Entrepreneurism: Learning from Others’ Mistakes

Stephen DeAngelis

March 21, 2011

An old Norwegian proverb states, “Experience is the best teacher, but the tuition is high.” Archibald MacLeish adds, “There is only one thing more painful than learning from experience and that is not learning from experience.” The least painful way to learn, of course, is to learn from the mistakes of others. Unfortunately, many entrepreneurs head out on their business journey without the benefit of knowing what mistakes other entrepreneurs have made in the past. For example, Angus Loten asks, “Who knew running a small business was so expensive?” His answer: “Not many new small-business owners, it turns out.” [“Start-up Survey: Mistakes Were Made,” Wall Street Journal, 23 February 2011]. He continues:

“In a recent survey by Bermuda-based insurer Hiscox, one third of 500 U.S. business owners with fewer than 100 employees said higher-than-expected costs was their single biggest start-up mistake, followed by hiring the wrong people, not knowing how to market and sell products, and not securing enough financing. Owners also said they lacked a sufficient understanding of taxes, financing and credit, and hiring and firing before launching their business, the survey found. According to Hiscox Director Kevin Kerridge, new business owners often have energy and passion for their products and services, but tend to neglect basic business skills.”

I previously wrote about this topic in a post entitled Avoiding Mistakes that Lead to Failure. In that post, I discussed a list of ten common mistakes that Rosalind Resnick believes many entrepreneurs make. The list, without discussion, is presented below.

  • Going it alone.
  • Asking too many people for advice.
  • Spending too much time on product development, not enough on sales.
  • Targeting too small a market.
  • Entering a market with no distribution partner.
  • Overpaying for customers.
  • Raising too little capital.
  • Raising too much capital.
  • Not having a business plan.
  • Over-thinking your business plan.

Reading Resnick’s thoughts on each of these topics is worth your time. As she writes in her article, “When it comes to starting a successful business, there’s no surefire playbook that contains the winning game plan. On the other hand, there are about as many mistakes to be made as there are entrepreneurs to make them.” [“10 Mistakes That Start-Up Entrepreneurs Make,” Wall Street Journal, 1 September 2010] Entrepreneurs make a lot of business mistakes out of ignorance; which is why articles like Resnick’s can help them identify areas in which they need to get smart. Sarah Needleman points out that entrepreneurs can make mistakes because they lack leadership skills. Ironically, she notes that without the proper skills entrepreneurs can become the type of bosses that motivated them to become entrepreneurs in the first place. [“Management Flubs Made by Rookie Bosses,” Wall Street Journal, 3 January 2011] She writes:

“Some people start their own business to escape a bad boss. Albert Ko became one after launching his. The owner of DealPerk LLC, a year-old coupon website in Irvine, Calif., Mr. Ko admits that he developed a habit of shouting at his three employees whenever they made mistakes, which created a toxic work environment. ‘They were scared,’ says the first-time entrepreneur, who’s since changed his approach to discipline. He now pulls offenders aside to discuss what went wrong and offers suggestions on how they can improve. ‘I could see that it hurt morale.’ Being the boss is a difficult job for many business owners to master. Their expertise is typically in the products or services that they sell and not supervising others. As a result, entrepreneurs are often guilty of handling employee mishaps poorly—or for allowing such blunders to occur in the first place.”

When Rod Means, a district director in San Diego for SCORE, a nonprofit small-business mentoring and training organization, was asked for his views about entrepreneurs as leaders, he told Needleman, “They’re in business because they have talent in their field, but it doesn’t mean they’re capable managers.” Another expert, Wayne A. Hochwarter, a professor of management at the College of Business at Florida State University, told Needleman, “When you’re running your own place, you’ve got everything vested in it. It’s an emotional thing.” But for the average employee, he says, “it’s just a job, and sometimes not a well-paying job.” Needleman goes on to provide a list of “other management mistakes entrepreneurs confess to having made—and how to avoid them”:

Failing to check for competence. Jimmy Tomczak, founder of Paper-Feet, a sandal manufacturer and retailer in Ann Arbor, Mich., says an intern once incorrectly assembled 25 of his company’s products, costing the business $500 in retail sales. He had showed her what needed to be done but failed to check if his instructions registered clearly. ‘Now I make sure that new hires can demonstrate competence before letting them go on their own,’ he says. A simple way to prevent costly errors is to take the time to patiently teach employees how a job should be done, says Dr. Hochwarter. Too often entrepreneurs hire people without providing clear job descriptions or training, and instead leave workers to their own devices, which can lead to confusion and conflict, he says.”

