Starting and developing a company can be an exhilarating experience; however, it is also fraught with difficulties. There are numerous mistakes that are constancy made by businesses and while no entrepreneur will completely escape making any mistakes, most of these common mistakes have known causes or at the very least, could have been prevented. Common business errors like poor management of finances and failure to build strong customer relationships are often the result of poor decision making, poor planning, or lack of attention to detail and if they are not caught soon enough, they could cause slow growth, consume an inordinate amount of resources, or fail altogether.
Understanding the reasons for and how to avoid most common business mistakes will save you time, money and frustration. This article outlines the most frequently encountered pitfalls that entrepreneurs face and provides solutions for each, to help you create an effective long-term, viable business.
1. No Clear Business Plan
The Mistake
Most entrepreneurs begin their business with a great idea; however, few will create and develop their business with a formalized business plan. Many entrepreneurs rely on their enthusiasm and gut feelings to start their businesses, rather than the structure of a formalized business plan. Without defined objectives, target market, revenue assumptions and cash flow projections to make decisions on, it is difficult to make strategic, management-level decisions and instead will make mostly reactive decisions.
How to Prevent It
Before you launch a business, have a strong business plan and keep updating as you learn new things. A business plan should contain:
- a clear mission statement and purpose for the business
- identifying the target (customers) you want to serve
- competitive analysis for pricing and services
- sales and marketing strategies
- short-term and long-term goals.
Your business plan will guide you along the way and to stay on track and give you assistance.
2. Inadequate Financial Management
The Mistake
One of the biggest reasons businesses fail is due to poor management of their finances. It is easy to mismanage finances by undercharging for products and services, not watching your spending, using your personal account to pay for bills, and not correctly accounting for your cash flow.
How to Prevent It
- Accuracy and being up to date with your financial records
- To separate your personal from business account
- Monitoring cash flow more frequently
- Establish a budget and use that to guide your spending
- If possible, work with an accountant or financial advisor
By knowing what you have and where it goes will help you to make good decisions with your finances and not get caught in an unfavorable situation.
3. Not Accounting For Expenses & Projecting Out Too Ambitiously
The Mistake
The entrepreneur has a tendency to be too optimistic about things he creates, often underestimating what it will cost to operate his company while counting on his sales revenue (to grow) quite rapidly in return. This misalignment can create a significant cash flow shortage along with additional stress on the business owner financially.
How to Prevent It
Use conservative numbers for both expenses/revenue in your estimates for operating your business, including:
- Unexpected costs
- Slow initial sales
- Seasonal variations in customers
- Emergency funds
By planning for the “worst case scenario” you will have a much better chance of getting through any rough times in your business.
4. Not Conducting Sufficient Market Research
The Mistake
Some businesses fail because they produce a product(s) or service(s) which do not align with what the market “truly” wants or needs. The business owner simply thinks there will be demand without validating it with research.
How to Prevent It
Conducting research before and after producing your product(s)/service(s):
- Perform competition analysis
- Survey potential customers
- Conduct limited “test marketing” using a minimum viable product
- Gather customer feedback and make modifications when appropriate
The greater your understanding of your target market(s)/customers’ desires, preferences and “pain” points, the greater your ability will be to create and offer items/services that can sell!
5. Attempting to Accomplish Everything Alone
The Mistake
Many business owners try to do everything on their own from marketing to accounting to operations to customer service and more. This is very commonly done and can lead to burnout, inefficiencies, and very poor results.
How to Prevent It
Understand that you do not need to do everything by yourself
- Delegate tasks whenever possible
- Outsource any specialized work (i.e., accounting, design, IT)
- Create a reliable team and/or network of professionals
By remaining focused on your strengths, you will have more time to concentrate on growing your business strategically vs. needing to concentrate on what can’t get done each day.
6. Poor Marketing and Branding
The Mistake
Many times, businesses think that if they have a good product, customers will just come to them automatically. Unfortunately, without having a consistent marketing strategy and well defined brand identity, even the best products will go unnoticed or unseen by a potential customer.
