Thursday, August 29, 2013

Mistakes to Avoid When Starting Your Business

imageThis article was written by John Rau, SCORE Orange County Business Mentor

According to bizcoach (see http://www.bizcoach.org/factsf.htm), common problems faced by business owners include:

  • Lack of knowledge about what is happening in the business
  • Failure to understand business numbers and how they relate to one another
  • Not enough money
  • Not enough customers
  • Too much competition
  • Failure to look into the future and plan future decisions
  • Insufficient time
  • Rapidly changing technology
  • Lack of certain critical business skills
  • The mistaken belief that hard work will overcome all other deficiencies

The inability to successfully address these types of problems can increase your chances of business failure. This is important as statistics provided by the Small Business Administration (SBA) indicate that “two-thirds of new employer establishments survive at least two years, and 44 percent survive at least four years”. Other statistics suggest that 50% fail in the first year and up to 95% fail within 5 years. Clearly the odds are against you if you don’t do your homework and carefully plan the launch of your new business.

Susan Ward of About.com Guide in her article entitled “8 Things Every Startup Needs to know, How to Make Your Startup a More Successful Experience” (see http://sbinfocanada.about.com) points out what everyone contemplating their own business startup should know, namely:

  • The playing field is never level
    • Owners of competing businesses may have more contacts in your industry, they may have access to more capital (deeper pockets), and they may even have a stronger support network of family, friends and investors.
  • People will not be keen to give you money
    • Particular types of startups are considered to be bigger risks than others. Banks and other traditional financial institutions are notoriously reluctant to loan money to retail or service startups.
  • It may make sense to keep your day job, if you have one and can keep it, until you are confident that your startup business will survive
    • Don’t expect to make money right away. In some cases, you won’t make enough from your new business to pay your personal monthly bills for an entire year-and it could be even longer! Keeping money coming in while getting your startup off the ground may be the best short-term plan.
  • Plan first, do second
    • A seat of the pants approach is a terrible way to start a business. There are a lot of things that need to be done for you to successfully launch a new business, and just haphazardly deciding to do this is a great recipe for disaster. Create a startup plan and follow it meticulously.
  • No matter how hard you try, you will never have all the expertise that you need
    • Initially you need to form a team consisting of at least a bookkeeper, an accountant, an attorney, probably an office manager, perhaps a social media manager, and other specialist types to help get your business going. You can expand the team as your business grows and the need arises.
  • A good idea is not enough
    • It’s not the idea, but how the idea is developed and marketed that makes the money.
  • Every small business owner has to be a marketer/salesperson
    • You have to pay attention to marketing and sales, especially in the startup phase. You must become the “spokesperson” for your business.
  • You should set it up right from the start
    • Set it up right includes such activities as getting the proper business structure, necessary insurance, meeting legal requirements (business license, government permits, etc.), bookkeeping and payroll services established.

In the context of Susan Ward’s good advice above, it’s easy to make mistakes such as pointed out by Mike Michalowicz in his article entitled “The 10 Biggest Mistakes Made by Small Business Owners” (see http://www.cnbc.com). He lists the following:

  • Trying to do it all
    • The greatest mistake entrepreneurs make is to believe that they can do it all by themselves. Surround yourself with people who are strong where your talents are weakest.
  • Not being forthright
    • If your business tries to cover up a mistake, it is just a matter of time before word leaks out. Be the one to break your own bad news and you will be perceived as honest and trustworthy.
  • Having no clear marketing strategy
    • You never know where, when, or how a new prospect is going to hear of your business. If you have a mix of messages out there, the prospects will have an unclear expectation of what your business can offer. Your company must present a consistent, clear message on all fronts.
  • Cutting prices
    • Cheaper prices don’t necessarily mean more customers. Most customers are willing to buy more expensive items because of the greater quality or the added convenience.
  • Having no “rallying point”
    • Clarify the purpose of your company, beyond just making money, and you will set the stage for attracting like-minded employees.
  • Setting unrealistic financial goals
    • Set specific, measurable, accountable, realistic and time specific goals to ensure continual progress.
  • Being all business, all the time
    • Don’t put your personal life on hold to focus exclusively on your business. Balance your personal and business life and you will actually do better in both.
  • Being a weak leader
    • The success of your company is contingent on you being a strong, effective leader. Don’t try to be everyone’s buddy. Set the course for the company, communicate it constantly and inspire your team to get to the next level.
  • Assuming you have no competition
    • Even if you have the latest, greatest, never-been-done-before approach to something, don’t assume that you have no competition. Competition is more than just the direct, obvious competitors. Competition is also all the available alternatives.
  • Trying to get rich quick
    • If you go in expecting to be rich overnight, you may become discouraged early on and give up your dream prematurely. Success takes time, perseverance, and a little bit of luck. Give your business time to grow.

Try to avoid the above-listed types of mistakes and pay attention to what Susan Ward said above in terms of what you need to know. Her final word of advice is “Startup to succeed, not to fail”.