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15 Startup Mistakes To Avoid

Author: Small Business Editors

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The road to starting a business is one which can present many hurdles even to an experienced entrepreneur. Experience is key, when you’re able to learn from it. If the entrepreneurial bug has bit you once again and you’re looking to start a new business here’s a list of the 15 most common mistakes entrepreneurs usually make.
 
Knowing about them is the first step towards avoiding them.
 


 

Inadequate Business Plan:
 
A new business is often built around an idea, a new concept or an invention: in other words, your project. As good as it may be, that idea alone is not a guarantee of success and some of the best ideas in history turned out as extraordinary business failures. Why? Because of a lack of planing. A good business plan will help an entrepreneur better identify it’s company’s needs and quantify his expectations.
 
In order to understand the importance of a good business plan, you can picture it as a map to success where there are many roads, some bigger, some faster, and some which bring you to a dead end. Your local business center is a good place to get help to build a strong and realistic business plan. There are also a lot of examples and guidelines which you can find on the web. A better business plan will also help you get more financing opportunities.
 
Your plan will show others you have thought out the main area of your business; its concept, its product or service, its business revenue model. It will also give a general idea of the business cost and expected revenues.
 
Your plan is a base, not a concrete foundation you can’t change. In fact it need to be able to change and evolve. The only thing you can be certain is nothing will happen 100% as in your plan.  Your business will need to adapt and the faster you can evolve and adapt to the market reality the greater your chances will be to survive the first critical months and years.
 
The next few points explain mistakes you should avoid within your business plan.

 

Not identifying your target market:
 
While every business owner would like it’s products and/or services to be used by the largest number of consumers possible, identifying one or a few of these groups to target is a key component of success. It is also one of the first steps in a good business plan because a lot of decisions will be influenced by the demographics of your target market.
 
You should try to it narrow down to a segment that is going to be attracted by your new offer, then define this group according to their age, gender, civil status, profession, and other notable characteristics. Failing to identify a market segment may result in investing time and money to promote your products and/or services towards a group that does not offer a good payback.

 

Failing to identify or underestimate your competitors (whatever they may be):
 
The idea that there is little or no competition for your business should ring an alarm bell. It may mean that there is no or too little of a market for your company to be successful. Unless you have a patent that keeps competitor from using a technology essential to your type of product or service, there should be a lot of competition in your market.
 
Indirect competition is another type of competitor that is often overlooked. There are only so many products and services a consumer can consume because of his limited time and income. Let’s say you are an event promoter and you’re trying to attract customers for a fundraiser party which includes dinner and a dance show, but on the same night there’s a boxing match which people can buy on pay-per-view. Then your event comes into competition with stay-at-home entertainment. The two entertainment offers don’t seem connected at first, but might be a determining factor in the number of sales you will make at the end.
 
Pretending you have no competition is a sign that you did not think about all possibilities. There are always competition for people or business limited budget and time: a new car or a vacation,  a latte or a tea, driving to a store or shopping online, spending time with your kid or gardening? You get the ideal: there are always alternatives.
 
Why will product or service will be one chosen over something else?

 

Incredible financial projections :
 
Especially if you’re looking for financing, your projected income statement will be a key part of your business plan. You have to show not only the profitability of your business, but also the indicators that let you predict your sales and expenses. At the very least you need to show a road to profitability: the sooner the better.
 
You need to be realistic about costs and salaries and know how many sales it will take to break-even. Assumptions must be backed up by solid research giving potential investors confidence that your business will succeed.
 
Do not set overly optimistic scenario as it will not be considered realistic. It is better you keep your optimistic scenario to yourself and show conservative projections instead. By doing this if your original optimistic scenario is realized you’ll have over delivered and you’ll look like a star.

 

Underestimating financial needs :
 
New business owners tend to underestimate their financial needs because they buy more than they need to. From office supplies to furniture, to expert advice, to time; money flows out rapidly. Even your conservative projection may take twice as long as you thought to realized. It almost ALWAYS take twice as long to get to your goal(s).  Be prepared to take 2x as long: this mean you’ll spend 2x more to arrive to your goal. Expect it, worst case if it doesn’t take twice as long you’ll look like a business star.
 
As a new business owner, it is sound advise to get more financing than you think you will actually need. This will also come in handy when sales are not immediately paid in cash. In some businesses, clients have 15 to 45 days to pay for merchandise and this can be hard on your cash flow if you’re the supplier.

 

Lack of medium and long-term planning :
 
Even if you plan on making a killing in the early life of your new business, a lack of long-term planning can be a very big mistake. Experienced investors will want you to show them how you will use profits to solidify your company’s position on the market and insure it’s future. Even if it’s not for investors, take a bit of time to think about where your business will or may lead you.
 
Taking too much money out of your business in the first years of operations might result in cash flow problems down the line. Keep in mind that you’ll probably need to make new investments at some point to remain competitive.

