Mistakes Small Business Owners Make and How to Avoid Failure
This is a review of mistakes I made in my small business. You can avoid failure by recognizing the consequences.
When I first started out with my own business, there were several mistakes I made due to things I overlooked. Each one was a costly lesson. In this article I'll review what they are so that you can recognize ahead of time what's happening, and avoid similar mistakes.
I'll discuss the following examples of mistakes I've made, and ideas for success that worked for me:
- Lack of having a business policy.
- Failure to realize the legal meaning of what you say.
- Unintentionally creating a legal binding contract.
- Inadvertently working for free.
- Why you need to keep good records.
- Get business agreements signed and keep them.
- Provide useful information on a business website.
1. The Importance of Having Business Policies
One of the first things taught in business school is policy-making. I learned how useful having policies can be when I made my first mistake...
One day, on a Friday, when I was ready to close up for the day, a customer called and wanted to place a last-minute order.
He didn't have a credit card and asked me to ship him my product with an invoice. I told him that without a credit card he would have to prepay.
He told me that there was no time to send a prepayment since he was having a meeting with the Board of Directors on Saturday and needed to present my product to them at the meeting. He needed it shipped overnight.
I fell for that! I offered to ship COD, but he told me that the accounting department was already closed and that he couldn’t get a check prepared for Saturday’s delivery.
I tried to offer other solutions, such as charging it on his personal credit card and having his company reimburse him. However, he kept coming back with the right answers to keep me on my toes.
Eventually I fell for it and shipped with an invoice. As you might guess, it was never paid and I never was able to collect. I never got the product back either.
His company claimed that the order was never approved and that he had no right to place the order since he was not a buyer for the company. They also said that they never received the merchandise and that I needed to take it up with him.
If I would've known the idea of policy-making at that time I could have simply told him "It is our policy to ship COD or with a credit card. There are no exceptions. That is our policy.”
Having a policy to abide by would have ended the discussion and would have saved me the hassle of rushing out an order and never getting paid.
2. Failure to Realize the Legal Meaning of What You Say
When you say things without realizing the legal meaning behind it, you can end up breaching your own legal rights. This is known as Breach of Convention Rights.
Saying the wrong thing can backfire. Even if you think it's a positive statement, it can be used against you.
Saying certain phrases can have legal meanings that are completely different from what we had intended, as displayed in the following example. I thought I was being kind when I told my client that I took the liberty to work on Saturday for him.
I took the liberty of working on Saturday.
Well, in that case I don't need to pay you.
The following example will make this clear:
I did computer programming for a customer of mine who was an attorney. I worked Saturday to get the job done for him. One day I told him "I took the liberty of working on Saturday."
I sent him my invoice, itemized with the days and hours that I worked.
When he sent his payment he deducted the amount I charged for the work I did on Saturday. He claimed that he didn't have to pay for Saturday's work because I had told him "I took the liberty."
In his eyes from a legal standpoint I had beached the convention of working normal hours without his prior approval.
I learned that certain phrases can have legal meanings that are completely different from what we had intended.
3. Unintentionally Creating a Legal Binding Contract
Did you know that acceptance of an agreement is implied and binding when you simply perform a task? It does not have to be a signed contract.
If you go ahead and do an assignment before all the details of a contract are worked out, you are creating a binding agreement to the present state of affairs.
The following true story of my experience with this will show you what can go wrong. It's an interesting short story, in its own right, that you might find amusing.
Once Upon a Time
Once upon a time, two fellows came to me and told me that they wanted me to create an interactive pay-per-call dating service.
With pay-per-call services, people would dial an access number and interact with a touch-tone driven menu to get information over the phone. The phone company would charge for the service on their phone bill. The revenue would be shared between the phone company and the developer.
As for these two fellows who came to me... One of them was an investor in start-ups and ran a company that sold radio advertising. The other fellow was a DJ and he had the voice talent to create radio ads for the business. They needed someone to fill one other position. They needed a computer programmer. That's why they came to me.
The idea for the application was to allow men and women to record a personal profile in their own voice. Other callers could select from a menu to listen to profiles of people of the opposite sex, and by age range.
