One mistake that is really common among small business people, especially first time entrepreneurs, is that they automatically try to compete as if they were running a Wal-Mart store.  This is definitely a bad approach.  What do I mean by this?  Read on to find out.

One of the carnal sins of new entrepreneurs is that they try to beat their competitors on price.  They think that price is the main motivating factor behind why people are going to buy from them.  This is Tom Foolery.  You are mistaken if you think that price is the reason people are shopping with you instead of your competition.   Your customers might even tell you that is why, but they are lying.  Yes, they really are lying.  They might even believe that is why they are doing it, but most of them are dead wrong.

People buy from you for a variety of reasons.  Price is almost always lower on the list than two or three other things.  They might be buying from you because you are more convenient.  I could be that you responded to them faster than your competitors.  It could be because someone referred your name to them.  It could be that you are the only one they know who does this.  You might provide one on one service along with explanations of what you do for them.  The list goes on and on.  It is very unlikely that the majority of your customers are truly that sensitive on price.

When you cut your price you cut your own wages

If you are competing on prices then I also can almost guarantee that you aren’t having as much fun running your business as you should be.  You are also struggling way more financially than you should be.  This is common knowledge.  Trust me.  I have been there.

When you offer a lower price than your competitors you also attract the worst possible class of customer.  You get the demanding people who want everything for nothing.  These people absolutely suck to work for.  I can’t stand it.  Why would you go after these people?  You don’t want them.  You want the highest paying customers who aren’t afraid to pay more for good service.  I bet those people are out there and would welcome you with open arms if you would just try it.  Then you can have nicer equipment for your own business.  Your image will improve.  Your brand will improve.  You should consider pricing yourself above your competition just for this purpose alone.

Think about the people you always see standing in the return lines at Walmart.  Do you really want them for customers?  They are bitching and whining about something they are unhappy with.  Some of them are trying to pull a fast one on the store and somehow cheat that store out of money.  Do you really want these people for customers?  These people will try to do the same damn thing to you.  They will want you to sell them your product or service at the lowest price humanly possible.  They aren’t afraid to complain or to return things either.  The big box stores have turned these people into abusive customers because their return policies are so liberal. 

Instead of cutting your price or rolling back your price you should be looking for ways to increase your prices.  You can probably increase your price immediately without ever even adding more value to your product or service.   Your good customers won’t care one bit because you have been undercharging anyway.  Your bad customers might care and they might leave.  I say good riddance.

Do not make the mistake of under-pricing yourself.  You aren’t running a Wal-Mart.  You are running a small operation that cannot afford to cut prices like that.  You can’t afford to buy at the quantities that Wal-Mart does.  You can’t afford super small profit margins.  If you aren’t going to earn great profit margins in your business, then why bother being in business.  You can charge more than you think.  Determine at least two things that people want more from a business like yours other than a low price.  Focus on delivering those needs.

Once you have been in business for six months or more you will start to see patterns develop.  You will start to learn about which customers you prefer to sell to.  They might not be the ones that you thought they would be when you first opened your doors.  It is funny how your business educates you.  You will learn things that you never thought of before.  Your eyes get opened to new opportunities.  You find flaws with your original plans and need to adjust accordingly.  I am going to share one really important lesson that took me a long time to learn.  You need to focus on growing your most profitable market segment and forget about the rest until you grow that one.

Every new business owner commits the same Cardinal sin.  They think money is money and business is business.  Therefore you go after every drop of business you can get.  You are hungry for work and you are willing to accommodate people to fill that void, especially in a weak economy.  Your thinking is misguided though.  When you run a tiny little business, you simply cannot afford the baggage that comes along with trying to accommodate every single person who expresses any interest in your business at all.  You might not believe me at first because it sounds illogical and counter intuitive to basic business.  It is not though.  Sooner or later you are going to learn this lesson.  The sooner you accept this as truth, the better off you will be.  Drop the lousy customers and go get more good ones.

 Don’t just take any business you can get.  You need to really focus on getting ideal customers instead of just any customers.  That is a tough concept to grasp.  It will make a huge difference in your business though.  Serve your most profitable customers and clients.  Serve them exceptionally well.  That is where you will find success.  If you take on any and every customer, you will find yourself extremely stressed out because you are having a hard time making those customers happy.  Only focus on the ones you can serve well.  Make every effort to earn the business of more customers like them and less effort to earn any other business.  

