Common Mistakes by Teen Entrepreneurs
Even though some young entrepreneurs show enormous amounts of creativity and sensibility in starting and running their own businesses, many others make fatal business mistakes that are easily avoidable. The left navigational bar will give you a glimpse at the following common mistakes many teen entrepreneurs make in their businesses: Neglecting costs, counting sales as profit, lack of planning, lack of commitment, optimistic sales assumptions, and misusing the goods of the business.
Neglecting Costs
I was once advising a 16–year–old boy on how to run his baseball card business. Every two months, he would make a one–hour bus trip to Chicago to buy more cards for his business. When I asked him to calculate how much money it cost him to make this trip into the city, he came up with a figure of $10. When I asked him to include the cost of his meals and miscellaneous expenses during his trip, he increased his expense figure to $24. When I told him that he should include these expenses in pricing his cards, he protested. "I enjoy going into the city to buy new cards. I don’t see why I should charge my customers for this trip."
When I asked him whether he would go into Chicago as frequently if he didn’t have a baseball card business, he said no. When I asked him whether he subtracted any of his travel expenses when calculating his net profit, he said no. I then said to him, "You are not making as much money in this business as you think you are."
This young entrepreneur’s problem was simply that he did not consider all of his true expenses when figuring out the cost of each of his cards. Many young entrepreneurs make the same mistake. They forget that small expenses add up to big numbers and therefore should be included in the cost of their products of services.
Some teen entrepreneurs are also not aware that they should include the cost of their equipment in making their products or offering their services. Take a typical teenage business such as lawn mowing, for example. Many teens who start lawn mowing businesses use their family’s lawn mower. As with all other mechanical equipment, the more a lawn mower is used, the more likely it is to require servicing. If the youngsters mowing the lawns neglect to include the cost of periodic servicing of the mowers, then they are overestimating the profit figures in their businesses.
Counting Sales as Profit
Common sense tells adult entrepreneurs that revenue (or sales), the money collected from customers, is generally made up of two components: profit and expenses. If the business is profitable, the profit is calculated by subtracting all their expenses from their revenues.
Some young entrepreneurs, however, spend or pocket all of the money they receive from their businesses, thinking that all of this money represents profit. They forget that to calculate true profit, they must subtract the money they borrowed from their parents, or their savings account to come up with the true amount of money they have made in their businesses.
One 13–year–old entrepreneur borrowed $200 from her parents to start a neighborhood T–shirt business. She made 50 T–shirts and charged $10 for each shirt. This young business owner collected $500 for her T–shirts over a period of two months from her customers. By the time her parents started asking for their $200 back, the girl had already spent $400 of the money she collected from her customers. Needless to say, the parents were able to collect only $100 of the $200 they were owed.
This young entrepreneur was not trying to cheat her parents. What happened was that each time she sold some T–shirts, she used the money to buy clothes, magazines, and candy. Before she realized how much she had spent in the two–month period, it was too late. She had spent all but $100 of the money she had collected.
Even if this young entrepreneur had used her own savings instead of borrowing $200 from her parents, she still should have replaced the money. In other words, the amount of money in her savings account should have been bigger by the time she finished her business.
Sales Assumptions
Teen entrepreneurs starting their own businesses often think that their families and friends are the only customers they need to make their businesses work. I jokingly tell these potential entrepreneurs that their family and friends can’t possibly provide them with enough people to sell to unless everyone in their town is either related to them or is a friend.
True, friends and family may patronize the businesses of young entrepreneurs because they want to help out. But real businesses offer quality products or services that people truly need and that appeal to more than relatives and friends.
Part of learning how to be an entrepreneur involves hands-on experience about how the marketplace -- the population of people who may buy a particular product – can determine your success or failure. Parents and relatives buying your product just because they are related to you may help you make money in the short run. In the long-run, however, such handouts may just delay the amount of time it takes for you to find out that no one wants what you are selling if you have a bad product or service.
Lack of Planning
One of the qualities I admire in teen entrepreneurs is that they are optimists. They all feel they can make their businesses work. Unfortunately, optimism is not good enough when it comes time to realistically figure out the steps to take to actually operate their businesses. Coming up with good business ideas is just a start. The efficiency at which the businesses will operate on a day-to-day basis is probably a more important determinant of the success or failure of these businesses. Efficiency is determined by the ability of the young entrepreneurs to handle the level of business they expect. The following sections discuss other symptoms of poor business planning.
Failure To Consider Your Physical Abilities and Maturity
Your parents or guardians should be involved in your decision to start some businesses because of the physical and mental maturity that may be required for any business.
Some young entrepreneurs decide to start businesses that they can't possibly handle because of their age and physical abilities. Avoid businesses that depend too much on your physical strength.
In addition, if you are under 18, avoid businesses that require that you have any kind of intimate contact with customers. You may be chuckling right about now but think of cases where a young entrepreneurs may want to give pedicures, manicures, and other services that involve touching customers. Also, if you are a minor, I recommend that you avoid businesses (or situations) where you are alone with customers in their homes.
Taking On Too Much Business
Some young entrepreneurs take on too many customers. They first figure out how much money they want to make, and then calculate how many customers they will need to meet their goal. If they are lucky enough to get as many customers as they want, they may find that they created another problem: there aren’t enough hours in the day to make the product or deliver the service.
One high school entrepreneur started his own desktop publishing business. He bought some expensive computer equipment and started looking for writers who wanted to get published. He took on two writers and then the nightmare began. All of the administrative work he needed to do in order to publish the books was his undoing. First, he started skipping school to work on his business. Then he started staying up until 2 a.m. Finally, he closed his business.
This young entrepreneur’s problem was two-fold. First, he did not thoroughly investigate all the steps he had to take to become a legitimate publisher. He found out the hard way that producing a book requires more than just good writers. It requires that the publishers edit the work and perform all other administrative services such as copyrighting the book and preparing to have it carried by national distributors.
This young entrepreneur’s second problem was that he took on more than one writer at a time. He should have gotten his feet wet in the business with one customer before acquiring more. When I asked this kid about his blunder he said, "I really didn’t know how much work it took to publish a book. I figured that with a computer and a good printer I could easily start my own desktop publishing business."
Poor Time Management
Young people who want to start their own businesses have to become good time managers. They have to manage school and homework, recreation, the responsibilities of family life, and their businesses.
Lack of Commitment
Some teen entrepreneurs don’t know the importance of winning the trust of potential customers. Many adults are already skeptical about buying products or services from young entrepreneurs. When the young entrepreneur compounds the problem by arriving late or not arriving at all, these customers rarely give them a second chance. Teen entrepreneurs that are serious about their businesses make an extra effort to prove to their customers that they can be as punctual and as dependable as adult entrepreneurs.
Here are some things you can do to earn the trust of your customers:
Business Cards: If you can afford it, you should get business cards and stationery with the company name and a description of your business on them.
Neat Appearance: You should dress neatly when in contact with potential customers. A neatly dressed young entrepreneur sends the message that he cares about the way he looks and, hence, is likely to care about the quality of his work.
Be Prompt: You should be prompt when you show up to do the job or give customers an estimate of what it will cost to provide the service. Nothing irritates customers more than waiting for someone to arrive.
Be Courteous: You should go out of your way to be courteous to potential customers when soliciting their business.
Offer Guarantee: You should offer guarantees on every product you sell or any service you provide. A guarantee tells the potential customers that young entrepreneurs have enough confidence in their businesses to guarantee the quality of their products or services.