As they browse through recorded profiles they could press a key on the phone to leave a private message for anyone they liked.
The profiles were public but the private messages were voicemail that only the recipient could receive, so interested people could leave a callback number to touch base. Callers would be charged by the minute on their phone bill.
Okay, so that's how it works. Let me get back to telling you what happened and how I lost my rights by letting these fellows use my software prematurely.
These two fellows told me that I had a choice of being paid for the development, or sharing one-third of the company proceeds. I knew how big this could become, so I chose to waive payment for development and accept the one-third share instead.
While I was working on the programming we were also working out the agreement details for the contract. There was one clause that we were having difficulty agreeing with and it never was resolved.
They required that if any of us dies the other two would get the share of the deceased. I preferred that if any of us dies, our third share should pass to our wife.
Even though I wasn't married I still looked ahead. I wanted to be sure that anything I did would benefit my future wife in case I didn't survive. Hey, you never know!
Well, the day came when I finished the programming of the system. We never finalized that one last detail in the agreement. One of the fellows came to me and said,
"Listen Glenn, you're finished with the programming and we are ready to get started with the business. Why don't we start running the system and if we still don't agree on things in another month, we'll shake hands and walk away as friends."
I fell for that and gave them a computer on which I had installed my software. I helped them hook it up so the phone dating service would be online, and they started running radio advertising.
I lost my rights by letting my client use my software without a signed agreement.
The service was an overnight success. Soon the first check came in from the phone company. I saw the check. It was for $100,000.
I asked for my third, but they told me that since this is the first check we should put it back into the company. That made sense to me, and I went along with it.
A month later another check came in for roughly the same amount. I know, because I saw that one too. Again they came up with an excuse for not giving me my third.
The third month they didn't show me the check. I insisted that I get my third of the proceeds now, or else I'll pull the plug.
Pay me or I'll pull the plug!
They told me that I couldn’t do that. They said if I pull the plug on the computer that I will be disrupting a million dollar corporation. $100,000 a month is a million a year. They explained to me that if I disrupt that kind of income that they would sue me.
I asked my attorney if that was true. Could they actually sue me even though I never signed the contract? My attorney told me that I actually did sign the contract. He explained that by turning over the software and the computer and hooking it up for them.
I had shown agreement to, and acceptance of, the contract as it presently stood. I had agreed to the contract by my conduct. That was legally equivalent to having signed the agreement.
My attorney went on to explain that if I pulled the plug they could indeed sue me. However, if I don't pull the plug then they cannot do anything against me and I could sue them for nonpayment.
As you can guess I left the system running and initiated a lawsuit. The suit dragged on for a whole year. After several months one of the fellows came to me and said,
"Glenn, you can keep us tied up in court forever. We have the money to fight you."
I told my lawyer that "I created a monster I cannot fight and I need to discontinue the lawsuit."
My lawyer did something else for me. He worked out a settlement to pay me for the development of the system. What a shame. That was nothing close to what I would have had sharing one-third of a million dollars. Every year!
Lesson learned. When you do something, even without pay, you are showing agreement. I created a legally binding contract by putting the wheels in motion.
4. Avoid Inadvertently Working for Free
I was doing a project development for a client and he delayed making the agreed weekly payments.
My lawyer told me to stop working. He said,
"Just stop! If you keep working you are agreeing to work without pay and he'll never have to legally pay you."
That came from the mouth of an attorney, so you can trust it.
After my prior lesson I understood what he meant. I never completed that job. My client lost out because he made initial payments and never got a completed system because he didn’t continue with the agreed payment schedule. He created his own demise. I understand that now. That's business!
I hope these stories will help you with your own business. How do you feel about this? Let me know in the comments below.
5. The Importance of Keeping Good Records
If people are not clear in their own head what it is that they want done, then it's next to impossible to do anything right for them. You may have run into this problem in life, but it can be disastrous in business.
This is why it's important to keep records of requests and correspondence.
Some people aren't going to listen, no matter what you say. You can explain in detail what the consequences are, and you can tell them what's important. If they are non-listeners, they don't accept what you say and they blame others for their problems.
