will they be willing to spend any money on it?  As an entrepreneur, one of the phrases you learn to hate is “That's a cool idea” when it's not followed up by “I'll buy some.”  Just because you like something doesn't mean enough other people will like it.  A large number of the dot-com busts were cool ideas that were not backed by good business plans, even though they were backed by money.
  7. Ours is better so we'll be successful.  Many people considered Beta to be a better video recording format than VHS, but VHS won the battle.  Quality is important, but so is marketing and timing.  Remember the Apple Newton?  Today we have TabletPCs.  The Newton was probably the right product at the wrong time.  In my opinion, that is one of Apple's consistent problems.  They come up with really cool things but are just too far ahead of the market for their new cool thing.
  8. Adding more people to the project will make it go faster.  I run into this all the time in the software business, but it does appear that more and more people are learning the fallacy of this statement.  The truth is that adding more people will make it go faster up to a point.  But more people means more complicated lines of communication.  It also may mean that some productive people currently on the team are slowed down as they help the new people get up to speed.
  9. We're good friends.  We will work well together / We should form a partnership.  There are certain reasons that your friends are your friends and they don't necessarily go well with conducting business.  For one thing, friends don't necessarily have the same work habits.  And it's easier for a person to take advantage of a friend's willingness to forgive their laxity.  Before you consider forming a partnership, get a really good lawyer.  Mine reminded me that people act funny when money is involved.  And he refuses to put together the paperwork for a partnership unless they also define the terms for dissolution of the partnership.  Even if people don't take advantage of each other, things happen.  What if one of you has a major life-changing event happen and no longer wants to participate in the business.  You're still liable for decisions made by the other party until the partnership is dissolved.
  10. Failure is bad. / Failure is the opposite of success.  This is a myth that is ingrained in us from our schooling where you were graded on an average over the year's worth of work rather than on whether at the end of the year you really understood the subject or not.  In reality, failure is an integral stepping stone toward success.  How many times did Abraham Lincoln fail in politics before becoming the 16th President of the United States?  How many times did Byrd or Peary fail in their attempts to reach the North and South Poles?  Failure is only a problem when you allow it to be the final stage.  Otherwise it's just learning.
  11. Knowledge is Power.  Then librarians are the most powerful people in the world.  No disrespect to librarians, they're great and valuable, but unless the knowledge is applied, it is just potential.
  12. Every customer is equally valuable.  Setting aside the discussion of each person's inherent value as an individual, in business, some customers are worth more than others.  Some customers are more trouble than they're worth.  I prefer to treat all my customers as valuable, but if I have to decide how to stretch scarce resources like my time over different customers needs, then one may be more valuable than another.  However, the trick here is that the customer who will pay you more now is not necessarily the one who is truly more valuable to you.  If I have a customer today who is willing to pay me to do a year's worth of work in VB6 and another one who wants 4 months of work in ASP.NET, the shorter one may be more valuable because it moves me in the direction I want my business to go, even though it's not as much money right now.
  13. Profit is all that matters in business.  Well, yes, profit is important, but Cash Flow is more important.  I suppose you thought I was going to say something about being fulfilled in your work or being moral.  Those are important, but I find that more people overlook their cash flow than overlook their morals.  Profit can just be a trick of accounting whereas cash flow controls whether you can stay in business.  Many companies go out of business due to cash flow challenges, even though they were profitable on paper.  Your creditors are not interested in how profitable your accounting statements say you are if you don't have the cash to pay them back.  But don't sacrifice your morals to get the cash, either.
  14. Having more customers is better than having fewer customers.  Would you believe that some companies go out of business because they have too many customers or too much demand for their product?  Now that would be a depressing way to go out of business if you ask me.  If a company manufactures and sells a product, it can get inundated with demand and not be able to keep up the production to meet demand.  Then the customers who are delayed in getting their goods are unhappy and may cancel their orders.  If word starts to spread that the company is incompetent, it could really be the death-knell.  Or more likely, another company will see the demand, come into the market with greater capitalization and capacity, meet the unmet demand and take away your customers.  In the software business, having too many customers all demanding your primary scarce resource (time) can wear you down leading to poorer quality and possibly errors, which in turn might lead to lawsuits.  Sometimes you have to turn down customers who want your services.  It can be a touch decision to make, but sometimes it's necessary in order to maintain good relations with your other clients.
  15. Venture Capital and IPOs are good.  This fallacy really took hold in the dot-com boom.  Thousands of companies were scrambling after venture capital, doing IPOs and promising their employees the moon.  Venture Capital and the capital markets (IPOs) have their place in the growth of business, but before you go craving it remember that you are forfeiting complete control, and possibly any control over your business.  A publicly traded company has TONS of more paperwork it has to process just to meet all the legal requirements.  Venture capital firms typically want a significant, if not controlling, interest in the company in exchange for their money.  Once you have done either of these, then somebody else really owns your business and is in control.  How do you think that Steve Jobs once got fired from Apple computer, the company that he founded?  He did not own it any more.  The stockholders did.  The same can happen to you, even by your “white knight” venture capitalist “friend”.

Scared to go into business yet?  Don't be.  Just go in with your eyes open and as few myths as possible.  Enjoy the journey!