Carol Sanford

Whether you are building a new business or growing an established one, it is important to know what factors can limit your success.

Often, actions we take for what seem to be the best of reasons turn out to be errors. Over time, these errors can spread into our decision-making processes and implementation. There are hundreds of different mistakes that are easy to make, but five stand out as the biggest strategic errors. Each has a multiplier impact on business, and beyond direct effects, may undermine a business as a whole.

Error #1: Too much time and emphasis on trends and competitive assessments

Why is this an error? It promotes commodity offerings and diminishes the innovation that is core to your business's entrepreneurial culture.

Most of us have known (or may have been) teenagers who focus too much on competitive awareness. These kids constantly check to see how they fit in compared with others. They want to be in on the latest trends. Caring parents would advise them to stop paying attention to others and find ways to express their own unique selves.

As business leaders, entrepreneurs often compete at the expense of innovation, with effects much the same as the competitive teenagers'. You try to follow in others' footprints and maybe try to "outdo" them. In the process your business loses its uniqueness, which is its source of innovation and creative motivation.

New Business Acumen:
Reveal your essence and design everything about your business based on the distinctiveness that makes it non-displaceable.

Error #2: Measuring how you're doing at the wrong place in the work stream

Why is this an error? It promotes navel-gazing internal thinking, which leads to failure to detect customer dissatisfaction and loss of customer loyalty.

Business leaders get tightly attached to the idea of measuring what they can "see" and count. They measure their own effort rather than their effectiveness in the places where it really matters—the customer's experience and benefits to communities and Earth. They value what is apparent, rather than what is important. It is possible to measure your business's success in meaningful ways by assessing its effects on the lives of customers, communities, and ecosystems.

New Business Acumen:
Measure the effects that your customers value and the internal measures tied to those effects. Know what factors your customers' successes are based on and measure your business's effects on those factors.

Error #3: Taking on the wrong initiatives or working on them the wrong way

Why is this an error? It is one of the most wasteful uses of resources, a lot like gambling or hoping to learn from mistakes as the worst case.

Improvement or development efforts are tricky and hard to focus, whether on products or changes in operations. How do you know if the projects you select will get you where you want to be? The biggest error is choosing to gamble on projects whose payoffs you can't predict and whose results you don't assess comprehensively. Testing is not based on frameworks that cover all effectiveness arenas in a systemic way, and in particular the financial effects. Often you don't know until months later whether a project will contribute to earnings, margins and cash flow. But this does not have to be the case.

New Business Acumen:
Understand and work with the factors of product, organizing, market and financial effectiveness when assessing an initiative. Make the prediction of success more accurate at its core. Know what actions correlate with each of these arenas. Knowing in advance is what matters—not adding up effects after the fact.

Error #4: Using market research to know and design for your customers

Why is this an error? You fool yourself into thinking you know your market and lose the most critical opportunity for success—real, caring connections to your customers.

Standard business practice is to hire or draw on third parties for research on existing and potential customers and markets. That aggregated information is handed off to those who contract and oversee the research, most often a business's marketers. It is further digested and made available to other functions for product development, packaging design, operational improvement, and a myriad of other uses.

There are several errors here. The first is that the number of translations causes the information to become terribly flawed. From customers to researchers to interpreters to functions which use the information—this is like the game of Telephone we played as children, lining up and whispering a phrase, child to child, until at the end of the line it was radically changed. As the distance grows between your customers and the people in your business who wish to know them, the research results become more and more abstract, and eventually distorted. Work designed from this output is generic because the connection to the final user has become remote.

The second error is believing that customers know what they want. As Steve Jobs famously pointed out, it's useless to ask people what they want because they don't know it until they see it. Harvard Marketing Research Institute reports that 80 percent of new launches fail because, even after extensive market research, they are off the mark and they aren't differentiated. A third error also works against differentiation. If customers can tell you what they want, they can tell it to everyone. No new understanding is gained from what everyone knows. Relying on it is equivalent to buying your sweetheart a gift from a list of most popular items just because it's what the average person is giving.

New Business Acumen:
Know each of your business's customer groups. Learn their unique ways of living and being and design for them based on your distinctiveness. Do not rely on the demographic categories used in market research. This is what I call learning to create the "essence-to-essence" connection. It is not data driven; it is on-going, meaningful relationships between customers and all of the people in your organization.

Error #5: Borrowing and tacking the ethical and sustainability practices of other businesses

Why is this an error? When your business borrows plans and practices from other businesses, you can have no idea whether they will make better communities, ecosystems and economies, and you lose a critical source of innovation and motivation.

Now that sustainability has become an industry, we can buy programs and plans off the shelf. We can pay consultants to do our responsibility work for us, and we often do. When a business works and thinks strategically, every decision arises from core beliefs and principles. When it borrows, its people follow a set of practices that are labeled "best" but are probably not validated by the most important question, "Does this make a positive difference in our stakeholders' health and vitality?"

Even worse, by following best practices [of another business] a business risks losing what makes it distinctive and, reverting to Error One, placing too much time and emphasis on trends and competitive assessments.

New Business Acumen:
Learn how to start from global imperatives that are meaningful in the context of your business and part of the ethics of each of your people. Global imperatives are not goals; they are articulate beliefs about how stakeholder domains work when they are ecologically sound and evolving in a systemic way for the benefit of all stakeholders.

Only when this way of thinking is developed and utilized can you increase the odds that you are making a difference and build a base for innovation that comes uniquely from your business.

About Carol Sanford

Carol Sanford has been leading major consulting change efforts in both Fortune 500 and new-economy businesses for more than 30 years. She believes that business can and will play a major role in creating a better world.

Carol has published dozens of works in 10 languages, was shortlisted for Best Business Book of the Year (out of 11,000 books), and named to Top 100 Thought Leaders in Trustworthy Business Behavior - 2012.

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The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made.