Understanding Your Business Model – It’s Not the Same as Understanding What You Offer

Recently I’ve noticed that a surprisingly simple concept trips up a lot of new entrepreneurs as they begin the planning process for their new business: the difference between what your business offers and what your business model is. It’s so simple this will be a very short post, but I see lots of people struggle with this distinction, so I’m going to try to clarify it for everyone so that none of my lovely followers get into trouble.

What you offer is simply what product or service you provide and the benefits of those products or services, and there may be many of them. Your business model, however, is much more than that. It is the overall framework of your business – what you offer, but also specifically how you generate revenue and keep that revenue above your costs for delivering your offerings.

The reason this issue can get tricky is that, for many businesses, there isn’t a lot of a difference between what they offer and what their business model is and the two often get conflated in conversation. Then that lack of distinction gets carried over into similar conversations about different businesses, however, and those other companies may have business models that are not just what the offering is and now the lack of distinction is a big issue because the conversation’s gone off track.

Let’s flesh this out with some examples:

Company One is a clothing retailer. The company buys clothes from suppliers and sells those clothes to consumers. What the company offers is clothing and its business model is to sell clothing to consumers for a profit. Nothing complicated there: there isn’t a big leap to get from the offering to the business model.

Company Two, however, isn’t as straight-forward. Company Two is a website that provides home improvement information and tutorials to the public through a blog and DIY instructional videos. What the company offers to consumers is this information, but that’s not how it makes money. It also offers advertising opportunities to companies that would want access to its readers and that advertising is its revenue source. So, in this case, there isn’t as straight a line between what the company’s offerings are and its business model. Its primary offering is home improvement information but its business model is to sell advertising to companies and show those ads to its readers.

You can’t build a successful business if you don’t understand your business model so it’s important that you understand the difference between what you offer and what your business model is. If you need additional help, check out my book or take my Business Builder Workshop and you’ll get access to some worksheets and exercises that will walk you through exactly how to determine what your offerings and business model are.

Are You Addressing Your Business’ Problems or Just Its Symptoms?

As any entrepreneur knows, there are a never-ending number of issues that will arise as you run your business and, if you want to succeed as an entrepreneur, you need to make sure that you’re able to keep all of these trouble spots under control so that your business continues to move forward. However, it can be really difficult for an entrepreneur to attend to all of these issues and still stay focused on the strategic management required to build a successful business. Getting sucked into dealing with all of these daily fires and not having time leftover for strategic planning is what people in the industry refer to as an entrepreneur who is working in the business instead of working on the business, and it doesn’t bode well for the company reaching its full potential.

This incredibly common issue is actually just a symptom of a larger problem, however. I’ve talked about this before here on New Venture Mentor, and I will probably talk about it again, but today we’ll discuss one specific method for combating it – the 5 Whys technique.

Let’s take a look at some definitions: A problem is “a matter or situation regarded as unwelcome or harmful and needing to be dealt with and overcome,” while a symptom is “a sign of the existence of something, especially of an undesirable situation.” So, in more concise terms, symptoms tell you that a problem is present, but they are not the problem itself. Therefore, addressing a symptom does not solve the underlying problem, which will rear its ugly head some other way. If you’re spending your time focused on the symptoms in your business – the daily fires that pop up – instead of addressing the underlying problems, you’ll always have more and more symptoms to deal with and won’t be able to make real progress.

So how do you tell what is a symptom and what is a real problem? One of the best methods is the 5 Whys method, originally developed by Sakichi Toyoda for use in the Toyota Motor Company. As with most things that lead to success, this technique is incredibly simple, but sometimes difficult to implement. Basically, all you have to do to find the real problem instead of getting caught up in the symptoms is to ask a series of 5 Whys about any issue that arises in your business. For example, let’s say your profit has gone down at the restaurant you own. You’re tempted to obsess about the fact that profit has gone and come up with a bunch of strategies for various ways of increasing your profit – maybe you need to advertise more, maybe you need to stay open longer hours, maybe you need to offer more dinner options – but you shouldn’t jump in to brainstorming solutions just yet, not at this stage. Even though it seems that profit being down would absolutely be a problem in a business, if you use the 5 Whys technique you’ll see that it’s actually just a symptom. So, profit is down at your restaurant. Stop and ask yourself:

“Why is profit down at the restaurant?”

