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:
No/insufficient Planning:
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.
Underestimating the demands of business
“The biggest mistake startups make is underestimating the demands of the business. Documentaries and blogs about startups are making people think optimistically; this is because the information available does not highlight the hardships of starting a business, but it glorifies the end, which is a thriving business. Because of this, people think that a startup is easy and fun, when in reality, it is quite the opposite. Startups take most of your time and money. It can even ruin relationships.
Starting your business correctly
A successful startup is not built by one person alone, so surround yourself with subject matter experts and mentors you can lean on and learn from. Don’t be afraid of failure; instead, learn from your mistakes and pivot your business model as needed. Test new ideas and acquire feedback so you can tweak your product to better meet customers’ needs.
Although there are several startup mistakes you’ll want to avoid while building your business, occasional mistakes are inevitable. Don’t be too hard on yourself during the process. One of the best things you can do is take what might first seem like bad news, learn from it and put it to good use. With that mentality, business success can be right around the corner.
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