Business ideas: Don't chase mirages

It is the very nature of business people to seek new and exciting business ideas. That relentless search for profit is the lifeblood of the economy. Making money through constant innovation, and from novel business concept creation, is a matter of survival for entrepreneurs and small business people.

At the same time, some very tempting money losing ideas must be avoided to prevent disastrous losses. Business people must avoid chasing shimmering mirages. These are those elusive, yet seductive projects that promise riches, but yield only bottom line wrecking nightmares. These are the ideas that lead otherwise astute business people like demonic pied pipers to their company's demise.



Recognizing mirages from ideas real business potential is not easy. There are usually some warnings that the mirage is lurking, however. The key for owners and managers is to recognize the red flags the mirage will often give forth. All too often these minute tremors are ignored to the organization's peril. Instead of wasting time, personnel, equipment, and financial resources on a money losing phantom, it's essential that business people recognize some of its usual characteristics.

First and foremost the mirage is seductive through its promise of easy money. This too good to be true aspect is easy to sweep under the rug. Money for nothing usual yields nothing of value in the end. The old saying about something being too good to be true has proven correct on far too many occasions. If a proposal appears to offer that proverbial free lunch, be sure to look hard at the numbers and hidden costs attached to the phantom project. There may be some glaring oversights that are being all too conveniently ignored.

A second aspect of the mirage is often very weak financial evidence of its profitability. All too often, very obvious costs may be missing from the business plan. Less obvious costs are certain to be absent as well. Glowing sales reports, based more on wishful thinking than hard evidence, are usually symptoms of a mirage as well. Check, recheck, and then check the numbers again. Have more than one person examine the cost and revenue estimates. All too often, the harsh light of day will remove the mirage from consideration.



A third possibility of a mirage slipping into the operations is it being championed by someone highly ranked in the organization. Whether the owner of an entrepreneurial venture or the CEO of a major corporation, their suggestions are often left unchallenged. In every case, the same due diligence and financial scrutiny must be applied to the project.

Don't let the high powered sponsorship of the idea prevent you from examining the dollars and sense of the plan. Being intimidated by the person in the big chair will not help the company. Everyone is capable of making mistakes and chasing mirages. It is your responsibility to prevent them from happening in your organization. Don't just go along to get along. Sometimes developing some unexpected courage is necessary for your company's very survival.

Your discovery of a potential money loser will serve your career, as well as your company, in good stead. While the bearer of bad tidings may experience some misplaced disdain in the short term, time will prove the wisdom of someone who prevents a disaster. Company saviours may take some time to be rewarded, but the longer term works in support of those who help the company survive and prosper.



Don't let the siren call of a mirage lure your company onto the financial rocks. Always examine every business idea for practicality, timing, and required resources. It is especially important to recognize the mirage that may be your own pet projects. Instead of presenting a money losing idea, replace it with a solidly profitable one. Your attention to due diligence will mark you as a responsible and dependable leader.

Keep away from the mirage. Shine the light on them, and watch their false phantom profits disappear as if by magic. Don't fall for their shimmer. They promise only the dryness of the desert. There is no free lunch at this illusion of an oasis.

Tags: business ideas, seeking profits, preventing losses, entrepreneurship.

Sunk costs: Know when to pull the plug

When business people think of sunk costs, if they ever consider the concept at all, think in terms of throwing good money after bad. While that is part of the definition of what constitutes a sunk cost, there is much more to the story. In fact, your own business probably has a few sunk costs and you might not even know it.

Sunk costs are usually related to continuing to pour money into a bottomless pit, with little or no chance of return. Spending pointlessly, and compounding even greater losses, only tells part of the story. Sunk costs are also about the admission of errors. All too often, failure to admit a mistake was made, leads to further spending on a lost cause.

It costs a company dearly, if the decision makers insist on being seen as infallible. Clinging stubbornly to a failed plan, and funding it despite all evidence to the contrary, can be a recipe for business disaster. Instead of projecting the imagine of sound decision makers, the very opposite impression is created. Entrepreneurs and managers, who are unable to identify a lost cause, are usually doomed to failure. The problem is that they take the company, its employees, customers, vendors, and everyone else involved down along with them.