Profit is down at the restaurant because margins are down.

Next, ask yourself:

“Why are margins down?”

Margins are down because we’re selling fewer alcoholic beverages and desserts, our highest margin items.

Continue on here:

“Why are we selling fewer high margin items?”

We’re selling fewer high margin items because customers don’t know we have a full bar and wine cellar, nor that we have a pastry chef on staff.

“Why don’t our customers know about our offerings?”

Our customers don’t know about our offerings because we don’t advertise in our menus or marketing and our staff doesn’t mention it.

Why don’t we promote our highest margin items?

We don’t promote our highest margin items because our owner has been brainstorming advertising options instead of looking at our root problem and updating our menus and training our staff.

Okay, I’m clearly joking a bit there with that last answer but you get the point here. By going through the exercise of 5 Whys we realize that the restaurant owner should create a cocktail menu and wine list, perhaps including pairing suggestions with the top entrees, profile the pastry chef, and have the servers ask all guests directly if they’d like anything to drink or would like any of the award-winning pastry chef’s amazing desserts. These small, inexpensive tweaks will be far more effective for improving the bottom line than increasing advertising spend, but you wouldn’t have realized it without getting down to the root problem instead of focusing on the symptoms.

Appropriately enough, an owner who is too swamped with all of the business’ fires to focus on strategic vision is also usually a symptom, not a problem. The real problem – once you work through the 5 Whys technique – is usually something along the lines of an owner’s inability to delegate or a lack of systemization within the business. Moving forward with your business – and your life, really – you should always force yourself through the 5 Whys technique to make sure you get to true problem and don’t waste time on symptoms. You’ll be amazed at the effect it can have on your business. Also, please note that the 5 Whys technique doesn’t necessarily require 5 Whys – sometimes you’ll need 3 and sometimes you’ll need 13 to get to the real problem. The point is not the number of times that you ask “Why?” it’s that you continue to ask it until you’ve found the true source of the issue.

That’s it for this week here on New Venture Mentor. Thanks for watching and I hope you found this video helpful. If you liked it, please let me know by giving me a thumbs up on YouTube and, if you’re feeling especially generous, I’d be greatly appreciative of any small fan funding donation you can make to help me keep my channel alive and these videos coming your way. If you don’t want to give, no worries, but you should still subscribe to the channel and to my email newsletter so you’ll always be the first to get the latest tips and info to help you plan, launch, and grow your business.

Top mistakes entrepreneurs make on their startup or small business taxes.

Financial Sins of Startups and Small Businesses: Not Getting Taxes Right

I post tons of helpful articles that I find around the web to help you all move your businesses forward. Often, people write asking me to elaborate on those articles so I have started a series that will do just that. I may combine a few or leave a few out here and there, but I will cover the topics that people asked me to elaborate on.

I recently posted an article from Entrepreneur about common financial sins entrepreneurs make. The next of the big financial sins is not getting your tax game in order.

Taxes are pretty much the bane of everyone’s existence, no matter what they do for a living, and they’re even more complicated and more of a headache for entrepreneurs. With so many moving parts in the business and the way you report the income it generates, it can be quite a bit more complicated to file your taxes if you’re a business owner than it is for someone who just has a W-2 and no other sources of income. Of course, my advice is always to make sure you speak with a qualified tax professional, well in advance of tax season, to make sure that you have everything in order. In the meantime, however, here are some of the most common tax mistakes that entrepreneurs make and you should avoid:

First up is choosing the wrong business entity type. There are tax implications for whatever business entity type you choose, so make sure you know what they are before you choose how to structure your business and that you comply with all of the requirements for whatever type of business you do choose. Again, I recommend you speak with a qualified professional before making any decisions that will affect your tax obligations, but if you just need a quick overview of the different entity types and what their benefits and drawbacks are, you can check out my old video on the topic by sticking around to the end of this video or heading over to CateCosta.com to grab the link.

