Starting a business is an exhilarating experience. Entrepreneurs often envision how quickly their businesses will grow, how well they will be able to support themselves, and what a meaningful contribution they will make to society through their new ventures. Unfortunately, the majority of startups experience premature closures due to a host of issues, many of which could have been avoided if the business had been able to identify the key problems.
Most startups do not fail as a result of poor ideas; rather, the failure stems from improper decisions made by the founding entrepreneur/management team. If a startup founder understands the most common pitfalls found when founding today’s businesses, the most likely to be avoided, then they will be able to save time, capital, and ultimately create a business that can withstand long-term growth.
Here are several examples of the most commonly made startup mistakes that every entrepreneur should strive to avoid.
1. Launching Without Background Research on a Market
One of the most common mistakes made by entrepreneurs is launching a product or service without conducting thorough background research on the market. Just because an idea sounds appealing, doesn’t guarantee that customers will purchase the product or service.
Conducting market research can help entrepreneurs determine the following critical components:
- Who are the target demographic customers?
- What issues are they having?
- What other companies are selling products/services similar to the entrepreneur’s product/service?
- How much is the target demographic willing to pay for the product/service?
Without having access to this information, entrepreneurs run the risk of creating an item that no one will purchase. Before spending significant time and financial resource on a product, entrepreneurs must put together a number of surveys, compare their competition, and validate their product idea before launching.
2. Attempting to Handle Everything Yourself
Many new entrepreneurs believe that they should try and handle everything by themselves. This includes managing tasks related to accounting, marketing, product development, and customer service. While this may work well for a limited period, it will lead to exhaustion and bad decisions once an entrepreneur has reached an ultimate level of achievement.
Successful start-ups are usually built as teams with individuals possessing complementary skills. For example, an entrepreneur may be good at developing products but not very good at marketing or financing a business. Creating a team or finding an advisor who can assist with certain aspects of a business can greatly enhance the overall likelihood of success.
Entrepreneurs can focus on their core skills and areas of specialization while outsourcing some tasks to those with expertise in managing these types of tasks.
3. Cash Flow Mismanagement
Cash flow issues are one of the common reasons for startup failure; a company can run out of cash very quickly no matter how profitable it thinks it is. Because of this new entrepreneurs have a hard time determining which expenses they will have when starting their business. Some common startup expenses that are oftentimes overlooked include:
- Marketing
- Credit Card Processing Fees
- Software Tools of All Kinds
- Staff/Employee Wages
- operational-related expenses
Startups frequently need to continue to run a financial plan to keep an eye on cash flow and should keep in mind that the time it takes to generate revenue is typically longer than they expect (best case scenario is to have 90 days worth of living expenses in your bank before starting your business).
Continuing to create a realistic budget, scale back on excessive expenditures and having a contingency reserve fund to create cash flow in difficult times are key to a startup’s ability to endure through whatever challenges it may face.
4. Building a Product Instead of Customer Relationships
Many entrepreneurs find their passion for creating products and are so consumed with the product that they overlook their customers. They can spend months creating and developing their products, however they will lose track of their product and forget to listen to what their customers say.
A viable startup is not only about-the-product, but about solving problems for people.
Entrepreneurs can gather valuable insights from customers by seeking feedback from them early on once they start using the product. They can collect feedback through a variety of means such as, customer interviews, feedback forms, beta testing.
If entrepreneurs develop their product in partnership with their customers (not just based on their customers) they have a far greater chance of success than entrepreneurs who use the product to build their business.
5. Lack of Proper Business Strategy
Many entrepreneurs do not have an appropriate strategy to start their business. They sometimes rely on their ability to adapt to changing conditions; however, a startup needs to know where it is going.
At a minimum, a solid business plan should define:
- Goals and Objectives
- Target Audience Analysis
- Revenue Model
- Marketing Strategy
- Cost Structure
The business plan does not have to be a large or complicated document; the business plan will help you make decisions as you start your new company.