There are people in this world who seem to just make their own lives more difficult. There usually is no satisfactory solution when dealing with the type of behavior.
It's important to protect yourself when dealing with these types of people. It helps to keep clear and precise records of events that take place, as well as keeping copies of correspondence. This is especially important when dealing with difficult people.
Here's an example of an incident that happened to me…
I once had a customer who told me he wanted his voicemail service removed from his phone system because he didn’t want his callers to be able to leave him messages. He told me that he just didn’t have the time to return phone calls.
Being in the phone systems business, I felt the need to give him an education on proper voicemail usage and business ethics. However, that's not what he wanted to hear, so I just explained to him that if I remove his voicemail, any messages he had would be lost forever.
In order to be sure there was no misunderstanding I asked him if he had any present messages before I remove the voicemail service. He became frustrated and upset that I was questioning him, and he shouted...
Just Do It !!!
I later sent him an email stating that I will remove his voicemail that evening and that if he has any messages he should listen to them before the end of business hours since they will not be recoverable afterwards. He once again became upset and shot back a quick angry email saying…
“JUST DO IT !!!”
Okay, so I did it. Reluctantly I might say. Once I removed the voicemail service the messages are gone!
The next day he called, yelling at me “Where are my messages?”
All I could say was that per his request I removed his voicemail. He said he just wanted me to remove the voicemail service and not the messages. I tried to explain that I confirmed with him that his messages would be gone along with the voicemail.
He didn’t accept that. He became extremely irritated, yelling and cursing, telling me that I destroyed his business because he had important messages from people and now he didn’t know whom they were from. He even threatened to sue me.
He sent me an email telling me to expect a call from his attorney. Therefore, I sent him back a copy of the email with my final request to listen to his messages before I remove them. I even included his reply where he confirmed... “JUST DO IT!!!.”
I asked him to provide that email to his attorney so that he or she will know how to handle the lawsuit that he was proposing.
I never heard from him again, or from his attorney.
6. The Importance of Signed Agreements
Contracts and agreements have to be clear and signed before starting any work. It will help avoid disputes that might otherwise arise from misunderstandings.
I've had occasions where all I had to do was refer a client to our original agreement and that shut them up. For example:
I remember a client who was a reseller of my software. I gave him a 50% discount as long as he continued selling every month.
After six months of inactivity he came back with an order and expected the 50% discount. I refused to accept it.
He argued that we had an agreement. However, when I showed him the contract that he signed, he paid me the higher amount.
7. Provide Search Friendly Information on a Business Website
Provide Answers to Common Questions
In the early days (before the Internet) I used to keep track of the answers and explanations I gave when people asked questions and included them in updated user’s manuals for my products to share with all other customers.
Today customers can just visit a company's website for support. I constantly keep my website up-to-date, sometimes immediately after hanging up the phone with an inquiring customer.
Almost all discussions I have with people enlighten me to add something on my website that could help others.
Use SEO Techniques to Attract Customers
In the early 1980s when I began my business, the only way to get customers was to place printed ads in magazines and trade journals. This became more and more costly over time.
The Internet saved me once I created a web site. In addition to using my site to display my products, I also wrote articles related to my niche. I quickly discovered that useful content attracted customers better than advertisements did.
Adding useful content, rather than just listing products for sale, is a powerful way to optimize for search engines (SEO).
Since the Internet gave me an alternative, I never had any more advertising costs.
I got all my customers by way of their own web search. People look for solutions for their business and that is a powerful magnet. There was no longer a need to look for customers. They looked for answers and in so doing, they found me!
I discovered that giving the reader content that benefited them actually caused people to discover my site as search engines became popular. It was free advertising because once I got the eyeballs the sales happened without effort.
The Basic Lessons
With all the affairs of a service-oriented business you just may need to deal with silly things from time to time. That’s business, and it can’t always be avoided.
Just handle those situations as professionally as you can, keep a record of troublesome situations in case you need to reference it later, and create written agreements before getting involved with new endeavors.
Always focus on what people want in every way possible! It will build a better vendor-customer relationship and it will bring you more business success as time goes on.
Questions & Answers
© 2012 Glenn Stok