Another major mistake that all too many entrepreneurs make is just being sloppy with record keeping. I’ve talked about this before and it’s pretty self-explanatory so I won’t go into detail here but, of course, if you make a mess of your books you’re more than likely going to make a mess of your taxes as well.

In line with not keeping your records in order is not staying organized about your deductions. Many entrepreneurs either over- or under-utilize the deductions available to them by doing things like not claiming the home office deduction, even if they have a home-based business, or deducting the full price of meals or entertainment when only 50% is allowed.

Mis-classifying workers is another big issue that the IRS is cracking down on, so much so that I have talked about it in a couple of different videos. There are strict rules about who can be classed as a contractor and who must be considered an employee. Stick around until the end of the video or head to CateCosta.com to get a link to another video of mine and learn the basic differences, but also make sure you get professional advice and are following the rules.

Finally, remember to pay attention to details and not over or under state your income. You would think that would be obvious, but it’s far too common for business owners to accidentally include sales tax they collected as part of their income or to not match the 1099s they receive from clients whom they’ve provided services to to the income they claim on their own returns.

And of course, the silliest mistake that is all too common among business owners: missing the filing deadline. You know all year that taxes are due. Don’t uselessly accrue failure to file penalties. Just make sure you’re on time, every time.

You don’t want to get stuck in an expensive and time-consuming dispute with the IRS, so be sure to get the professional advice you need and follow these tips to make sure you don’t mess up your business’ tax filings.


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Top Startup Mistakes: Going it Alone

I post tons of helpful articles from around the web to help answer questions for my followers. People often write in asking me to elaborate on pieces of those articles so I’ve started a series to do just that. I recently posted an article from Entrepreneur about common mistakes people make when launching a new company. The next of those big mistakes: thinking you can do everything on your own. 

New entrepreneurs often see their new business as their baby and they want to be the one that cares for that business baby and helps it grow. They have trouble giving up control of anything, taking others’ opinions to heart, or asking for help when needed. However, just as “it takes a village to raise a child,” so the saying goes, it takes more than one person to build a company.

If you’re trying to build a high growth startup, the research shows that companies with 2 or 3 founders have the best chance for success, much higher than the success rate for those who try to go it alone, and whether you have co-founders or just plan to build your own small business, there are going to be things you don’t know, things you need help with, and stuff you’re just simply not that good at. One of the biggest mistakes that new entrepreneurs make is trying to do everything alone.

I’m all for bootstrapping and, as a total control freak, I can completely relate to the urge to try to do everything yourself. When your desire to go it alone starts to harm your business, however, you have to take a step back and learn to let go and ask for help. So how do you know if you should become a solopreneur or seek out a co-founder and how do you tell what you should tackle yourself and what you should delegate?

First of all, figure out if you have the necessary skills to build a business. If something is going to be fundamental to your business model and you can’t do it yourself, it’s probably better that you find a partner to work with instead of outsourcing. It’s important that the foundation of your company’s success rest on the shoulders of others who are equally as invested in that success as you are. A contractor simply doesn’t have the same commitment to your project as a partner would, no matter how excellent and professional he or she may be. Having a logo made is not fundamental to your business and can be outsourced but if your business’ success rests on intimate knowledge of pollywogs, for example, you should have someone on the team with intimate knowledge of pollywogs. If you need some advice for how to choose an appropriate co-founder, check out my old video on precisely that.

Now that you’ve decided if you’re going it alone or you’ve found your perfect partner, you’re still going to have to decide what should be outsourced and what should be tackled. Hopefully, you’ve built a team whose strengths and weaknesses complement each other, so you should have a pretty clear idea of who is in charge of what: someone’s building your software while you’re handling company growth or vice-versa. Within your own realm of responsibility, however, there are still going to be some things you shouldn’t be doing yourself. Here’s where you need to evaluate your time commitments, your skills and efficiency with certain projects, and your strategy.

Firstly, you’ll want to sort everything that needs to be done and everything that should be done into various categories. Start with must do, should do, and could do. Then sort those same items into high ROI, medium ROI, and low or no ROI. Sort those same items again into things that you’re great at, things that you’re okay at, and things that you’re terrible at or don’t have a clue how to do. Lastly, sort the items into things that you love to do, things that you don’t mind doing, and things that you hate doing. Now go back through the items and indicate how many hours per week will need to be devoted to each.