To avoid business disaster, it's important to understand the concept of a sunk cost. In its simplest form, a sunk cost represents money that is already spent, and is unlikely to provide any return. In your own business or personal life, you may have many examples of sunk costs. That gym club membership you bought, and never seemed to have time to use, is a sunk cost. The money is spent, and whether you visit the facility or not, your financial situation remains unchanged.

Instead of accepting the membership money as already gone, however, you will see people try to get some perceived return on the investment. They will spend time and money to feel they got their money's worth from the membership. Either way, the initial expenditure is still in someone else's hands. Note that I am not picking on the health club industry, the example is for illustration purposes only. Any other club membership would suit the analogy equally well.

In business situations, sunk costs appear all the time, with disturbing regularity. Many times, the expenditure was worthwhile and achieved at least some of its goals. Management recognized the money was gone, and moved on to the next project. Not all business owners and managers can let go of money, that yielded no return, so easily. Instead, they compound the problem, and throw the proverbial good money after the bad.



The first step toward preventing sunk costs from mushrooming into super sunk costs, is to understand that the idea was not a good one. In other words, admission of a mistake is required of the decision maker. That is often easier said than done. Very often, a person will stake their entire managerial reputation on a particular campaign.

When things don't turn out as planned, they throw more money at the problem. Instead of remedying the failed situation, the result is just more red ink in the ledgers. It is not a good idea to pin your reputation on a single project. Instead, consider more testing, market research, and pilot programs to manage and reduce risk.

Involve your staff in the decision making process. If everyone agrees the current system is failing, then try something new. Rather than flushing more cash on the failed plan, move to the next page, and spend the money on a different program. If everyone involved in the plan is part of the decision, the collective choice will likely be to scrap the sinking ship. Letting go will save money in both the short and longer terms.

When faced with a sunk cost situation, learn to identify it as an ongoing drain of company resources. If there is no possible remedy, cut the plan adrift, and start over with a new idea.

Your successful and creative company must understand sunk costs, and know when to pull the plug. Admit your mistakes, and move on to a different plan entirely. Your business success depends on it.

Tags: sunk costs, business management, business planning, mistakes.

Disaster prevention: Learning to bike ride

Like most children, you probably were given a bicycle when you were young, and were taught to ride. Of course, when you started out on your travels, a few falls were part of the learning process. When you fell off the bike, your parents told you to get back on the bicycle and try again. Soon, you learned enough about balance and control of the equipment to ride off on many adventures in your neighbourhood.

Business people fall off their career paths and business plans too. Events don't always go according to plan, and it's essential to figure out what went wrong; and why. Just like getting back on the bicycle, after a spill, it's necessary to return to the world of work and business. Of course, like getting back on the bike, you need to reassess of what didn't go according to plan.

Business plans going awry can cause an entrepreneur or manager to lose monry or even fall out of the business world entirely. As with any problem, it's important to know what went wrong, and how to correct the flawed plan and its execution. As with learning to ride a bicycle, where balance and control are required and must be learned, so too with business problems. If the fallen bike rider commits the same riding error, their end result will be more bruised knees and scraped elbows. The business person must also learn what went wrong and correct the mistakes next time.



Becoming a good bike rider takes practice to develop the necessary skills. Cycling also requires preparation for disaster, by donning protective equipment to prevent injuries. Helmets, gloves, pads for the knees and elbows are there for protection in the event of a spill. A bike rider must be protected from broken bones and sprains, as well as cuts and bruises. A business plan needs similar safeguards as well.

With business, it's also possible to practice, and have the business wear some protective gear, prior to the events taking place. Market research can be conducted to ascertain the extent of the market and the potential demand for the product or service. A weak survey result or focus group response can signal the need to return to the drawing board and seek out modified or different products and services.



A pilot project, on a very limited scale, is a great way to test a product or service. If the pilot project shows a very limited response, corrections to the program can be undertaken. Pilot projects are much cheaper, and require fewer resources, than full scale operations. A failed pilot project is not crippling to the organization, and can be rectified with relative ease. An alternative test idea can be substituted in its place.

As with falling off the bicycle, learning potential problems before they happen, and setting out new plans in their place, speeds up the learning process. Through planning and constant testing of ideas and systems, the business equivalent of skinned knees can be avoided.

Get back on that bike, wearing the proper protective gear, and learn to ride it the right way.

Tags: ideas, business planning, disaster prevention, market research.