10 most common business startup mistakes to avoid
Starting your own business is wonderful and challenging and exhilarating and difficult. Many new businesses succeed but about 50% of them fail and only about one-third survive 10 years or more. What are the biggest reasons why businesses fail? At the end of the day, it is not usually the business that is failing; it is the entrepreneur that fails their business. Here are some of the most common startup mistakes made by new entrepreneurs:
Many businesses don’t have a plan. Without a short and long term plan with measurable goals and objectives, including dates and deadlines, your business will have a hard time succeeding. Businesses without plans may not consider cash flow needs, growth, management, employees, inventory management, vendors, etc; all key factors in the success of a business. When you go through the exercise of planning, it forces you to address all of those areas. It also allows you (and potentially others) to look objectively at the business and determine if the case is compelling enough that someone would invest in it. We like the Lean Canvas business plan because it is short and fluid – meaning you can make changes as you grow.
Product/service is not differentiated and doesn’t deliver real value:
Businesses need to deliver value and need to be better/different enough from their competitors that the customer will purchase or switch. It’s not enough to be just a little bit different. Research shows that a product needs to be at least 10x better, faster, cheaper, lighter…to truly differentiate it from the competition and give you the possibility of success. So, if your product/service is just a tiny bit better or different or doesn’t add value, you’re not going to give your business a chance for success.
Lack of focus on customers
The most successful businesses know exactly who their customer is. Some even name them and have a mocked-up photo of their typical customer so that the whole office can keep that image in mind with every decision. If you know exactly who your customer is, you can also define how big that target audience is and importantly, you can involve your customers in your product development so that your products are built based on feedback from those who will actually hand over their hard-earned cash for it. If you don’t know exactly who your customer is and can’t define that person in one sentence, your business is going to have a hard time. Your customers can be the one to keep you in business but can also be the one to put you out of business, so value them appropriately.
No Testing and No Pivoting
Successful entrepreneurs test and pivot at every stage of the entrepreneurship journey. Make an assumption, test it and if your assumptions are disproved, you pivot. If they are proved, you proceed. A startup is a constant process of making adjustments and responding to changes. If you aren’t constantly scanning the environment and responding to it with assumptions, tests, and pivots, your company will either get left behind going the wrong direction or will make massive investments without knowing if you’re making the right bet.
Lack of Focus on Sales, Revenues AND Profits
While businesses like Airbnb, Pinterest, WeWork and Uber are extremely well known, that doesn’t mean they are profitable. They have caught the attention of investors and customers but they don’t actually make money. Most small businesses need sales and revenue and need to set profitability as a near-term target. The vast majority of small companies cannot survive if they don’t have steady and increasing sales that generate enough revenue to cover all costs and allow some left over to plow back into the business or distribute as profits to owners. By the way, companies that don’t keep an eye on expenses are similarly doomed. Companies can have loads of sales and revenues but if expenses are out of control, profits will be difficult to attain.
Lots of people have ideas. Some of them are good ideas and others might even be great ideas. However, an idea is only an idea until it is turned into a plan and executed effectively and well. Many businesses fail because of poor execution. There is a reason why some people are called “Wantrepreneurs”. They want it but they don’t have the ability, desire, or drive to execute and execute well.
Poor leadership is a key factor in many business failures. When people say, “the buck stops here”, they really mean that the final decision and responsibility for that decision comes from the leader. Leadership failures affect every aspect of your business, from sales to employee culture, so if you don’t have the appropriate skills to be a good leader, figure out how to get them. Find a mentor. Network. Increase your business education. Develop a strong leadership team. Build an advisory board.
Scaling too soon
In recent research done by Startup Genome, about 70% of the startups in their dataset scaled before they were ready. Many companies get impatient to grow and, in their haste, ruin their company. They take on too much real estate, or too many employees or make expenditures that they can’t really afford. Scaling is great …at the right time.
Fear of failure
You’re going to fail. With small businesses, expect it – it is normal. If you fear it, you may be too cautious and then you are more likely to fail. Failure is an excellent teacher so be a student of your failure and learn so you do it differently next time. Sumner Redstone said that “Success is not built on success. It’s built on failure. It’s built on frustration. Sometimes it’s built on catastrophe.” Some of the most successful businesses faced a catastrophe and the resulting pivot was the thing that pushed it into the right place.
Don’t give up too early
Entrepreneurship should be considered a marathon, not a sprint. It is a long process, filled with lots of ups and downs and requires endurance and belief in self and creativity and patience and stick-to-it-iveness. Some businesses take off right away, but others take some extra time to gain traction. If you give up too early, you may be missing out on the one that takes just a little while longer. Don’t start a business until you can afford to give it the necessary time to succeed.
Now that you know all the pitfalls of starting a business, you’re on your way to success. Don’t be afraid to try. Remember, you can pivot whenever you need to and failure only increases your chances for success the next time around.