Once you’ve done all of this categorization, you’ll probably already start to see what you need to do to determine what should be outsourced and what you should tackle yourself. Starting with those items that have a high ROI, must be done, you’re great at, and you love to do, begin making a list of the things you’ll be responsible for each week. When you run out of hours that you can work, anything left must be delegated. Additionally, anything in the “you’re terrible at it” or “low to no ROI” categories should either be eliminated or outsourced. It makes no sense for you to spend hours on something that either doesn’t need to be done at all or could be done in an hour by an employee or contractor.

Remember, trying to go it alone and never asking for help is a huge mistake that leads to failure for all too many entrepreneurs. Don’t fall into the trap.

If you liked this video, please let me know by liking it on YouTube and Facebook and sharing it with your friends. And don’t forget to sign up for email updates and subscribe to my YouTube channel so you never miss the latest tips and info to help you plan, launch, and grow your new business.

Business Building Tips Weekly Round-Up: October 17, 2014



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 The One Mistakes That’s Killing Your Business

In this article for Entrepreneur, Alex Banayan explains why focusing on brand building isn’t going to help most small businesses succeed and argues instead that they need to focus on the strategies used by direct marketers. According to Banayan, when marketing a small business you should:

  • Always in include an offer
  • Give a reason to respond right now
  • Give clear instructions
  • Focus on tracking, measurement, and accountability
  • Only do no-cost brand building
  • Always follow up
  • Make it look like mail order advertising
  • Strengthen your copy
  • Focus on results
  • Go on a strict direct marketing diet.

To get all of the details, click the article title above.


Go Guerilla! 5 Unorthodox Ways to Market Your Brand

In this article for Entrepreneur, Mike Trigg discusses some of the most successful guerilla marketing campaigns in recent years and how you can utilize some of their strategies to promote your own business. According to Trigg, you should:

  • Have a hook
  • Be provocative
  • Sell an idea, not a product
  • Make it tangible
  • Take a risk

Click the article title above to get all of the details.

Top Startup Mistakes: Not Properly Handling Money

In this week’s New Venture Mentor article I remind us, yet again, of the importance of properly managing your startup’s or small business’ money if you want to succeed. Click the article title above to see some of the most common money mistakes new entrepreneurs make, so you can avoid them.


The 25 Tools Every Entrepreneur Should Know About

Who doesn’t want to find inexpensive or free tools to make your life as an entrepreneur easier? In this article for Entrepreneur, Sujan Patel shares 25 of his favorites.


The Art of Setting Your Price

Figuring out what to charge for what you have to offer can be one of the most difficult decisions for new entrepreneurs. In this article for Inc., Eric Holtzclaw gives you some pointers for choosing the right price point including:

  • Start with your direct costs
  • Take into account ALL of your costs
  • Ignore your competition
  • Cover your opportunity costs
  • Evaluate prior projects

To get all of the details, click the article title above.


5 Things You Must Do To Successfully Launch a Business

In this article for Entrepreneur, Christopher Hann reminds us of some of the very basics you need to make sure are covered before you can become a successful startup founder:

  • Validate your idea
  • Shore up your plan and budget
  • Build the right team
  • Establish a support system
  • Respond to feedback and refine your model

If you’d like to learn more, click the article title above.




Top Startup Mistakes: Not Properly Handling Money

I post tons of articles that I find around the web and think will help you all move your businesses forward. Often, people write in asking me to elaborate on pieces of those articles so I’ve started a series to do just that. I recently posted an article from Entrepreneur about common mistakes people make when launching a new company. The next of those big mistakes: messing up your money!

One of the biggest mistakes new entrepreneurs make over and over again is making a complete mess of the company’s money. You would think we would all understand how important money management is given that a business exists to make money, yet we all too easily let things slide that we shouldn’t or forget to track certain things and end up with a huge financial mess on our hands.

I’ll be going a bit more in depth with quite a few of these in future posts because you really can’t expect to succeed without keeping the essentials in order. For now though, let’s just give a quick overview of the top ways new entrepreneurs mishandle their money:

Of course #1 is simply spending too much. Whether you’ve gotten outside funding or you’re bootstrapping on your own, it’s tempting to want to hire a team and advertise your tail off. You have to be strategic with your limited budget, however, and make sure you’re only spending on things with high ROI.