 

Underestimating or not understanding the importance of marketing :
 
New businesses rarely set up a marketing department and a lot of new business owners see marketing as an unnecessary expense. They try to go from operations to sales without asking any questions about the market and the best tools to reach it. Marketing is an essential business function for any company and should accompany the other functions from product or service conception to sales and customer service. To limit expenses, you might want to outsource it, at first, to a marketing agency or get the advice of a marketing expert. There are so many blogs out there, you’ll find one about marketing in your market.

 

Hiring too many too soon :
 
As a new business owner you will most likely become a jack-of-all-trades. It will be tempting to get some help when you feel overwhelmed by your tasks. In what might feel like chaos, you must be prudent not to hire too many employees, but needed only hire for the most important positions and functions. Hire only for your core positions.
 
You are also better to do it yourself or outsource when possible to lower costs and earn expertise in your industry. Outsourcing accounting and payroll, shipping or outsourcing your site hosting will improve your management skills when the time comes for you to hire employees in positions you’re no longer able to fill yourself.

 

Lack of communication strategy :
 
For a lot of businesses, location is a key factor of success, but it would be a mistake to think that location alone will attract customers. Waiting for consumers to find your business is a recipe for disaster. Opening an ice cream stand on a boardwalk seem like a slam dunk for summer sunny days but how will you attract clients to your stand if the summer is especially rainy?
 
A well thought out communication strategy can make a big difference in your sales. Having already identified your target market and with the confidence that there is a demand for your product or service through your marketing; your communication strategy will then only consist in choosing the best tools to communicate the benefits of your product or service to your customers.

 

Contract mistakes :
 
A common mistake of small business owners is to rely on verbal agreements with partners when contract is usually signed. These types of agreements appear to simplify business relationships at first (they can for the first few clients because you really want to provide exceptional product or service and you’ll do everything you can to make them happy and return), but in the medium and long term this can lead to complex and even disastrous consequences when one of the parties decides to change the terms or end the business relationship.
 
It’s always a good idea to discuss the terms of the partnership and to put them down in a written contract signed by all the parties concerned. At minimum when possible confirm the terms in an email.

 

Underpricing :
 
New business owners often try to adopt a low price strategy to attract customers in the early stages of their company. More often than not low pricing is not the right strategy for a small business because of limited production capacity and keep your margin smaller.
 
This results in difficulty reaching economies of scale that come with a high production of goods and services. Before setting your price, you should calculate the fixed and variable costs of your planned production and set your profit margin. This mistake emphasizes the importance of marketing as opposed to under pricing in order to attract customers with the benefits of your product or service.
 
It is not true for all markets and product but providing a superior service or product usually help you charge more and make for better margins.

 

Trying to do everything yourself :
 
Although doing things yourself is an efficient way of reducing costs and keeping control on how things are done, you have to be aware that your time is precious and that some things may be done more efficiently if you outsource them. You should outsource activities which aren’t core to your business.
 
Focus on the core; the things you like and are very good at and let others do the rest by outsourcing it.

 

No management procedures :
 
In the early life of your business, clear lines need to be drawn between the responsibilities of each and all employees, if not the line will become blurred. This can be a good thing in the beginning, resulting in more efficiency and giving your employees a more global understanding of the workings of your company.
 
At a certain point, you’ll need to hire new employees who will look to you for guidance. Adjusting the guidelines at this point might create conflict with older employees. Consistency is key in management hence why procedures should be set from the start. An official document should be distributed to every employee defining policies for job performance, hiring and firing, vacations, sick leave, benefits, compensation, promotions and anything else judged important.
 
Tue, this is not something necessary to focus on until your company is successful but the sooner you have minimum procedures in places the easier it will make things when you have more employees. Think of the important procedures as what make your company a success for your clients. These are the process or procedures to maintain over time.

 

Focusing on short-term gain and forgetting about your long-term goals :
 
At some point, you’ll probably have to adapt your original offer to best meet customer demand. Especially if your business goes through a difficult period, it’s tempting to change things in order to make more revenue. Changes have to be made carefully and in consideration of your long term goals, in order to make sure they are not sacrificed for short term profit.
 
It’s all about balancing short term vs long term. Will too much short term change hurt its future or will it help it?  Focusing too much on the year ahead won’t help if you don’t have enough revenues to be profitable this year. Only you can answer this type of question. You must remember how your business was able to obtain its customer base in the past and that any future changes to your offer may affect them directly.

 

Obstinacy :
 
Even if you have to be careful with changing the way your business works and what it offers its customers, change is sometimes the only viable option. Resisting that need for change might be the last mistake your business will endure. You must remain aware of your business strengths and weaknesses and of your market’s opportunities and threats. Keeping an open mind to new ideas is key to long-term business survival. You must be able to adapt and change and so is your business.

 

Every business is different but each one face the same obstacles sooner or later. If you can avoid the above mistakes you’re probably on your way to success if it’s not already done!