Managing Risk

One of the things I have noticed about new companies and their products is that their success or failure rarely rests on the product they have created. Rather they fail because they really never got that far. It is the combination of tight money combined with poor decision making that puts them in a hole from which they never recover.

Here, then, are a few mistakes that I find new entrepreneurs make and how, by avoiding them, they can increase the chances that their product will at least have a chance to be measured on its merits:

1. Be careful!

There are mostly good people in the world but there are also some bad folks who prey on inexperienced entrepreneurs. These people can lurk on the Internet and in your neighborhood. 

For example, an entrepreneur finds someone to manufacture their goods in China. The person then asks ask for a lot of money up front and then either never produces what they promised or what they produced was shoddy. So, be sure you conduct due diligence on anyone with whom you choose to work. No matter how nice and sincere they seem. Just last week I spoke to someone who used a neighborhood friend to broker production in China.   Only after the manufacturer would not release the product did he learn that the “friend” had never paid the producer. The "friend" had pocketed the money.

2. Don’t manufacture anything until you have shown it to buyers and sales reps

Many entrepreneurs are so confident that their product will sell that they manufacture it without ever having shown it to anyone. Suddenly they are sitting on 10 or 20 thousand pieces and trying to sell a product that no one wants. It’s not that the product is necessarily bad. It’s just that the packaging is all wrong, or the case packs are too heavy, or the product is the wrong color. They then go out of business because all of their money is tied up in dead inventory. So make sure you show your product and packaging to several buyers and reps before you begin to manufacture. 

3. Don’t spend money until you have to

Most entrepreneurs are using their own or their family and friends’ money to get started. As a result, money is tight and cash flow is extremely important. In the beginning they feel flush with cash and in their excitement, they sometimes spend money in the beginning on things that they could have spend it on later.  

For example, some people spend money on liability insurance a year before their product ever hit the shelves.  I have seen them invest in expensive displays for shows when they could have gotten by with a simple booth. I have seen people invest in trade advertising before they have finished engineering their products only to have an expensive ad campaign and nothing to sell.

Being successful is hard enough. Make sure that you make careful decisions about how and when you spend your money. It will make the difference between success and failure.