Funny things happen when you start to spend all your energy serving ideal customers.  Your customer satisfaction levels go way up with those ideal people.  These ideal people know other ideal customers and they are going to tell those other ideal customers about you.   It works whether you sell to business clients or residential clients.  Good customers know other people who will be good customers.  You want their word of mouth more than anyone else’s.

Your business will not take off and become really profitable until you make this paradigm shift.  Don’t underestimate the importance of developing a written marketing plan that specifically targets your best customers.  You want to shape everything about your business to appear more and more perfect to those people.  Identify exactly what those people look like.  Build your marketing engine around getting more of those ideal customers.  Your ad copy should speak directly to them.  When you are thinking about how to word a piece of advertising copy or a new sign, think about what phrases would attract more of those sweet spot customers.

Once you do this and see how well it works, you will be happy to turn work down from those less than perfect customers.  Send them to your competitors instead.  Let them have those headaches.  You don’t want the business from those over demanding cheapskates.  Trust me.  Let them go somewhere else.  You are doing yourself a huge favor and you are hurting your competition at the same time.  You don’t have to be rude about not taking their business.  Just explain that your business is better suited for a certain type of client.  There are ways to do that tactfully.  Follow this advice and watch your profitability and your energy levels skyrocket.

This topic really hits home with me.  In case you don’t know my background, I used to run a regular brick and mortar store with office help, technical employees and the whole shebang.  Managing employees takes a very specific skill set that does not come naturally.  Well at least it wasn’t natural for me.  I found it exceptionally challenging.

For years I struggled with finding the right people and motivating them to do their work properly as well as efficiently.  Believe me it was not easy.  You learn things about people that you never realized.  I was quite naïve when it came to my employees.  I thought that they really cared about the business and their jobs.  Later on I came to realize that everyone is really pretty selfish when it comes to work.  They want more money for less work and deep down they honestly don’t give a damn about you and your business.  Keep that in mind.

You might think that when you hire your first employee, you will become good friends almost to the point where they are extended family.  I have seen this happen, but man is it rare.  It is really rare.  I thought it would happen for me.  I tried to make that happen with my first four employees (one at a time) and I failed every time.

My outlook about employees was that I would wait to see if they were going to be top producers before I would pay them the big bucks.  The employee’s viewpoint was the exact opposite.  They wanted the big bucks before they would really work hard.  I grew up as a farm kid.  I never knew anything but hard work.  Where I grew up people always worked hard crappy hours and got paid little.  Once I started running a business in the city I came to realize that most of the people were actually lazy and wanted to do as little work as humanly possible.  It is funny how people who grow up in urban and suburban environments have an entitlement mentality where they think that everyone including their boss owes them something.  Country folk aren’t like that.  They automatically assume they are going to have to earn every penny.   That is a story better left told on some political website though.  I won’t bore you with that here.

The real eye opener for me came when a fellow business owner and client of mine referred me to the series of books written by Dan Kennedy.  If you have never read his stuff, you should.  His books opened my eyes to what is really going on in an employee’s mind.  I kept reading and the light bulb kept lighting in my head.  I was thinking “No wonder this happened” and “No wonder that happened.”  He really opened my eyes.  It was after reading his books that I decided I needed to move away from the traditional business model and move back to a home office model with zero employees if at all possible.  I am done with being an employer. 

Funny huh?  Most people dream of growing their business to the point where they can grow out of their home.   I wanted to change mine and shrink it so I could go back to working from my home.  Wow has that been liberating.

Having said all that, my take on employees is that they are the key to massive leverage in a business if that is your goal.  They are essential if you want to build a massive business and get uber-wealthy.  But, you had better be damn good at hiring the right ones.  You had better pay them exceptionally well.  You had better not assume they are your friends (because deep down they are not).  Even the ones you think are your best friends are probably talking about you behind your back.  You will always be their “boss.”  Remember that.  Respect that and make them respect that.

I decided that I could not stand and did not want the headaches that come with employing people.  The paperwork here in the US is ridiculous both on a state level and a federal level.  God forbid you ever make a mistake on any of that paperwork.  You better damn well pay a bookkeeper or accountant to do that paperwork for you.  If you don’t you are extremely foolish.

The truth is though that you don’t need to have employees to reach the million dollar income mark.  Plenty of people have done it.  They don’t necessarily do all the work themselves though.  They have found ways to get people to work for them without being employees.  They outsource all the necessary job related functions that they cannot or will not perform themselves.  They outsource them to companies and contractors though instead of employees.  That is how they get the leverage of having employees without all the crap that comes along with them.