#2 is just the opposite of number 1: not being willing to spend enough. If you’re not the type that’s tempted to overspend, you’re very likely the type to refuse to spend on anything. But refusing to spend a penny and doing everything yourself is not the most efficient way to build your business. Again, you have to look at the ROI you’ll get for any money (or time) that you decide to commit to a project and sometimes it really does pay to hire an expert.

Another big way that new entrepreneurs mess up their money is just general sloppiness: their records are out of date, they’re not properly tracking, they don’t create budgets or do any forecasting, they don’t get the help of an expert, and they sometimes co-mingle funds between their personal and business accounts. All of that disorganization is common, but it’s also a disaster waiting to happen.

A fourth, very common mistake that entrepreneurs make that messes up their finances is the mis-classification of those that work for you and other HR no-nos. The IRS is not someone you want to get in trouble with so be sure you know who should be an employee vs. who should be a contractor, follow the rules if you’re using unpaid interns, properly pay out your employees’ for un-used sick or vacation days when they leave, make sure you don’t borrow from the money needed to pay your share of employment taxes, etc. You don’t want to be in hot water with the IRS so just follow the rules from the beginning. This is a case when maybe spending some money for expert help would make the most sense.

Finally, a major mistake many new entrepreneurs make is not understanding the best structure for their business and the tax consequences of the structure they do choose. If you’re not a CPA or a tax attorney, get some advice about the best option for you and your business.

Don’t screw yourself from the beginning by fumbling financially. It’s overwhelming to launch a new company and it’s easy to let the financial management basics slip through the cracks, but if you make a mess of your money you’re only creating headaches for your future self.

If you liked this video, please share the love by giving it a thumbs up on YouTube and Facebook and sharing it with your friends and colleagues. Also, don’t forget to subscribe to my channel and get yourself on the list for email updates so that you never miss the latest tips and info to help you plan and launch your new business. 

Top Startup Mistakes: Screwing Up Hiring

I post tons articles that I find around the web to help my followers move your businesses forward. Often, people write in asking me to elaborate on pieces of those articles, so I’ve started a series to do just that. I recently posted an article from Entrepreneur about common mistakes people make when launching a new company. The first of those big mistakes that I want to address: getting the hiring process wrong. 

When you’re building a business, your team is everything. Who you hire will make or break your success. A great hire can add incredible value to your company and free you up to focus on your real strengths while a bad hire can tank your business by costing you time, money, and customers. That’s why the phrase “hire slow; fire fast,” is so popular.

Despite knowing this, however, messing up the hiring process is one of the most common causes of stress and even failure for new businesses, so here are some tips to prevent you from blowing in your business:

Firstly, make sure you’re not getting into the hiring process until you’re really ready for it. Sometimes when new entrepreneurs first get started building their businesses or they’ve recently raised funding or gotten a revenue infusion, they want to run out and hire a huge team. This could be because the entrepreneur lacks confidence and feels he or she needs to bring in a ton of experts to succeed or it could be because the entrepreneur wants the ego boost of having a bunch of people on the payroll. Either way is a bad reason to hire. The only right way to do hiring is to hire to fill gaps in company needs and to improve the efficiency of the company. Before you begin hiring anyone, assess whether what they bring to the table is more or less valuable than what you’ll have to pay them + the time spent training and managing them + the other costs of hiring like taxes, benefits, and payroll. If someone will have a negative ROI, don’t hire. It’s as simple as that.

Secondly, if you have decided that you’re ready to hire, make sure you hire the right person! New business owners spend most of their time feeling like they need to put out a million fires and that there isn’t nearly enough time in the day to get even fraction of their to do lists done. That means that once it’s time to hire, they often feel like the sooner they can get someone into the position and take some of the load off, the better. However, putting too much weight on getting someone onto the team quickly is a great way to end up with even more headaches because you’ve chosen the wrong person. Taking the up-front time to assess if a candidate is really the right person for the job will pay immense dividends down the road.