Competence is clearly an issue. But even if an employee is competent, he or she may still need to be trained to do things the way you want them done. If the ability to train others is a skill you lack, you may have a trusted employee who does possess that skill. Make him or her your trainer and quality control person. If you don’t have someone like that in your organization, you might want to consider hiring a skilled trainer to teach your employees how you need things done. Needleman continues:

Lying to avoid hurt feelings. Ethan Fieldman, co-founder of Group Interactive Networks Inc., a software company in Gainesville, Fla., says he once severed ties with a contractor whose job performance wasn’t up to par by telling him that the firm didn’t have any more assignments available. But afterward, Mr. Fieldman says he and several employees at the company began regularly receiving emails from the laid-off contractor asking if any new jobs had opened up. It’s been six years and Mr. Fieldman says the emails continue to spam their inboxes. Though it can be awkward to deliver bad news, managers should be honest about why they’re dismissing someone, says Daniel M. Murphy, co-founder of the Growth Coach, a small-business-coaching franchise in Cincinnati. ‘Giving the truth is good for the business and for the development of that person,’ he says. Any sort of lie ‘could spill down throughout the organization,’ resulting in the spread of false rumors.”

Sparing feelings may seem compassionate, but in the dog-eat-dog business world a person needs to know when they are failing to live up to expected standards. If an employee isn’t doing a good job for you, he or she is likely to continue to perform poorly elsewhere. In the long run, employees are better off knowing their shortcomings even if their feelings get hurt. Additionally, you never know when a lie will come back to bite you. For example, you may let an employee go for incompetence but offer them another reason for the lay-off to spare their feelings. If they later bring legal action against you, raising the issue of incompetency at that time may hurt rather than help your case. When it comes to business dealings, honesty is best the policy. Needleman moves on the touchy subject of trust.

Blindly trusting workers. When Wendy Maynard co-launched Kinesis Inc., a Portland, Ore., Web-design and marketing firm, in 2000, she says she and her business partner didn’t create an employee handbook or even verbally express how they expected their staff to behave. ‘We made a big assumption that our professional norms were other people’s professional norms,’ she says. Yet some of their first hires came to the office wearing low-cut jeans with underwear and tattoos showing. One staffer worked on freelance assignments for other companies while on the clock. ‘We quickly had to change things,’ Ms. Maynard says. Entrepreneurs should define in writing what kind of behavior is allowed and what isn’t in the workplace, says Janice Brown, founder of Brown Law Group, a San Diego law firm that specializes in employment litigation. The effort will not only deter employee misconduct, but also help a company fight wrongful termination lawsuits or false unemployment claims by former employees, she says.”

My personal recommendation is that you publish and distribute an employee handbook that lays out company policies and procedures. Handshakes are nice, but, if you ever have to go to court, having something in writing matters a lot more. A good human resources professional can help you put together an employee handbook that details everything your workers need to know. Needleman’s final topic — giving mixed signals — can lead to ambiguity, confusion, and eventually anger.

Giving mixed signals. Hajo Engelke, founder of Custom Choice Cereal LLC, an online retailer in Durham, N.C., normally wears a t-shirt, shorts and flip-flops to work. Last summer, he teased a new recruit for showing up in a suit and dripping with sweat. Yet the very next day, Mr. Engelke walked into the office dressed in just the kind of formal outfit he criticized his employee for wearing the day before. (The reason: Mr. Engelke had a meeting with a potential investor, which he neglected to mention to the new recruit.) Upon seeing Mr. Engelke dressed this way, the employee’s ‘jaw dropped,’ recalls the entrepreneur. ‘Every day after [the employee] would ask what he should wear to work.’ Entrepreneurs need to remember that workers look to them for cues on to how to behave, warns Mr. Murphy. ‘As the owner, you are in charge of setting the tone for the environment and the culture,’ he says. ‘What employees want more than anything is clarity of what are the rules and expectations.'”

