Starting a small business has become very popular, but many fail.
According to the Bureau of Labor Statistics, as of 2021, 20 percent failed in the first year, 50 percent within five years, and by ten years, only 35 percent survived.
Fact is, founding a startup is difficult and there are many pitfalls along the way. If you have a brilliant, original idea for a business, congratulations!
But now the hard part starts. Over the years, entrepreneurs have tended to make various common mistakes that new entrepreneurs can learn from and try to avoid.
1. Trying to do everything on your own
A lightbulb moment for a new product or service doesn’t turn into a successful business overnight and certainly not through the efforts of just one person.
It’s very good to have confidence in your idea, but that does not mean you and only your ideas and efforts are sufficient to grow it into a viable business.
You have to throw the idea around a bit to see if it will fly. Talk to friends and family by all means, but don’t leave it there. Reach out to the local business community for their take on your idea. Attend business networking events and start forging contacts and building relationships. Do your best to find a mentor; many successful entrepreneurs say they wouldn’t have succeeded if it wasn’t for their mentors.
2. Not including the people that matter the most
Many have called this the most devastating mistake an entrepreneur can make.
Many startups have failed over the years because the founders were so convinced of the merits of their brand new offering that they took it for granted that prospects would also love it.
Many entrepreneurs whose startups failed first developed their products before getting feedback from potential buyers.
Entrepreneurs have to make sure that their product or service will be of actual use to people and add value to their lives. Before you get too excited about your idea, ask yourself these questions:
- What problem does it solve?
- Will people be prepared to pay for the solution?
- Have I pinpointed a real, legitimate need and will my solution improve the lives of my prospective customers?
Bottom line: if you want to know if your idea has any merit, talk to people. They will tell you what their pain points are and if your solution is the solution or needs some tweaking. Some go so far as to advise new entrepreneurs not to build anything until they’ve sold it.
3. Not budgeting for marketing and underestimating how much it will cost
This is a common mistake among inexperienced entrepreneurs.
Many people, not only new entrepreneurs, underestimate the importance of marketing. Any and all products are in need of marketing.
It doesn’t matter how unique your proposed product or service will be, the competition is out there, ready to capture market share. To stand out in the crowd, you need a professional marketing campaign.
Marketing professionals will help to build a marketing strategy and hone your brand message. The right team will ensure that all your communications are on point and delivered to the right people at the right time. That costs money.
The thing is, if you skimp on marketing and advertising, the market will not be aware of your offering and you would have wasted a lot of time and effort.
The opposite is also true: if you excel at marketing, it doesn’t matter what you are offering; someone will buy it.
4. Lacking sales experience
The vast majority of entrepreneurs are not salespeople. Selling is a specialized skill, and while you can enroll in a sales course, most are focused on sales techniques for established companies, not startups.
New entrepreneurs worldwide experience difficulties with this aspect of the entrepreneurial journey.
- Many struggle to develop a list of prospects and identified prospects are often unavailable for consultation. It’s difficult for small, unknown companies who have not proven themselves yet to secure the time of busy professionals
- Few people are born salespeople. Many entrepreneurs struggle to highlight their offering’s unique selling point.
- Poor accounting practices have torpedoed many new businesses, one of them being responsible for accounts receivable and the business running out of money as a consequence.
- Under pressure to make that first few sales, many inexperienced founders cave and offer price discounts that are not sustainable in the long term, jeopardizing the venture’s long-term pricing strategy.
5. Inability to handle objections from prospective customers
This is not really something that entrepreneurs are doing wrong, but it is an aspect of entrepreneurship that represents a real hurdle for founders, and that they need to prepare for.
Research by Vincent Onyemah Martha Rivera Pesquera highlighted the unique objections faced by startups which are not the same as those typically faced by established brands.
- Lack of confidence in a young company. If the founder is young, questions about age, background, gender, and experience level are raised.
- Lack of confidence that the product or service will actually be beneficial and solve the prospective customer’s pain point.
- Lack of willingness to deal with a small company with no track record.
- Inability to counter prospects’ unwillingness to pay a reasonable price in the belief that early users are entitled to special low prices.
The inability to effectively counter these objects has led to some startups settling for too small margins, which affects the company’s profitability in the long run.
6. Poor business planning
Most entrepreneurs are so passionate about their proposed new product or service that they devote all their time and effort to perfecting it.
There is nothing wrong with it, except that a successful startup is more than its innovative offering; it’s a business and businesses need sound planning, including a sound business plan.
