The Underpants Gnomes syndrome -- how common is it?

[KurtNYC]

I have yet another client that doesn't know their numbers and doesn't seem to want to. They don't know the cost of production so I asked them how they would price their product:

A: we will charge what others charge and when we sell in low income neighborhoods we will charge less.

But if you don't know your cost, how do you know you will make money?

A: because people want this product. There is big demand for it.

Ugh. I had another client that didn't want to do a feasibility study. Why?

A: because feasibility studies just find reasons not to start a business like this.

Feasibility studies should find all potential obstacles, evaluate potential traffic and cash flow, demographics and the competitive environment. The goal of a feasibility study is to get the best data you can before spending a lot of cash and learning (or not) from expensive mistakes.

When I hear clients say they want to START a restaurant, or START a business, I cringe. They aren't saying they want to run a restaurant for 10 years, only that they want to start one. It seems like some treasure their dreams more than their money and time and personally I don't think it is such a great fantasy to spend $400K to open a restaurant only to find out that it will be a money pit for as long as the client can come up with more cash.

[Blue_Tires]

1. As you know, this 'business strategy' is how thousands of millionaire

pro athletes ended up broke, some even before their playing days were over...

[Marrah_G]

2. Kitchen Nightmares is often an example of this

People with no restaurant experience deciding "Hey, let's open a restaurant, it will be fun". a few years later their savings is gone and they are almost bankrupt.

[KurtNYC]

5. I'm thinking there is some Dunning-Kruger going on.

Basically, people don't know how much they don't know and that gives them confidence.

http://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect

[dipsydoodle]

3. That'' the "sell what we make" strategy

as opposed to the alterrnative "make what we can sell" strategy.

Difference can pretty much be related to IQ and shoe size with the former being below shoe size and the latter considerably above.

[KurtNYC]

7. One of these clients has a Phd and ran a successful business for decades

They just seem to be too in love with the dream to let reality intrude much.

[bemildred]

4. They think of it like buying a car. nt

[hlthe2b]

6. An old "I Love Lucy" episode keeps replaying when she & Ethel decide to make salad dressing...

--Followed the approach of these numbskulls exactly.... Still making the early morning rounds of TVLand and might give you a little knowing laugh...

[Demo_Chris]

8. I see this every week. New business owners...

Who have given a great deal of thought to what they want to sell and earn, but little thought to what the public wants to buy. More, and worse, they haven't given a moment to even the most basic elements of a proper business plan. They couldn't tell you what competitive advantage meant, let alone what theirs is.

It would be easy to feel sympathy, many are regular people with no other hope. They are taking what's left of their savings and giving it a go. But it's sympathy that's hard to feel because they are so often not simply ignorant, but arrogant in that ignorance. That, and so often they are launching with absolutely incredible (to me) sums of money that they have inevitably spent on completely irrelevant nonsense. These are the kind of folks who decide to open a restaurant and make their first priority decorating their office (and who would then sniff and look askance at a business owner who's office was a TV tray and spiral notebook.)

[KurtNYC]

9. Yes. I have had a couple clients who spent way too much to test an idea

but of course they didn't think of it as a test. They convinced themselves it was going to work with no tweaking.

If people spend their own money to take their shot fine but what I have trouble with is when they lure people away from better, long-term employers by offering more money to them and then these employees lose 2 jobs (the good one and the new one) when it all goes to hell. Or when they "borrow" from older relatives and can never pay them back.

The kicker is when I tell them that they need to know their numbers, or that they should try to do more accurate cash flow projections and then they flip around and ask me to invest or offer me equity in the business that I just told them was not bankable in its present form. Tunnel vision.