Are you excited to start your own business? I don’t want to play spoilsport but while starting a new business is fun, keeping it running is a whole different game. But that’s not just my opinion. Research shows a whopping 20% of all businesses fail within the first year!
And most of them do so because of mismanagement and a lack of vision.
Let’s explore 7 common mistakes that affect new businesses and effective strategies to avoid them:
1. Not Having a Business Plan
A business without a business plan? Who does that?
More people than you think.
You’ve probably read about the 5 Ps: “Prior preparation prevents poor performance”.
Unfortunately, many businesses fail to create business plans before starting out. Yes, you may be an expert in your field. Or you may have worked out the math in your head. But without a plan, you’ll probably be missing out on something.
That’s why it’s crucial to make a thorough business plan. Without one, your business will probably be doomed to fail.
Without a business plan you’ll:
- Miss out on important expenses and other aspects that are easy to overlook.
- Lose startup funding opportunities.
- Lose focus due to a lack of benchmarks.
- Have a risky business model.
Even if you’re a born entrepreneur, you’ll need a business plan to avoid amateur mistakes that affect new businesses.
How to Create a Business Plan
There’s no “wrong” or “right” format to create a business plan.
Your business plan can be as short as 100 words or as long as 100 pages. What’s important is that it provides direction to your startup.
Ideally, you’ll want your business plan to cover these aspects:
- Finances: Costs and expenses.
- Goals: Long and short-term.
- Market analysis.
- Consumer profiles.
- Company positioning.
You can even use countless free business plan templates online to simplify the process.
2. Not Having Enough Financing
Like it or not, you’ll need money to make money. Unless you’re selling a service or personal skill, you’ll need some sort of financing to grow. Things like equipment, human resources and even a brand logo cost money.
You’ll also need cash in hand to stabilize your business in case anything goes wrong.
But how do you know how much financing is enough? Here are some pointers:
- Do a cost analysis of all expected costs. Include everything that comes to mind, including asset building costs.
- Do an expected revenue analysis based on your pricing model and expected ROI.
- Add a “buffer amount” for backup.
- Ensure you have at least 3 months of rent, wages and other crucial expenses as cash in hand.
This will give you a pretty good idea of how much financing you need. However, it’s almost impossible to be accurate until your business runs for a few months.
How to Get Startup Capital
Before, the only way to get startup capital was to go to a bank or dig into your savings. But that’s all changed in the digital age.
Nowadays, you can get startup capital through crowdfunding, cash investments, incubator sites or small business grants.
We’ve also seen successful cases of entrepreneurs using bootstrapping, but it only works if you have skill and some experience.
3. Having Unnecessary Expenses
Business budgeting 101: Don’t spend on things you don’t need! Unfortunately, this is one of the more common mistakes that affect new businesses.
Too many startups get enough capital to last years, but end up spending it all without any results. We’re not advocating for being too miserly but you’ll need to know that every dollar spent will generate a return.
But how do you shut the lid on unnecessary spending? After all, you won’t want to be stuck in a position where overthinking on costs affects your decision making.
Here are some actionable tips to keep your startup investment safe:
- Link every expense with a return. If you’re spending on a new laptop, the old one should be obsolete.
- Separate expenses into categories. Spending on unmeasurable marketing falls into the “unnecessary” category.
- Practice money-saving lifestyle habits.
- Use free tools where possible and scale later on.
Remember, you can’t control all expenses, but you can minimize most of them.
4. Hiring the Wrong Employees
Did you know that 76% of hiring managers say their greatest challenge is attracting the right employees? Hiring the wrong employees is one of the most critical mistakes to avoid when starting a new business.
Yes, it’s probably difficult to find the right talent. But that doesn’t mean you should hire the wrong person for the job.
Remember, talent and skills can be developed, but dedication and a will to learn come inherently. And it’s a will to learn and grow that you should look for when hiring employees.
I know what you’re thinking. “I don’t have time to teach basic values to my employees. I’m running a business!
We understand your position. And that’s exactly why it’s crucial to hire the right person for the job.
Here are some tips to help you hire right employees:
- Look for career commitment: If an employee changes jobs frequently or is willing to change career paths for slightly better pay, it’s a red flag. Ideally, you want someone to be with your company for a couple of years at least.
- Hire Interns: Want to cut down on employee costs initially? Hire a few interns. Be warned though, as interns won’t offer the skills and experience needed to grow your startup.
- Check the candidate’s learning skills: There are many tests to measure analytical and learning skills. Of course, some people are slow learners and this doesn’t make them bad employees, but you ideally want someone who can learn and adapt.
- Look for creativity: Creativity is hard to find in employees nowadays but it’s something that you should look for in a candidate. Of course, some jobs are “boring”, but someone with creativity will find a way to make it interesting.
These are only tips to give you an idea of the “ideal” employee. However, you’ll have to adjust based on what’s available.
5. Living in a Bubble
Do you live in a bubble? Most startup owners do.
This doesn’t mean you’re not adapting to new technology. Rather, it’s a psychological struggle that most owners face.
You’re living in a bubble if:
- You don’t have a Plan B.
- Your business isn’t adaptive to new technology.
- Your business has a rigid managerial structure.
- You aren’t open to ideas from subordinates.
- Your company is overvalued. (And you take the valuation seriously)
Unfortunately, this is one of the costliest mistakes that affect new businesses.
To avoid it, be open to new ideas and technology and develop a “Plan B” for everything.
When established businesses make mistakes, they can usually cover it up. But make a mistake as a startup and it could be the end of the road for your business.
Fortunately, most of these mistakes are easy to avoid with the right mindset. Remember, be proactive and don’t fall into the trap of overspending and your business will thrive.