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How to Make Sure Your Business Isn’t a Total Disaster

December 10, 2015, 6:48 PM UTC
Courtesy of Vistage

The Entrepreneur Insider network is an online community where the most thoughtful and influential people in America’s startup scene contribute answers to timely questions about entrepreneurship and careers. Today’s answer to the question “What are some common mistakes young entrepreneurs make?” is written by Jon Denn, vice chair of Cape Cod SCORE.

Passion for your idea is mandatory in order for your business to be successful. However, it can blind many entrepreneurs to the risks of their business idea and its industry. Here are the biggest mistakes I’ve seen young entrepreneurs make in their pursuit of the American Dream:

Great idea, bad industry

One of the best tools to see if your industry is healthy is to look at the Porter’s five forces process by examining threats of new entrants, threats of substitutions, bargaining power of your customers, bargaining power of your suppliers, and how crowded the competition is already. You may have a fabulous video-rental store business plan, for example, but the advent of streaming video is a pretty good clue the industry stinks. A great idea in a bad industry may not be a good long-term business.

Good idea, great industry

I see this all the time: The industry is booming and a young entrepreneur has a good idea, but it’s either too narrow in scope or will eventually be eclipsed by all of the energy of the other great products, services, and advertising. The idea might be a good or great product line for another manufacturer or distributor, but as a stand-alone company, the risk of failure is very high.

See also: Doing This is Sure to Tear Your Business Apart

A seemingly great idea in an okay market

One of the first things I look for when mentoring is proof of life. All of the variables might be looking great, but as my professor in business school once said, “If the dogs don’t eat the dog food, it isn’t dog food.” See if there’s demand for your product or service before spending too much time or energy on its development.

I’ve seen ideas that were well executed and fulfilled some consumers’ needs, but just some demand may not be enough to justify the time, effort, or capital. These ideas make great hobbies, but not good businesses. It’s important to get a realistic gauge on demand. Ask people who could actually be customers if they would spend their hard-earned money on your widget or service.

Great idea, but you need tons of advertising dollars

Many great ideas suffer from needing big corporate advertising dollars to break through. This is particularly common in everyday products that are the bread and butter of large cap firms. Inbound social media marketing is certainly making it easier for smaller producers to get noticed, but it’s still a struggle. A killer crowd-funding effort might be the best strategy for this type of entry barrier.

Great idea and industry, but you can’t convince anyone

It could be that you’re great at what you do, but you can’t convince anyone of that fact. If you lack social skills, you need to either acquire them or hire someone who has them. Likeability is important, and is one of the six primary cognitive biases originally written about by Robert Cialdini in his book Influence. Read as many books as you can about sales techniques, which seems to be as much an art as a science.

Great idea, bad pricing

Let’s say you have a service business. If you can’t get a premium price for your most popular offering, then that’s a problem. If you want to be a successful entrepreneur, you’re going to want to find a way to charge enough to pay others to provide the service. You might use a bit of behavioral economics: Have three pricing levels, where the lower-price-for-lesser service is your hook, and your higher price includes a deluxe package. Now, because studies have shown that the higher price will make your other offerings seem more affordable by comparison, you should be able to eventually raise the price of your most popular service—which should be priced in the middle. This method allows you to create jobs and still leave a net profit for yourself.

You should always discuss your products and services—whether you’re planning a business or already operate one—with a mentor or a peer group to get better results faster.

Jon Denn is the vice chair of the SCORE chapter on Cape Cod, and is a Vistage CEO Coach south of Boston.

Read all responses to the Entrepreneur Insider question: What are some common mistakes young entrepreneurs make?

Entrepreneurs, Here’s What You Need to Stop Doing by John Boitnott, advisor to Startup Grind.

Yes, it’s Okay to Ask for Help When Starting a Business by Suneera Madhani, founder and CEO of Fattmerchant.

Why the startup world is nothing like Shark Tank by Joy Randels, CEO of New Market Partners.

How slow decision-making can ruin your business by Karl Martin, founder and CTO of Nymi.

This is why so many startups end up in financial trouble by David Smith, founder of Vexti.

This is where most startups go wrong by Stephen Lake, CEO of Thalmic Labs.

Doing these 3 things will destroy your startup by Michael Gasiorek, editor-in-chief of Startup Grind.

The avoidable mistake every entrepreneur makes by Andrew Filev, founder and CEO of Wrike.