Financial Fallacies: Advice New Entrepreneurs Should Avoid at all Costs

Starting a business can be complex, and those behind them can usually use a lot of advice. The problem is that much of the advice that they hear usually comes from those unqualified to give it.

Being successful at entrepreneurship requires a well-tuned instinct for logical advice and advice that makes no sense. You don’t have to necessarily be born with such filters, though: You can learn to recognize bad advice through practice.

Here are a few tips on the kinds of advice that you may hear, and hints on why they are bad.

Business people thinking about a business advice

Do market research and write a business plan

For the most part, planning and research are good ideas for business — when you shop around for investors, you do want to be able to show them proof of the homework that you’ve put in.

In certain kinds of startup, though, neither idea works well, because the product is too new for any meaningful consumer responses. A meaningful business plan can be hard to build without market research.

Focusing on forming a business plan can also be a poor idea when the product at hand needs much in development before it can actually turn viable. It can be hard to write a business plan for a product that needs an undefined amount of work. When it’s a tech product or idea, investors usually take young entrepreneurs on with or without a business plan and market research.

If you have an idea, launch a startup right away

With famous names such as Steve Jobs, Mark Zuckerberg and Bill Gates starting fantastically successful startups at a very young age after having dropped out of college, starting experience free has turned into a kind of mantra for success. In truth, though, their success came in spite of their having dropped out and started young, not because of it. The best way to success is still to build a strong base in formal education and work experience with an employer in a related field.

Aim big

Aiming for markets worth hundreds of millions may be very impressive to show friends and family. Such ideas do require large capital investments, though. Aiming for niche markets is usually a better idea for a startup simply because it’s easier to find investors. Being told to push for the big time hardly helps.

Telling entrepreneurs to raise large amounts of capital for no reason is a bad idea, too. This Bloomberg article offers some proof that startups do have problems staying focused on conserving their financial resources. Pre-revenue startups usually make do with very low valuations and capital, and it’s the right thing to do. According to consumer and business real estate agency, finding fancy office space too early is one of the side-effects of such overzealous searches for capital. Money tends to get wasted.

Just get started running a business, and you will find your feet

Just do it!

There is something to be said for getting into a situation to try it out rather than overanalyzing it. Nevertheless, it makes little sense to jump in without forethought. Businesses require teams with the right skills, financing, and backup plans. It can certainly be impossible finding financing and employees for business that doesn’t seem well-planned. The Nike slogan to “just do it,” while often repeated by inspirational speakers, doesn’t apply to businesses.

Just attend a mentorship program/entrepreneurship-in-residence program

With the wave of startup success seen all over the country today, colleges and local governmental organizations often feel pressured to do something that makes it look like they are keeping up. Usually, their idea is to arrange startup/entrepreneurship mentorship programs. They put bureaucrats with zero entrepreneurship experience in charge of these events, and sign up plenty of young people with ideas. More often than not, these events turn out to be thoroughly useless.

The mentors who show up at most such events tend to be lawyers trying to milk startups for a little money by offering contract consultation. They also feature investment bankers who want to offer advice in exchange for a piece of your company when you start it, IP lawyers who tell you to patent ideas that are not even patentable, and brokers who simply want to steal startup entrepreneurs’ ideas. It’s important to stay clear of these questionable programs, even if they are organized by reputable groups.

Instead, it makes sense to check out every program that interests you. You should only go if every expert in attendance is a bona fide entrepreneur himself.