Starting a business is not easy. There are many things to think about and decisions to make. The pressure can cause you to make poor decisions that can hurt your potential for success, or at least set you back. Although survival rates for startup small businesses have significantly improved over the years, SBA statistics indicate there is still a 50/50 chance for failure in the first five years. While there isn’t a foolproof plan for small business startup success, there are several devastating mistakes many new business owners make that can negatively impact their business success.
Here are some of the most common and costly mistakes to avoid as you start your business.
1. Not Doing Enough Market Research
This is a very common problem with startup businesses. Market research can take many months and lots of research to do correctly. You must know who your competition is, and who your customers will be. You must understand all aspects of your industry – inside and out. Read all the books and articles you can find about your particular type of business. ISBDC has many resources for detailed market research at no cost to our clients. Most importantly, talk to others that are in your industry – learn from their mistakes and best practices.
2. Starting Without A Business Plan
If you are serious about making your new business a success, you must have a written business plan that includes detailed marketing strategies and pro forma financials. We’ve all heard it many times, yet many of us still resist developing a comprehensive business plan. Whether it is because we do not get to it, do not understand it, or do not want to, the old adage still holds true: “If you fail to plan, you plan to fail.” Writing a business plan will force you to think about how you plan to make your business come to life and become profitable. Force yourself to honestly answer such questions as “Who will my customers be?” “Why will they buy from me?” “How much will I charge for each of my products and services?” “How will I get the word out about my new business?” If you don’t have a plan and documented goals, what is your baseline for making decisions? Create a vision, communicate it, and base decisions on whether it takes you closer for further away from where you want to end up.
3. Inadequate Marketing And Sales Plan
A classic Dolly Parton-ism applies here: “If you don’t blow your own horn, how will they know you’re coming?” Marketing is the horn that brings your product or service to the marketplace. It involves advertising, public relations, communications, collateral materials, a website presence, and social media such as Facebook, LinkedIn, Pinterest, etc. Many do not understand clearly the roles of marketing and sales. Marketing is education – helping your customer understand why your product or service is the best value for them. Sales is facilitation – helping them purchase your product or service quickly, painlessly, and efficiently. A big mistake is assuming you do not need to do marketing because the business will come to you – in the vast majority of businesses, it does not! Learn how to market and sell. Learn how to give a presentation and be persuasive. Acquiring the art of persuasion will help you build enthusiastic customers as well as employees.
4. Insufficient Capital
A common fatal mistake for many failed businesses is having insufficient working capital. Business owners underestimate how much money is needed and they are forced to close before they even have had a fair chance to succeed. It is imperative to ascertain how much money your business will require – not only the costs of starting, but also the costs of staying in business. Many startups have a very unrealistic expectation of the volume of early monthly sales – it takes time to build sales momentum. It is important to take into consideration that many businesses take 6 months to a year or more to get going. This means you will need enough funds to cover all operating costs until sales can eventually pay for these costs.
5. Poor Management
As the founder of a small business, you will be directly responsible for all aspects of management. You may lack relevant business expertise in such areas as finance, purchasing, selling, production, and hiring and managing employees. Unless you recognize what you don’t do well, and seek help, you may soon face disaster. If you are starting your business because you are great at your particular skill or service, you probably want to devote all of your time and energy to doing this. And as you start your business, you must devote yourself to the execution of your business plan.
This is not a complete list of the causes of failure, just those that you can control. In a sense, there is just one overriding mistake that kills startups: Not making something customers want.