When you’re going through the hiring process, of course, look at the skills and experience of your applicants because you need someone who knows their stuff and can hit the ground running. However, perhaps even more important than the candidates’ skills are the candidates’ personality, work style, commitment to your company, and long-term goals. Finding someone who is a good fit for your company’s style and culture is just as make or break as finding someone with the technical skills you need.

Additionally, make sure you play by the rules in the hiring process and beyond. The last thing you need is a migraine-inducing lawsuit because you violated employment law or didn’t clearly document your compensation agreements. This is especially important if, after bringing someone onto the team, you realize that you’ve made a mistake and need to let that person go.

Remember the adage “hire slow; fire fast.” Hire slow means add roles only when necessary and take the time needed to find the best candidates for those roles. Fire fast means don’t let a bad hire poison the well with a negative attitude or sub-par work. If you made a mistake in hiring, rectify it quickly.

Making a mess of hiring is an incredibly common – and incredibly damaging – mistake made by all too many entrepreneurs. If you follow these tips, you’ll be ahead of the game and can save yourself a lot of future stress.


If you liked this video, please let me know by giving it a thumbs up on YouTube and Facebook and sharing it with those in your network who could benefit. Also remember to subscribe to my channel right here by clicking at the end of the video and get on the list for email updates so you never miss the tips and info you need to help you plan and launch your business. 


Financial Sins of Startups and Small Businesses: Mis-Classifying Workers and Other HR Mistakes

I post tons of articles that I find around the web to help you all move your businesses forward. Often, people write in asking me to elaborate on those articles so I started a series to do just that. I recently posted an article from Entrepreneur about common financial sins entrepreneurs make. The next of the big financial sins is the mis-classification of employees.

Some of the biggest mistakes that new entrepreneurs make are mistakes that, if they’re honest, they know they’re making while they’re making them but they just feel so busy and over-whelmed that things slip through the cracks. Other super common mistakes, however, are made completely accidentally, without the entrepreneur even knowing a major mistake is being made. These unknown mistakes aren’t any less harmful because you didn’t realize what you were doing, however, and one of the huge ones that the IRS, the Depatrment of Labor, and others are cracking down on lately is the improper classification of workers and other major HR no-nos in your business.

There are a few big oopsies that happen over and over again here, so let’s take a look one by one.

First up is the issue of classifying certain of your workers as independent contractors when they should be classified as employees. You all know I’m a big fan of bootstrapping and utilizing independent contractors is one technique to help entrepreneurs accomplish that. However, it’s important to remember that, while the use of independent contractors can be of great benefit to businesses in certain situations, you need to make sure that these independent contractors are actually independent contractors and not employees whom you’re just avoiding classifying as such.  This is such a big issue lately that I actually did another post just about distinguishing between employees and independent contractors. Stick around until the end of the video or head over to CateCosta.com, if you’re not already there, to get the link.

Next up is the improper use of unpaid interns. Again, as a huge advocate of bootstrapping I’ve talked about the value you can get from unpaid interns in the past. However, it’s important to realize, before you launch an internship program, that there are strict rules you need to follow in order to not run afoul of employment law when doing so. If you want to implement such a program, your best bet is to speak to an employment lawyer so you’re clear on all the rules in your state. The basics, however, are that the internship needs to be about the intern learning and gaining experience, not about your business benefitting. If you don’t have the time or inclination to mentor and nurture interns, if you don’t want to do the paperwork necessary for them to get university credit for their time as interns, or if you expect them to contribute to the team in a way that an employee would, an unpaid internship program is not right for your business.

Thirdly, there are bunches of other major HR no-nos that you need to be sure to avoid in your business:

  • Follow the rules in the hiring process so that there will be no issues of discrimination
  • Follow the rules in the firing process for the same reason
  • Take any reports of or complaints about issues in the workplace very seriously and follow the mandated procedures to protect your workforce
  • Abide by OSHA requirements
  • Don’t be slow or stingy about paying out workers who leave the company for unused sick or vacation leave

The list could go on and on, but the message should be clear: follow the rules and you’ll avoid future headaches.

