There is a ridiculously high percentage of small businesses that fail in the first couple years. The business owners who survived the odds will tell you that they didn’t achieve success on sheer passion alone. It took hard work, and in most situations, it didn’t happen overnight.
Here’s seven of the most common mistakes newbie entrepreneurs make with alarming consistency.
1. Not setting aside enough cash reserves to support yourself
I believe that one of the reasons why so many small businesses fail within the first few years is NOT because the business model is bad, or that the entrepreneur isn’t “good enough”, but it’s the fact the financial ramp up time is harsh. Most entrepreneurs simply run out of money to support the business and/or themselves before the business is profitable enough to sustain itself.
Tip: Proactively set up a special fund intended to support yourself during the business startup phase. Be conscious of what you put into this fund as you may want to strive for an amount that can fully support you for a year or two to relieve pressure as you ramp up.
2. Using assumptions that are overly optimistic during planning
I see so many newbie entrepreneurs fall into this trap. They have a great idea and convinced their friends and family that it’s a no brainer. They jump into the fray only to realize there were a few not-so-little details that they failed to consider or a few areas where their assumptions were overly optimistic and before they know it, that “no-brainer” business is hanging by a thread. Be honest with yourself. Are you underestimating the time required to get the first client? Are you overestimating the demand for the product? Are you assuming zero risk by not allowing for what could go wrong?
Tip: Find three to five completely objective people (not friends or family) and specifically ask them to play devil’s advocate to you to help identify vulnerabilities and then take steps to mitigate those. Have the critique your idea thoroughly
3. Not properly evaluating your business model
It’s so easy to get over yourself around the concept of your business, but it’s quite another thing to put pen to paper. This actually helps you objectively evaluate your overall business model and its profit potential. The simple truth is that having a great idea is just a start – it doesn’t necessarily translate into a profitable model.
Tip: Consider a small-business development center, or a trustworthy successful business person or a great teacher/lecturer to evaluate the business model and offer expert advice. Their perspective could identify a more viable structure that makes better business sense than what you’ve already established.
4. Trying to do everything yourself to save money
If you try to do EVERYTHING yourself, you’ll not only run yourself into the ground, your business will suffer, because you don’t bring sufficient expertise in every area. Your time is money. Think about where you must personally invest your energies. You should be developing and refining your content, products and services, cultivating relationships with key clients and stakeholders, developing credibility within your industry. No one can do this for you. That said, others can develop your website, handle your public relations, develop templates for your newsletters, make trips to printers and copiers and perform random administrative functions. Utilize them.
Tip: The key is identifying what to outsource and what to keep. A good rule is that if it’s not part of the core competency of your specific business, you have little expertise in the area, it’s time consuming and there are many suppliers who can provide the service at a reasonable cost, consider outsourcing.
5. Not being willing to work like a dog during the early days
I’m amazed how often I run into people who’ve recently launched their businesses, but they seem shocked that they’re not making six figures while working a 25-hour work week. They seem to have this glamorous view of entrepreneurship where they get to start at the top and skip all the hard work. The simple truth is if you want to make it, most startup businesses have to hustle early on. This might mean working another job while you’re starting your business, volunteering or doing some work for free to gain experience and exposure. It also may mean working nights and weekends.
Tip: Before jumping into the startup world, really evaluate your current lifestyle and realize you will most likely have to give up a huge chunk, if not all, your free time.
6. Pricing your product or services too low or high
In my business I often respond to request for proposals. Years ago, I’d been submitting proposal responses annually to a large governmental agency. After about four years of consistent rejections, I got a tip from a colleague that my pricing was too low to be considered seriously. That year I doubled my pricing on the same classes and was selected for the first time. On the other end of the spectrum, you don’t want to charge say 20,000 a day and expect to get the job.
Tip: Do your research to see what others are charging. It’s much smarter to offer value pricing initially, prove your value and then raise prices over time. In many cases asking clients for their budget will not only give you an idea of what to charge, but it could minimize the risk of severely underpricing or over pricing your product or services. You may also consider providing different pricing options to increase the likelihood that you’re offering something within your client’s price range.
7. Not having a growth strategy
We all know of a restaurant that was great when it first opened but after expanding the food or service went downhill. They then developed a bad reputation and eventually closed. Don’t be that business. While most small businesses think the goal is to win as much business as they can, this isn’t necessarily true. Sometimes, you can attract too much business and then have a completely different challenge that could threaten the longer term viability of the business completely.
Tip: Think about how you want to grow and develop a high-level growth strategy fairly early on (even if it changes as time progresses).
By Dana Brownlee: President of Professionalism Matters