In this article we will address the following five mistakes:
- Not having a plan
- Insufficient start-up capital
- Not identifying your market
- Not knowing the competition
- No support system
We will also provide some ideas that will help you avoid these common missteps.
Not having a plan – many businesses start from a dream that is just an idea in the entrepreneurs mind that eventually becomes a start-up business. Many other businesses are born when someone who is working for someone else realizes that it is his expertise that is the most valuable asset to his employer. Then he realizes how much the business owner makes from his efforts and decides to cut out the middle-man (his employer) and go out on his own. Generally businesses that start this way do so with no formal plan. The newly independent business owner may bring some of his former employers clients/customers with him as a jump start to his business or he may go out and generate his own new clients. Either way this business owner is intimately familiar with the operational aspects of the business (e.g. a heating and cooling technician knows very well how to fix a heater and cooling system), but many times he knows little or nothing about the other aspects of the business (e.g. how to find and capture new clients, how to manage cash flow, maintaining the accounting records, etc.)
Insufficient start-up capital – this is by far the most common reason that new businesses fail. Entrepreneurs as a group are typically more optimistic and willing to take chances than their counterparts who work for others. This can lead them to jump in to a new venture assuming the best case scenario. When these entrepreneurs encounter a slow period in generating revenue they can get in to deep trouble if they don’t have adequate cash reserves to pay the bills and ride out a lull.
Not defining your market – Whether starting a new concept or breaking off from a former employer to do the same type of business on their own, many business owners fail to properly define their market. The HVAC repair technician may know very well how to repair an HVAC system, but he may have no idea who the best prospects are for his services. Not knowing their market these new business operators may waste valuable time and money going after the wrong market. Couple this with insufficient start-up capital and a small amount of time spent chasing the wrong prospects can lead to disaster.
Not knowing the competition – By knowing who the players are in your industry you can help define your target market based on your own strengths and weaknesses compared to the competition. Many entrepreneurs never identify or articulate effectively their unique selling
proposition (USP). In other words, why should someone hire them instead of their competition. If they don’t know their competition how can they hope to effectively communicate why they are a better choice?
No support system – A support system could consist of a formal board of directors or it could be a loosely affiliated group of people who can act as advisors to the entrepreneur. There are many categories of expertise that advisors could come from, but each business owner’s strengths and weaknesses should guide their choice of advisors. If you’re background is operations and you know nothing about accounting and finance then having a good accountant and banker on your team would make sense. Someone who was an accountant in their previous profession might best be served by having people with operational or marketing expertise on their advisory team. Whoever you decide to have on your team they should compliment your strengths. You aren’t looking for yes men when it comes to assembling your team.
With these common mistakes in mind a new business owner can avoid being a statistic by focusing on their goals, developing a plan that outlines in detail how they will achieve their goals and by establishing a support system of people with strengths in their own area of weakness. Taking these few, simple steps won’t ensure success, but it can position you better to deal with whatever challenges that come your way.