If you liked this video, please share the love by giving it a big thumbs up on Facebook and YouTube and sharing it with your networks. Also, don’t forget to subscribe to the channel and to email updates so you don’t miss any tips or info to help you successfully plan and launch your new business.

Why Certain Customers Are Worse Than No Customers at All

When you’re just starting out as a new entrepreneur it’s pretty scary not knowing where your next dollar will come from and that uncertainty often drives new entrepreneurs to want to say yes to everyone and everything just to make sure that revenue is coming in the door. This is a strategy that will almost certainly backfire, however, as it makes it impossible for you to stay focused on what you really excel at and it allows bad customers to contaminate your business.

We’re all familiar with bad customers: they’re needy, they’re demanding, they’re opinionated, they’re impatient…basically it often seems like their goal for the day is to ruin yours. You do not want those customers in your business, especially when you’re just starting out, no matter how much they pay, for a number of reasons:

Firstly, building a business around bad customers is not sustainable. It takes way more time and energy than it should to service these bad seeds and that cuts into productivity, morale, and margins.

Secondly, dealing with bad customers prevents you from focusing on your good customers – you know, those people that behave like human beings and allow you to get enough work done that you can actually make a profit. These good customers may be understanding, but they’re not going to stick around forever if you’re neglecting them because the bad customers are sucking up your time. If you’re not careful, you’ll look up and realize you only have bad customers left.

Thirdly, bad customers often coerce you into taking the entire business off track strategically. Maybe they ask you for an additional product or service that you didn’t intend to provide, maybe they want to negotiate special payment terms, maybe they insist on extra features being added to your offering. Whatever it is, trying to please bad customers can quickly lead you down a road that slowly takes you farther and farther away from your strategic path.

Now that we understand why these bad customers are actually even worse than no customers, how do we avoid them?

Of course, sometimes these bad seeds can slip in undetected but, more often than not, they showed signs of being more trouble than they’re worth from the beginning and you should have declined to work with them.

  • If a potential customer asks for a product or service that you don’t provide and don’t want to provide, decline to work with them. They’re already taking you off track and your relationship is just beginning.
  • If a potential customer is super needy during the sales process, decline to work with them. I know that some would disagree with me here but, especially if you provide a service, a person who is needy before they’re a customer will stay needy once they’re a customer and they will suck up way more of your or your staff’s time than they’re worth.
  • If a potential customer is aggressively bad-mouthing their other service providers, decline to work with them. I don’t mean someone who says another company was unable to meet their needs should be rejected, but if someone describes the last people they worked with as morons, idiots, imbeciles, a*holes, incompetent, or any of these other very, very aggressive names, you should expect that they will bad mouth you around town in exactly the same way – unless you decline to work with them and don’t give them the opportunity.
  • If a potential customer wants special features or a special payment structure right from the beginning, decline to work with them. If someone asks for a volume discount because they’re buying up everything they can, great, give it to them if you can still achieve acceptable margins. If, however, someone wants a discount or special payment terms just because they think they deserve to be treated better than anyone else, decline to work with them. They’ll only keep asking for discounts and special treatment.

Now we know why we need to avoid bad customers and how to spot them, but how do you actually tell a potential customer you don’t want their business?

  • Be honest. If you don’t provide service X, product Y, or payment term Z, just tell this prospective customer that you can’t accommodate that request. If she walks into McDonald’s she doesn’t get to say she’d rather pay $1 less for the combo meal or pay tomorrow for the french fries she’s going to eat right now. If you have set offerings, stick to them.
  • Provide a referral if you can. Just because you don’t offer a particular service doesn’t mean you can’t point the customer to someone who does offer it. Develop partnerships with complementary service providers so they send customers who aren’t the right fit for them to you and you do the same for them. It’s a win-win for you and the other entrepreneur and it allows you to still be helpful and earn some good will from the customer.
  • Be polite. There’s no reason someone you decline to work with should feel rejected when you do so. I may have told you to avoid bad seeds because they cause nothing but headaches, but you certainly don’t need to convey that. Always be professional and courteous.

Staying focused on your ideal customers and not wasting time with bad customers may seem scary at first – turning away customers and revenue certainly doesn’t seem like a good idea when you’re just starting out – but it’s the right long-term strategy for building a successful and sustainable business.