How to Prevent It
Create a solid marketing plan that incorporates:
- Brand identity (both visually & verbally)
- Online presence (website, social media)
- Some form of advertising or content marketing
- Always connect with your customers and continue to follow up on both previous purchases and anything new that you may create
Thus consistency in marketing will create a trusting relationship, build credibility and visibility in the marketplace. This will in turn result in long term customer relationships.
7. Ineffective Time Management
The Mistake
Failure to manage his time will cause the owner to put a great deal of effort into doing low-priority activities and not enough energy on high-priority activities such as planning, sales, and building relationships with customers.
How to Prevent It
- Prioritize activities according to their impact.
- Work toward daily and weekly goals.
- Use tools to help you with your productivity and calendars to track when and where you do your work.
- Reduce distractions and limit the number of meetings you have during work hours.
When you manage your time well, you become more efficient and are subjected to lower levels of stress.
8. Growing Too Fast
The Mistake
A business that tries to grow rapidly, with inadequate systems or resources, may find itself overwhelmed. For example, hiring too quickly, expanding into new locations too soon, or expanding capacity before having sufficient demand could create financial and operational strains.
How to Prevent It
Grow in a controlled manner by:
- Establishing cash flow consistency before you begin expanding.
- Improving existing internal procedures.
- Testing new markets before making a full commitment to them.
- Responding to actual demand rather than guessing what demand will be.
It is much easier to manage the growth of your business if you allow it happen at a controlled pace.
9. Ignoring Legality and Compliance Issues
The Mistake
Many businesses do not take into consideration the legal implications surrounding their business such as licensing, contracts, taxes and many regulations regarding the safeguarding of data. The result can be significant fines, legal action against the business or even being forced to close their business down.
How to Prevent It
- Understand all applicable laws regarding your business and industry.
- Use written contracts and written agreements in every legal matter.
- Be sure that you are complying with all tax laws.
- Seek legal advice and assistance whenever necessary.
Protecting your business legally can be just as important to your success as the growth strategy you have for your business.
10. Resistance to Change
The Mistake
Changing industries, technology, and consumer behaviours happens every day. Companies that do not adapt to change or continue using previous models are at risk of being left behind or made obsolete.
How to Prevent It
- Keep up to date with your industry.
- Continue to invest in developing and learning new ideas/methods.
- Look for tools and technologies that can help improve your business.
- Review and adapt your strategies to meet the changes in your marketplace.
Adaptability is a trait you should develop for a company that is successful in the long run.
11. Having No Goals or Metrics to Track your Progress
The Mistake
If you do not have measurable goals in place, you have no way of knowing how your business is progressing or if you are standing still. Many business owners do not set up the tracking of key performance indicators ( KPIs ) in their companies.
How to Prevent It
Create measurable, specific goals and track your progress frequently.
Some examples are as follows:
- Monthly sales goal
- Cost to acquire a customer
- Conversion rate (the % of leads that become customers)
- Retention rates (the % of customers retained )
Regularly track your progress will help provide insights into potential issues and will allow you to celebrate small and large successes.
The Lessons Mistakes Teach Us Create Stronger Companies
Mistakes in business are a part of doing business but making the same mistake repeatedly could be really costly for the entrepreneur. It isn’t that the best companies don’t make any mistakes; rather, they are the ones who learn quickly from those mistakes and change their practices accordingly.
Most of the common mistakes entrepreneurs make can be avoided by some effort on the entrepreneurs’ part through planning, managing their money, listening to their customers, and remaining flexible. Challenges create opportunities for entrepreneurs to grow, sharpen their strategies, and create an organization that can withstand challenges, produce profits, and be successful for many years to come.
If you remain aware of what is happening in the marketplace, adequately prepare for the opportunities presented, and consistently work at it, you will turn a possible mistake into a positive experience that leads you to success in the future.