Entrepreneurs who fail to treat their venture as a business, and don’t draft a well-laid-out business plan at the very beginning, set their ventures up for unnecessary challenges.
Drafting a business plan forces you to answer important questions:
- What’s your marketing strategy?
- What differentiates your project from those of your competitors?
- Who is your customer base?
- Where will customers buy your product or service—in-store, online, or both?
- What are your cash flow projections?
- Will your cash reserves last long enough?
- What will your personal and business expenses be?
Answering these questions will force you to be realistic about the prospects of your idea to succeed and what areas you need to pay attention to in order to promote its success.
7. Not enough market research
Many entrepreneurs underestimate the importance of market research. If you don’t conduct sufficient market research before you start your venture, you’ll miss out on important insights:
- Understanding your target market
- Identifying consumer problems
- Pinpointing and assessing current competitors
- Assessing competing products and services on the market
- Understanding current market trends
8. Underestimating administrative tasks
Boring administration tasks don’t seem like something that could sink a company, but it’s a large chunk of what it takes to run a business and if you don’t pay attention to it, you can easily become overwhelmed.
An entrepreneur has to manage employees, monitor inventory, do the bookkeeping and accounting and a myriad other tasks that takes them away from their primary interest, which is to perfect their offering. Research has shown that entrepreneurs dislike administrative tasks as they eat into their workday.
Neglecting to hire assistance and not using technology to take care of routine tasks can pose a threat to a fledgling business.
9. Poor management
This is the number one reason why new ventures fail.
It’s a simple fact that a person who can come up with a viable product or service doesn’t necessarily have the business acumen to run a business – that requires a different skillset, which an entrepreneur might or might not inherently have.
In addition, founders often don’t have strong managerial skills and don’t have sufficient time to supervise those working with them. Running a business entails hiring, marketing, accounting and other tasks that require a dedicated management team.
Without such a team, certain business aspects may suffer through lack of management or poor management. Committed entrepreneurs who want to succeed, outsource the tasks they don’t have time for or don’t do very well.
A strong management team is a must for startups that want to succeed far into the future.
10. Not leveraging data and data analytics
Entrepreneurs who don’t gather data about their activities, their customers, and their finances drastically limit their ability to make data-driven decisions, as well as the company’s ability to succeed in a competitive market.
If the company is faltering, you can leverage your data to determine where the problem lies, and what business decisions to make.
Entrepreneurs who make business decisions that are not based on reliable data, are acting in the dark.
Data and data analytics are essential to run any business successfully.
Data analytics uses your raw data to answer questions like: Who is the target audience for my product? What’s the market size for it? Which marketing channels are producing the most leads?
Data analytics can warn you if your team is wasting time on features that customers are not using, so you can change your product development decisions. Data and data analytics are invaluable tools that entrepreneurs ignore at their peril.
11. Hiring mistakes
There are a number of hiring mistakes that entrepreneurs need to avoid.
- Hiring the wrong people. Entrepreneurs must know when to hire generalists and when it’s time to invest in experts. Initially, most startups need all-around generalists who can perform a range of tasks. As the company grows, the company will depend on the services of marketing, financial and human resource specialists. Founders who are reluctant to take on the expense, run the risk of their business faltering.
- Hiring too soon. Hiring people when the business can’t afford it yet has been the downfall of many startups. Appointing a person full-time when a part-timer or a sub-contractor will do, makes financial sense.
- Hiring low-cost workers. Startups are often strapped for cash and then it’s tempting to limit expenses by hiring low-cost employees. The thing is, this will certainly cost you in the end because these workers may lack skills, experience, or commitment.
12. Picking the wrong partner
While it’s prudent to go into business with a partner, choosing the wrong partner can sink your business down the line.
Business partners are like spouses: working with them day in and day out, you get familiar with the best and the worst of them.
But here is the point: you need to know the worst before you even consider entering into a partnership. You have to be sure that your partner will invest as much time and effort into the venture as you. You also need to know how the person responds to pressure, because getting a business off the ground is synonymous with loads of stress.
Too many entrepreneurs have gone into partnerships with people that they thought shared their goals, but turned out to be freeloaders.
Before you commit to working together, get to know the person well, ask around about the person and take your time to make up your mind, otherwise you might pay a hefty price down the line.
Being an entrepreneur and getting a startup going is not a walk in the park.
Many things can go wrong and do. One of the things founders can do to prepare themselves for life as an entrepreneur, is to read articles like this to gain as much information as possible about the challenges that they will have to deal with.