Thousands are being thrown out of work each day and many more fear for the security of their jobs in the short term future as the big Western economies continue to struggle with big economic worries.
You may be one of these people thinking about escaping this employment trap by starting your own business.
But quoted failure rates for start-ups can often seem scary with a high probability of failure.
The Small Business Administration (SBA) estimates that two-thirds of new establishments in the United States will survive two years; only 44 percent will survive four years. After that the survival rate drops to 31 percent, when the life of the business reaches seven years.
Personally I think that’s remarkably good given the huge changes needed to move from the world of employment to entrepreneurship and self employment.
It’s a credit to the hard work of ambitious new business owners committed to doing whatever’s necessary to get the business established.
There is a big difference between a business owner with a business that survives and struggles, giving a return less than the owner would receive back in the world of employment and a business owner with a thriving business which generously rewards the risks being taken.
5 Mistakes To Avoid When Starting A Business
These fives big mistakes come from an article on Bankrate.com
- Using your heart, not your head
- Underestimating cash needs
- Skipping the market research
- Limiting your understanding of the business
- Treating the business like a job
All make a lot of sense so let’s dig into the five start up mistakes
Start Up Mistake 1 – Using Your Head, Not Your Heart
It’s great to be passionate about a business idea but that passion needs to be grounded in reality.
In the UK we have a TV show called Dragons’ Den where entrepreneurs pitch for start up/development cash from multi-millionaires. Sometimes it’s like car crash TV where you hear people spending their life savings on an invention which has no market potential.
Too many business owners I speak to as a coach have never got clear in their own minds, how their business model works in terms of generating profit and cash and haven’t defined the key performance measures they need to be tracking.
Basically, apart with gut feel and and an eye on the bank balance, they have little idea of what is happening in their own small business and can’t spot problems and opportunities early enough.
I cover this in Pillar 1 of my Eight Pillars of Business Prosperity in Your Profit Club, my small business membership site which is free to join as a bronze member.
Start Up Mistake 2 – Underestimate Cash Needs
Lack of cash is the classic reason why many start-ups struggle to get established.
Finance management is often a big weakness in those switching from the world of employment.
If profit is not well understood for a specific business, it is even more the case for cash flows and the cash trading cycle.
Again I cover this in Pillar 1 at yourprofitclub.co.uk
So why do businesses run out of money?
Well some business owners are extravagant in their early spending – a fancy website when a basic one suits their needs, fancy logos and stationery before they’ve worked through and proven their marketing and the trappings of success to present the right image.
Most are frugal, watching every penny very carefully but they still get caught out with their cash resources stretched to the limit.
That’s because the big issue is creating cash producing customers quickly.
It normally takes much longer than expected to win those first few orders, supply them, invoice them and finally get paid.
So cash receipts are slower coming in but those regular payments need to keep going out.
There is a naive assumption that customers will buy from a new business because it is there to satisfy a pent up demand. That success is just a case of opening the doors and saying “here we are, ready to take your money.”
Sadly it’s not true.
Lead generation and lead conversion (covered in Pillars 4 and 5 of yourprofitclub.co.uk) are particularly tough for any new business owner unless they are well grounded in sales and marketing. Even then, there is a huge difference between doing it all yourself and being supported by the team you used to work with when employed.
Start Up Mistake 3 – Skipping the Market Research
What is it that customers really want and are willing to pay for?
There are plenty of techniques to use if you want to find out but the real rubber meets the road when the product offering/promotion is placed in front of a customer and they have to make the buying decision – Yes or No?
So start small and test?
This is not he time to order 10 container loads from China for an unproven product with 90% of your life savings even if the unit buying price looks a real bargain. It’s much better to prove demand first, even if the small batch sizes mean you have to sell at a loss than to see your vital cash sink like the Titanic in products that can’t be sold.
Start Up Mistake 4 – Limit Your Understanding Of The Business
How well can you quickly explain what your business does for its customers?
My advice is to think beyond the basic product and service so you can explain the benefits of what you do.
The more what you say stands out from your competitors and feels unique (in ways that matter to the customer) the better.
“Hello I’m an accountant” brands you as a commodity… just like the other twenty accountants in town. “I help start up businesses become profitable quickly and keep a large proportion of those profits out of the hands of the taxman” is much more appealing.
Think elevator pitch and even shorter expressions which capture the essence of your business in a compelling way. I really like the ideas in Mark Joyner’s book The Irresistible Offer which is subtitled “How To Sell Your Product Or Service In Three Seconds Or Less”.
Your business understanding doesn’t stop there.
My advice is to keep learning about business with an open mind and look to borrow successful ideas from what you see and experience as a customer yourself together with reading business books and courses.
Just remember to focus on implementation. A growing list of ideas on your To Do List suggests that you need to spend more time putting things into action.
Conversely, if you can’t think of something new you’ve done in your business in the last week or two, you should start looking for ideas to try.
Start Up Mistake 5 – Treat The Business Like Any Other Job
Mike Gerber was the first to recognise the different hats that business owners have to wear in his great book The E Myth Revisited – the technician doing the work, the manager getting others to do the work and the entrepreneur who builds a sustainable business.
Unfortunately too many small business owners get trapped at technician level, thinking and acting as if they were just an employee getting the job done and the business itself is structure-less and directionless.
This trap holds back the business and especially when things get tough. The technician only knows how to do the work – you have learn how to become a business builder.
Do You Agree With These Start Up Mistakes?
It’s always nice to get relevant comments on a blog so do you agree with these start up mistakes made by new business owners? Or is there another big mistake that’s missing?
Do you have a story to share?What Business Opportunity That Will Make Lots Of Money?