So you want to start your own business? Get ready to make mistakes!
Starting a business sounds simple, right? You’ve come up with a brilliant idea, read a few business books and are all caught up on Shark Tank. The rest should take care of itself!
Well, the reality is quite the opposite. Starting a business is hard. You’ve heard the stats: by most estimations, 33% of companies will fail within the first two years and 50% of businesses won’t see their 6th year.
So why do we do it? Maybe it’s the hopes of becoming the next Mark Zuckerberg or Jeff Bezos. Perhaps you are driven with the passion of solving a huge problem, or maybe you’re just looking for some freedom and an escape from the corporate 9-5 life.
Whatever your purpose, the likelihood of success is small. Luckily, we’ve gone ahead and highlighted some of the mistakes and traps entrepreneurs make when starting their first business. Read on, and hopefully, you will be able to avoid these common pitfalls.
1. Not planning ahead A proper business plan will help you structure your business, forecast your expenses and revenues, identify the market and roadmap your marketing plan. Running a business without a plan is like driving a boat in the ocean without a compass. You may arrive at the destination, but the odds are not in your favour.
2. Not keeping a close eye on the financials Creating a business plan is necessary, but as you can imagine, business rarely goes according to your predictions. Cash is the lifeblood of every organization; it’s the oxygen that keeps everything going. One of the most important jobs of an entrepreneur is to keep tabs on all money coming in and going out of the business at all times. It’s not enough for your accountant to tally up your figures at the end of every quarter or every month, entrepreneurs need to understand exactly how their money is made and where it is spent.
3. Thinking you can do it all yourself. Entrepreneurship is hard enough. You don’t need to go at it alone. Most entrepreneurs understand that they will need to hire employees – and they will – but many chose to sacrifice professional services thinking either that they can do it by themselves or because they think it’s too costly. Having a competent lawyer, accountant and banker will help you lay the proper foundation for success early on and help you avoid common startup mistakes that will cost way more in the long run.
4. Either underspending or overspending. There are two traps to avoid when it comes to managing the cash flow of a business. On the one hand, many entrepreneurs skimp out on essential aspects of the business such as underspending on employees or marketing – leaving you with under-qualified workers or the inability to reach your potential consumers. On the other hand, some businesses splurge on lavish office spaces, catered lunches, and fancy equipment. The key to managing a business is allocating your budget to what’s important and being resourceful on the aspects that are less important.
5. Not pricing your product or service appropriately. The most critical driver or revenue for an organization is pricing. If you price your product too low, you may be leaving money on the table or worse may not be covering your variable and fixed costs. If you price your product too high, you may alienate potential customer or drive competitors to undercut you. Entrepreneurs need to analyze the unit economics of their product or service as well as the competitive landscape before getting out into the market.
So there you have it. While there are countless mistakes a business can make, if you can avoid these five, you should be well ahead of the game.