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Your Projections Are Wrong, But That Doesn’t Mean You Shouldn’t Make Them

In my effort to provide useful information to entrepreneurs and aspiring entrepreneurs, I share articles that I find around the web and think can help my followers move your businesses forward. Often, people write asking me to elaborate on those articles or so I’ve started a series that will do just that. 

I recently posted an article from RockthePost about common misconceptions people have about launching a new company. The next of those misconceptions that I want to tackle here is the idea that your assumptions and projections are accurate and that everything will go according to plan. 

There are two things that are true about creating financial projections for your company and the assumptions that come with that:

  • Firstly, projections and assumptions are necessary, are all over your business planning, and you can’t successfully build a new business without them.
  • Secondly, projections and assumptions are pretty much always wrong and they’re very dangerous for new entrepreneurs and new companies.

Wait, what?!? Yup, it might not seem to make a lot of sense just yet, but building a successful business requires that you both plan around a set of projections and assumptions and that you accept the fact that those projections and assumptions are almost certainly wrong. It can be pretty alarming when you realize that both of those things are true, but becoming an entrepreneur is full of alarming realizations.

Let’s start with why projections and assumptions are an integral part of building a new business:

As an entrepreneur, your entire career is built around assumptions: you assume that your idea is valid, you assume that you can execute that idea, you assume that customers will want to buy what you have to sell, you assume that all of that will be true at margins that allow you to profit and grow. You simply cannot build a company from scratch without making assumptions and you can’t do it responsibly and effectively without turning some of those assumptions into formal projections that help you plan the financial future of your company. Yes, of course, eventually you will validate or disprove those assumptions, but at the beginning they are nothing more than assumptions.

I am a huge proponent of business planning – especially for those of you who are new to entrepreneurship. That old saying that “if you fail to plan you plan to fail,” has held true in my experience and I do not support new entrepreneurs diving in without doing any research or creating any form of strategy. Now, that doesn’t necessarily mean you need to create a formal business plan with all of the aesthetic bells and whistles, but it does mean you should spend some time figuring out the basics of how you’ll build your company before you throw your life savings into it. Business planning allows you to work through potential problems and come up with potential solutions before those problems arise and it gives you a much better idea of what to expect because, if done well, it forces you to face facts and stop going off passion and hunches.

Planning and creating projections does not, however, mean you’ll know exactly how your entrepreneurial journey will progress and exactly how much you’ll make from your business and when you’ll make it. This is real life and in real life there are simply too many variables to be able to predict exactly what will happen. If you stay completely attached to those projections and assumptions to the exclusion of the real life situation, you’ll be in just as much trouble as if you hadn’t come up with a plan at all.

The point of creating projections is to force you to think through your concept and iron out any major issues in advance. It’s not to give you the impression that a business launch occurs in lab conditions where you can control and predict everything.

Let me give you an example: Meteorology is a science and there are complex models that can tell meteorologists what weather patterns are likely to develop where and when and how they’ll travel. It’s all basically just the physics of different levels of moisture and pressure interacting with each other and it’s fairly straight-forward to make these weather predictions. We all know, however, that, in the real world, things can change and the weatherman might be wrong, but it’s still wise to bring an umbrella when he predicts rain or to make sure you have a shovel handy when he’s predicting a blizzard.

The projections and assumptions that you come up with during the business planning process are just the same: they’re probably not going to be accurate and it would be silly for you to stick to them regardless of what else happens (just because the weather man predicted rain doesn’t mean you should stay inside if it’s a gorgeous, sunny day), but they still give you an idea of what’s probably to come and allow you to be prepared.

Finding the balance between developing a thorough plan based around assumptions and projections and recognizing that those assumptions and projections are almost certainly inaccurate is one of the tricks of being a greatly successful entrepreneur.


Thanks for watching this episode of New Venture Mentor. If you liked this video, please let me know by giving it a thumbs up on YouTube and Facebook and by sharing it with anyone who might find it helpful and for all of the latest tips and information about how to plan and launch a successful business, subscribe to my YouTube channel and email newsletter for weekly updates and follow me on Facebook and Twitter for some daily dish.