Whether you are planning to turn your hobby into a business or you have global aspirations, many of the pitfalls in the early stages are very similar.
Not only that, they have been faced by hundreds of thousands of start-ups that have gone before you. We have collated some of the most common traps, to help you avoid having to experience them first hand.
The press often like to shout about how many businesses fail but, as you will see from the list below, many of the reasons for closure can be avoided with some careful planning.
Don't Get caught!
Inadequate market research
Possibly the most common error and the easiest one to make. Confidence and positive thinking are admirable traits until they prevent you from taking the time to identify if there really is strong enough demand for your business.
Failing to plan effectively
Even the most successful businesses experience seasonal variations and/or peaks and troughs. Make sure that you allow for this in your plan.
Not enough capital
Assessing small business start up costs is tricky. Most business owners project operating costs to the point of break-even. (The break-even point is when income from the business equals the expenses to stay in business.) Start up costs should include all the costs required to open for business, and all the operating costs to the point of profitability. This means that the ‘break-even point,’ should be when the owner estimates he or she will be able to get paid the minimum salary required. Estimating start up costs should include the following:
Start up purchase costs
Equipment, furniture, insurance, business licenses, etc.
Utilities, telephones, out-sourcing, insurance, business licenses, etc.
Even big businesses often have no idea how much they will need to spend to bring in enough business. Most can only estimate this.
Product or inventory costs
The purchase and/or financing costs of inventory.
Holding costs (of products or inventory)
If inventory is required, housing, insuring, and handling inventory can become expensive.
Spending too much
While this seems to be easy to avoid, this is one of the most common start up mistakes. One distinct advantage of the home-based business is low overhead, but many of these business owners buy services they don’t really need, or max out their credit cards on equipment, computers, mobile phones, PDAs, copiers, printers, and other gadgets. Don’t buy anything unless you know you need it.
Lack of knowledge
Most people do not lack the knowledge about the industry they start a business in, but about business in general. Just because you know your stuff at your job, does not necessarily mean you could succeed on your own. Leaving a job to start a business even in the same industry means:
You wear all the hats
– While in your job you might be responsible for purchasing, in your business you’ll also have to fill all the other roles such as customer service, human resources, management, custodian, delegator, administrator, filing clerk, office manager, payroll administrator, consultant, and CEO.
The buck stops with you
– This one is huge. So many people get overwhelmed in their own business because they did not account for the seemingly boundless obligations.
Sticking to the Law
– You need to know what laws your business is subject to. This includes licensing and permits, employees, insurance requirements, tariffs, taxes, payroll withholdings, record keeping, and more.
There is an enormous amount of expertise required to operate a business.
Financial management and forecasting, profit and loss
The product or service itself
When in a pressure situation, many owners take shortcuts, make poor decisions, and choose sub-par services.
Inaccurately defining the market
A small business can easily exhaust all capital in advertising. Whether it’s traditional print ads or pay per click, if the target market is not reached, the mistake could be realised too late.
New small business owners often start without a plan or fail to follow their plan. Learning to prioritise, organise, and improvise can be new to people who have not worked in management positions.
Lack of contacts and services
There is nothing worse than needing a contact for a business transaction, and losing the deal before you can find the help. Having no or poor subcontract services can leave you scrambling to find help.
This mistake can include inefficient marketing, poor content, ill timed advertising, wrong target market, and overspending, and many more. Learning your market and how to get business could be the most important aspect. Having more than enough business can compensate for mistakes or shortcomings in other areas.
Failing to rectify mistakes
Sometimes business owners fail to recognise mistakes, but even worse, when they do spot them, they do nothing. This happens for several reasons. If the business owner has come from an employment, many times he or she does not fully grasp that the buck now stops with them. These owners often become immobilised in the face of a blunder, and do nothing. This is where a business mentor can be a lifesaver. Every new business owner should have a seasoned mentor to turn to in turbulent times.
Refusing to delegate
Small business owners are usually ‘take charge’ people. They know their businesses better than anyone else and can do every job. These owners often retain duties and responsibilities far beneath their capabilities and not in the best health of the business. Like the Captain of a ship refusing to give up swabbing the deck because he felt no one could swab a deck like him, these owners hold on to tasks. Many a business ship has run aground with clean decks.
As a small business owner, you must decide which jobs would be better off delegated or out-sourced. Do not hang on to any duty, which would be better delegated. Some people might do the job differently than you, but effectively reach the same results.
Time is money. There are so many distractions in today’s world of business. Few people manage their time effectively. Phones, email, the Internet, online meetings and software updates, can consume your time if not used wisely.
Home-based business can even face additional interruptions from family and chores.
You have to be self-motivating
When you’re an employee, you have a job description and someone is usually telling you what to do. You will be in charge of your own actions as a small business owner. You can’t just wait for business to happen. Becoming self-motivated with the kind of discipline needed can be a tough adjustment for people coming from long-term employment.
Starting a business takes energy
You can’t afford to just coast along, go through the motions, or get burnt out. If you feel like quitting, you cannot just give two weeks notice and leave, without losing your investment and future income. Many new small business owners cannot even afford holidays for several years.
You have to be aware
Again, the employee might not be trained to look for new opportunities. As a business owner, this is imperative. The chance to get new customers, move into a new market, offer a new product or service, could be missed if you’re not aware.
You need to adjust to uncertainty
As an employee you are pretty much guaranteed a regular pay-check. As an entrepreneur, there’s no guarantee. You will deal with the uncertainty of the fluctuations of the economy. However, you can learn or acquire the skills and traits needed to start and run your own business. You will not have a boss; you will be calling the shots. The successes of your business will belong to you.
There are plenty of potential pitfalls waiting for the new business owner - the trick is to learn from those who have already been caught and make sure that you find ways of avoiding the same fate.
“I have not failed. I have just found 10,000 ways that won’t work.” – Thomas Edison