If there is no clear direction, you may waste valuable time and resources pursuing opportunities that do not align with your business goals.
6. Inadequate Marketing Plan
Many people wrongly believe that if they make a great product, it will sell itself however, marketing is essential to gain customer attention even if they have a great product.
Many startups that have developed great products to sell; may however be unsuccessful in marketing their products therefore, no one will find out about their product.
Every entrepreneur should establish and develop a marketing strategy for their business. Possible marketing strategies include:
- Social Media Marketing.
- Content Marketing.
- Email Campaigns.
- Partnerships.
- Search Engine Optimization (SEO).
Marketing should begin early and sometimes even be completed prior to the launch of a product; this allows you to establish interest for customers in the product prior to launch.
7. Rapid Growth
Expansion can be a great experience, but when it happens too quickly it can create big problems. Some new businesses hire too many staff, sign long leases for large offices, or spend money on expanding their business before they even know if their business model is viable.
Growing extremely fast can create many operational challenges and create an immense strain on cash flow.
Instead, new businesses need to concentrate on validating their product, creating a loyal customer base, and establishing a consistent revenue stream. Once their business model is proven & stable, growth can occur with much less risk and much more compatibility.
8. Not Acknowledging Competitors
Many founders think their idea is original and ignore competitors completely. However the reality is that virtually every business sector has competitors.
Ignoring competition can result in missed opportunities and poor decision-making.
Entrepreneurs should analyze their competitors in order to gather information about:
- Each competitor’s strengths and weaknesses
- Pricing structure for each competitor
- Marketing tactics used by each competitor
- Consumer preferences
Competitor analysis provides new businesses with information about how to fill voids in the market as well as make their own products or services distinguishable from those of their competitors.
9. Inability to Adapt
The startup process seldom goes to plan. Constantly changing market conditions, evolvement in customer requirements and sudden stumbling blocks all change the path to start-up success.
The founder who will not change gears finds difficulty in their success to become an entrepreneur. A successful Entrepreneur must continually change and modify their product and/or service line as required.
An example would be: Some successful businesses started out with one idea and eventually morphed into their actual business model. Entrepreneurs must continually solicit customer feedback, analyze data and revise their strategies.
10. Ignoring Legal and Administrative Duties
Legal and administrative duties are not very exciting, but a crucial part of running a successful business.
Some startups will ignore important items like these:
- Business Registration
- Contracts/Agreements
- Protecting Your Intellectual Property
- Tax compliance duties
If you ignore these duties you will eventually have a major issue. Entrepreneurs must consult a professional for the appropriate type of expertise when needed and make sure they comply with all laws and regulations.
11. Poor Expectations
Many people go into business expecting to make a fortune overnight. Making a successful business takes time, hard work and determination.
You will experience failures, setbacks and challenges. Many entrepreneurs have lost hope too soon because they expected instant success.
Successful entrepreneurs work toward a goal and understand the gradual process of growth; they focus on the long run rather than the short run.
12. Inadequately Managed Time
Often entrepreneurs have to handle many different tasks and projects together which leads to being inefficient with their time.
When lacking in time management, a founder can spend too much time on lower tiers of work while only giving the necessary attention to high priority work like developing their strategy, improving product, or engaging with customers.
Using some type of productivity tools, creating a defined list of priorities, and scheduling time for different activities will aid an entrepreneur in staying organized and focused.
In Conclusion
Starting your business is an exciting venture that provides you with great opportunities to be successful or face many challenges. Most mistakes you will face throughout this journey will only assist you in your learning process. However, the majority of failures in a new venture are caused from a lack of preparation, research or knowledge.
Founders that take the time to do research on their market, are prudent with their financial management; listen to their customers; and have the ability to be flexible, will have a better chance of being successful. Founders that build a strong team, create a good strategy to follow and have realistic expectations will be at a greater advantage than those that do not.
Success is not just about having a great idea for your business, but also about being able to execute your ideas properly while continuing to learn and improve from your experiences.
