10 common mistakes African start-up businesses make

An increasing number of African entrepreneurs are entering the challenging new world of running one’s own business. Pearl Seigel addresses some of the common pitfalls.

1. Lack of planning – Businesses that do not have a plan often lack direction and focus. The purpose of developing a business plan is not just to raise capital but to direct the process of starting a new business. That said it is always important to change the plan as the business grows.

2. Not using business cards to promote the business – Many start-up businesses think that the cost of business cards is a waste of money. A well designed business card with readable information is an inexpensive way of ensuring your business is remembered and easily contactable.

3. Not understanding the 80:20 rule – This rule is often misunderstood. When 80% of sales come from 20% of customers you may decide to spend all your time on those customers. It is important to understand that those customers have strong bargaining power and although the sales turnover may be high the profitability is often low. Also, if you lose those customers you lose 80% of your business!

4. Undercharging for products or services – Some start-up businesses undercharge because they do not know how to work with mark-ups that take into account operating costs. For example if you buy a product for $10 and sell it for $20 that is a $10 profit. Sounds great but what about the other costs of doing business – these could be transport, salaries and electricity.

5. Extending credit – Start-up businesses that extend credit may end up with a lot of bad debts. If customers do pay, waiting 60 to 120 days can threaten sustainability.

6. Acting as if you are a big business – It may be tempting to act as if you are a long established big business. Suppliers and customers are not easily fooled and will view you as dishonest. Remember all big businesses start of as small businesses. Microsoft did not start as Makrosoft!

7. Bad customer service – Customers will always be drawn to efficient effective service. A happy customer will become a loyal customer. They will tell their friends and word of mouth marketing or referrals are one of the best ways to grow a business.

8. Letting emotions influence decision making – Decisions based on emotions without thought or analysis can be financially detrimental. For example a pushy salesman wants you to buy an expensive item or to sign a two year service contract. It’s best to take the information and say you need time to think about it.

9. Financing growth – Growth is a good indication that there is a demand for your product or service. But can you finance the growth? Growing costs may include needing more people or machinery.

10. Lack of motivation – Entrepreneurship requires the ability to stay motivated. Persistence, perseverance and patience are key ingredients to claim a share of the market. The ability to keep going both financially and personally is often a problem. Speaking to other entrepreneurs or a mentor can keep you motivated.

Pearl Seigel is founder of the Training Shop. Pearl holds a Masters Degree in Business Leadership (MBL), from the Graduate School of Business Leadership, University of South Africa. Pearl’s work experience includes marketing, branding, communication, consulting, training, facilitation, accountancy and auditing. [email protected]