When entrepreneurs set out to start their own business, they’re usually very optimistic and overwhelmed with ideas. The last thing on any new business owners mind is the thought of their business failing. Unfortunately, this is a reality that many have to face, but little to no credit is ever given to possibly the biggest culprit of all, the owner! Yes the owner!
Statistics provided by the Small Business Association show that 30 percent of new businesses don’t survive the first two years and over 50 percent don’t make it past 5 years; sobering stats for someone tempted to put their time and effort into launching a new company.
I’ve never been a business owner, but I know a few people who’ve made unsuccessful attempts. Each time, there was some outside factor in why the business didn’t succeed; economic reasons, the banks, competition and even the customers, but hardly ever does a owner point the finger at themselves.
Here are the top 5 mistakes entrepreneurs make when starting a new business and tips for avoiding them.
Many new business owners make the mistake of not investigating the market in which they will soon be a part of; this is a very crucial step and should not be taken lightly. Without market research, you will be uninformed about your firms place within the business market. Researching helps to identify trends, where your product is most likely to sell, establish fair prices for your product, view domestic and international competitors and understand the customer’s needs. Market research also helps you discover what you’ve been doing right and more importantly, what you’ve been doing wrong. There are two types of market research, primary and secondary; they both have their pros and cons, you would just need to find which one fits your business type.
Lack of Planning
Anyone who has ever held a position within an organization or business, know that proper planning is a crucial component of building ANY successful company. You wouldn’t set sail at sea without a map, so why would you start a business without a business plan? Think of the plan as the organizational structure of your business, a blueprint for the future. The information gathered can help you foresee potential risks and develop strategies for dealing with them before hand. Banks and investors want to feel comfortable that your company will succeed before investing and want to see your plans of action. Think of a business plan as your companies resume. Even when the company is up and running, many owners refer back to their business plan to ensure the company is on track with meeting goals, sales, and operational milestones and even revise and refocus the plan if needed.
Many reports on business failures have poor business management at the top of the list. Weak and inexperienced management have damaging effects on employees and the companies themselves. New business owners frequently lack enough business and management expertise in areas such as finance, purchasing, selling, production, and hiring and managing employees. Unless they recognize what they don’t do well, and seek help, business owners may soon face disaster. Fraud is another aspect of business that owners need to be educated on. With tough times due to the economy, there are many who would prey on new business owners eager to get their business underway. With mastered interpersonal communication, an understanding of business finance and a proper vision, your company will be on the road to success.
Another mistake often made by entrepreneurs is underestimating the necessary amount of funding you will need to start your business and to keep it afloat. Businesses can take up to a year or more to get started and it’s important to have enough capital to survive this period. Insufficient capital restricts business capacity and makes growth nearly impossible.
The leading cause for companies going bankrupt is because of overexpansion. Owners sometimes confuse the company’s success with how fast they can expand, big mistake! Some owners move into markets that aren’t profitable and too much money is borrowed to keep the company’s growth constant; sometimes less is more. You may want to think about expansion if you’re having difficulty keeping up with product demands or if you can’t fulfill customer needs in a timely manner. Once a solid customer base is built and steady profit is seen, then work on developing and expanding your company.
Many entrepreneurs underestimate the difficulty in starting a new business. These five steps can shed some insight on what not to do and some helpful tips to ensure successful longevity in today’s business world.