In another Wall Street Journal article, Diana Middleton offers five indicators of the fact that you may be less than the idea boss [“Five Signs You’re a Bad Boss,” 14 February 2011]. She writes:

1. Most of your emails are one-word long — It may be efficient, but many bosses don’t realize how curt a one-word email—even a simple ‘yes’ or ‘no’—can be, says Barbara Pachter, a management coach and author of several workplace etiquette books. She calls it the ‘BlackBerry effect.’ ‘Managers have a tendency to be abrupt, especially when they’re answering emails on the go,’ Ms. Pachter says. ‘It comes off as an invitation for conflict. A simple addition of “thanks” goes a long way.’ Some managers craft even shorter emails. When Christina Marcus emailed an idea for a project to a former boss, he responded ‘Y.’ Thinking he was questioning her idea, she spent 20 minutes crafting a response. Turns out, the ‘Y’ meant ‘yes,’ not ‘why.’ Ms. Marcus eventually left the firm.”

I agree that short emails can be a problem if they are your only means of communicating with your employees. Since many bosses, especially entrepreneurs, are on the go, they do a lot of their business on smartphones. Constantly texting long messages can become tedious — even dangerous (if you’re driving or walking and failing to pay attention where you’re going). To me the bottom line is that short texts are okay if you also use other methods to communicate with your employees. That leads to Middleton’s second warning sign:

2. You Rarely Talk to Your Employees Face-to-Face — Relying on email may be convenient, but bosses are increasingly using technology to avoid having tough discussions, says Robert Sutton, professor at Stanford University and author of ‘Good Boss, Bad Boss.’ ‘No one wants to do the dirty work, but it’s a boss’ lot in life to deal with difficult issues,’ Mr. Sutton says. Face-time engenders trust with employees, adds Ms. Pachter.”

This complements what Needleman suggested earlier — don’t lie to protect feelings. Being honest in face-to-face discussions with employees is important. If you need to criticize them, private rather than public ostracism is generally the best method. Middleton continues:

3. Your employees are out sick–a lot — Employees will fake sickness to avoid a bad boss, says Mr. Sutton. But there’s evidence that a bad boss may be bad for your health. A 2008 Swedish study that tracked more than 3,000 men over 10 years found that the men who said they were poorly managed at work were 20%-40% more likely to have a heart attack.”

Employees who are not at work are, obviously, not productive. The last thing a boss wants is for his or her actions to make employees less productive.

4. Your team’s working overtime, but still missing deadlines — New bosses are particularly prone to giving unmanageable deadlines to staffers, says Gini Graham Scott, author of ‘A Survival Guide for Working with Bad Bosses.’ A human resources executive at a New York firm who declined to be named because she’s currently looking for a new position, says that she began working 15-hour days after her new boss came on board. Her boss’ first order of business: Promising more aggressive deadlines to clients. ‘She would tell the client, “We can have this for you in three days,” which was impossible,’ says this woman.”

Not only do unrealistic deadlines affect the morale of employees, when they are unmet, they affect your credibility with customers. I think that there is a difference between aggressive and unrealistic deadlines. Entrepreneurs have to be aggressive in the pursuit of customers. Middleton’s final warning sign is an obvious one.

5. You yell — Even if you aren’t screaming angrily at your employees, speaking loudly can damage workplace morale, says Ms. Pachter, the management coach. ‘Employees will constantly feel like they’re being reprimanded, and they’ll avoid you if there’s ever a problem,’ she says. At one of Ms. Marcus’ former jobs every debate was a public forum, she says. ‘My bosses would shout freely across the office, even when they weren’t necessarily angry,’ she says. ‘It charged the atmosphere and really killed productivity, especially when you were trying to figure out who you should be listening to.'”

There is no “perfect boss.” Different types of businesses require different leadership styles to be successful. All good leaders, however, provide a vision of where they want the company to go. They motivate people to join them in achieving their vision. They ensure that their employees know what their part is in making the company a success. There are obviously more than the four kinds of mistakes listed by Needleman that entrepreneurs can make as bosses. You’re bound to make mistakes yourself. If you are concerned about your role as “boss,” pick up a few books on the subject of leadership and get a few tips. Eleanor Roosevelt once stated, “Learn from the mistakes of others. You can’t live long enough to make them all yourself.”