Mistakes happen, even in the best corporations and enterprises. But it is important that businesses recognize mistakes early and immediately work to rectify the situation. Ignoring warning signs – and there are always signs -- could lead to potential disaster for the business. Unfortunately, many simply ignore the warning signs, even the most obvious ones. Hence, big mistakes happen such as the Firestone Tires, New Coke, among others -- mistakes that could have been prevented had the people involved saw and took note of the warnings. Alas, no one saw it coming.

While the big business is the book's main focus, Mittelstaedt dedicates a chapter to small businesses, noting, “Mistakes aren’t just for big companies.” In fact, “startups and small businesses make mistakes in the same ways that larger organizations make mistakes. However, they usually have fewer resources to avoid or recover and less flexibility to survive mistakes with alternate plans or products.” He lists the common mistakes small business and start-up entrepreneurs commit, from the process of developing the business idea to securing financing.

According to Mittelstaedt, for small businesses "it is simply a question of how many mistakes are made before there is damage and how rapidly it all plays out." The list is illuminating, as follows:

Business Idea

• Level of commitment to the idea not deep enough to start a new business: only the most passionate entrepreneurs find a way to succeed even during the rough first years
• Failure to reevaluate the situation and come up with a concrete plan if the business idea is not working as expected
• Inability to see that the market is not "conditioned”: customers do not know or understand the value of the product, which often requires education and orientation that a small business might find too expensive and time consuming

Business Plan

• Thinking "nobody else is doing what we are doing" when thousands of other entrepreneurs are doing the same thing
• The mindset "If we only get one percent of the market..." thinking that it would be so easy, without first asking the question if anybody actually wants the product
• Failure to consider the level of capital needed, often resulting from bad estimates of time for development, time for marketing and acceptance, and time to get payment from customers
• "We already have our first customer" but isn't sure if there will be others interested in the product
• Overconfidence in thinking that "growth will be exponential" underestimating the amount of selling that needs to be done continuously
• The belief that "Our competitors are big and slow to react" -- big competitors may not squash you yet because they don't know you exist; but when they do, watch out
• Believing that the product is superior, yet failing to consider that customers may not immediately take a chance on a new company despite having a better product

Business Financing

• Relying on friends and family as source of capital, without realizing that asking them for money can be very stressful especially on the relationship (think of the guilt when the venture goes belly-up and you lose every single cent of your parent's life savings)
• Fear of being diluted that they resist seeking financing elsewhere because they do not want to lose ownership of the business losing opportunities as a result
• Believing that venture capitalists have the same objectives as the entrepreneur, which is not necessarily true. VCs want "high growth and high profitability fairly rapidly," and if your business will not produce these, then getting financing from VCs may be a mistake
• Refusal to do a “down round” when you have not done well as expected yet still need to raise additional capital for the business
• Skip paying Uncle Sam and postponing payment of taxes
• “I can’t agree to those terms” while the market pass you by as you wait for better terms · Thinking that an IPO will solve all the problems

Business Operations

• “Just a few more tweaks and it will be ready for release” – delays can threaten survival if there is no other revenue
• Thinking that only you can do the right thing for the business – failure to transition from jack-of-all trades business to a professionally managed company is often the cause of failure of many small businesses
• Loyalty/performance problem when the person has been with the business since the start yet no longer effective

So what should a small business entrepreneur do to avoid what the author calls "mistake sequence?"

• Have an advisory board that will help steer the direction of your business
• Get "bigger than life" to provide perception of size and stability, such as
  • Use different last names if multiple family members are in the business
  • Use professionally designed logo, business cards, stationeries
  • Develop a Web presence o Have a local presence (e.g. local charity or civic events)
  • Develop a business philosophy
  • Develop codes of conduct or dress code
  • Regularly seek feedback from customers
• Listen and continue to evaluate your business performance
• Be open to changing your role · Seek professional advice – and take it.

You may not have the support networks and internal mentoring that a big business enjoys, but the small size of your business allows you to react and change more rapidly.

Will Your Next Mistake Be Fatal?
Avoiding the Chain of Mistakes that Can Destroy Your Organization
By Robert E. Mittelstaedt Jr. i
Wharton School Publishing
September 28, 2004
ISBN: 0131913646
336 pages