How many business owners fail intentionally?
But we see it daily!
A new store opens, and you think, “Why on earth would someone open that there?”
Sure, the owner wants success, and they put their heart and soul into it, just like us.
But the sale signs inevitably go up; discounts rise weekly until one-day, without notice, they’re gone.
Then another wanna-be entrepreneur comes along and does it again!
Why all the lemons?
Mainly down to a lack of experience; after that, there are 7 mistakes to avoid when starting a small business.
Mistakes include inadequate market research, a lack of cash flow, burnout, increased competition, not planning, being too optimistic, and going out of fashion.
I’ll tell you all about those and what to do instead; that way, you won’t need to learn from experience!
Sure, it would be a mistake not to read on, right?
1. Not doing market research
Starting a business without conducting market research is like diving headfirst into a pool without checking the depth.
You wouldn’t, would you?
Market research dips your toe in the water before committing everything you’ve got on a hope and a prayer.
- Market research identifies your competitors to establish whether you can afford to compete and find their weaknesses, like low-quality products or missed marketing opportunities you can take advantage of.
- It establishes your target audience and provides demographic information, like age, employment status, and shopping habits you can use to create successful marketing campaigns.
- And validates your business idea to ensure your target market needs what you’re selling and will pay the asking price.
Without this information, you could invest in a product or service that no one needs or use marketing strategies that fall on deaf ears. Either way, it`s bad for business.
Say you open a coffee shop in a busy area assuming people will come because it’s new and has excellent coffee.
However, after investing in your location, equipment and hiring staff, you realize several established coffee shops in the area already sell excellent coffee and have a loyal customer base.
Now, you’re in the s***, and will need strategies to convince the coffee-loving public to convert to your establishment.
How to do market research:
- Define your target audience: To create a successful marketing campaign, first, identify your target audience and demographic information, such as age, gender, income, location, and where and how they buy what you’re offering.
- Analyze the competition: Research your competitors’ strengths and weaknesses, pricing strategies, online presence, and marketing tactics to identify any areas you can do better in.
- Conduct surveys: Gather feedback from potential customers, understand their needs and preferences online or in person, and offer incentives to increase participation.
- Use market research tools: There are loads of resources available to conduct market research, such as:
- Google’s Keyword Planner – Search keywords and see the demand for your idea in specific locations.
- SurveyMonkey – Create customized surveys you can send to your target audience. Suits established businesses with email lists.
- SEMRush – An SEO platform that enables you to see your competitor’s SEO strategies, review keyword metrics, and your organic ranking compared to your competitors.
- Quora – Where real people say how they feel about products and services they use. So, if you want to know, look at Quora.
- Google Trends – A great place to start your research campaign as it shows how often people search for specific terms in geographical areas.
NOTE: An easier way to survey your target audience is to look at your competitor’s reviews and their social media accounts to see what people say.
After all, their customers are your ideal clients, right? Look for consumer praise and complaints about their products or services, then provide a better solution.
Remember, your market research is how you’ll beat your competitors, such as designing a better product or providing a more efficient service, and that’s how you’ll establish your brand and convince your target audience to change their allegianc
2. Overestimating your cash flow
Cash flow is the money coming in and going out of your business, and if it runs dry, it can lead to serious financial problems, such as a failure to pay your bill.
Here’s a chilling statistic:
A recent U.S. Bank survey found that “82% of small businesses fail because of cash flow problems.”
And if you’re not prepared, it could take only one slow month to suffer a similar fate!
Say you run a retail store and have a slow sales month. Now you need help to pay your bills, rent, utilities, and payroll. The knock-on effect can cause late or missed payments, damaging your relationships with suppliers and vendors.
Managing cash flow:
Begin by monitoring your income and expenses. Do this for 3 months to get an idea of how much cash you have left after one complete quarter. Next, create a cash flow projection spreadsheet predicting how much you’ll earn and spend for the following 3 quarters, considering things like holiday seasons and anything else that might increase or decrease your income and expenditure.
While this isn’t absolute, it helps you put the following fail-safes in place:
- You can establish an emergency fund to cover your expenses in case of unexpected revenue drops.
- You can also implement strategies to improve your cash flow, such as offering discounts for early payments or renegotiating payment terms with suppliers.
When you know your monthly debits and credits (stay on top of your cash flow), your business will have the financial resources it needs to thrive despite the odd slow month.
3. Being a control freak
It’s tempting to cut costs by handling everything yourself, but it’ll wear you out, which is bad for your business.
Spending too much time on administrative tasks like bookkeeping or customer service can mean neglecting product development and marketing, leading to a decline in the quality of your products or sales, and losing revenue.
Trying to do everything on your own can also lead to burnout, exhaustion, stress, and even health problems, affecting not only your business’ success but your personal life.
How to delegate tasks and build a team:
- Be honest when you suck at something: No one can do everything, nor should you try. You`re better off spending your time growing your business, so identify any areas where you need support and delegate.
- Hire the right people: When building a team, hiring people who share your vision and values is essential because they’ll work harder to help you achieve them. Always hire individuals with the skills and experience you need who have a passion for your industry.
- Set clear expectations: When delegating tasks, communicate your expectations to ensure your team understands their responsibilities and the timelines for completing tasks.
- Invest in your employees: When you train your team, it gives them the skills required to do their jobs and shows them you value their effort, which often leads to higher productivity.
- Build your culture of trust: You can’t delegate to just anyone; you need a team you trust. You build it by creating ownership and accountability among your employees. But it’s a two-way street because if you want employees to take on more responsibility, you must reward them.
4. Ignoring your competitors
Business owners often focus too much on what they’re doing and overlook the activities of their competitors, missing out on valuable information about market trends, customer preferences, and new products or services that may affect their business.
Suppose a competitor introduces a new product better than yours; if you don’t act, you’ll lose sales.
Or a competitor lowers their prices, forcing you to do the same, cutting your profit margins.
How to stay competitive:
- Identify your top competitors: Your top competitors are there because your target audience loves their products, services, prices, and marketing strategies; use them to your advantage.
- Keep a close eye on them: Make a habit of reviewing what your competitors are doing by following them on social media, subscribing to their newsletters, checking out their latest reviews, and attending local industry events.
- Analyze their strengths and weaknesses: Conduct a SWOT (strengths, weaknesses, opportunities, threats) analysis of your competitors to find their strengths and weakness and identify areas you can improve on and where you have an advantage.
- Differentiate your business: Use your competitors to differentiate your business by identifying areas where you can offer something better. This enables you to stand out from the crowd and engage your target audience’s interest.
By analyzing your competitors, you can make necessary adjustments to your business to stay ahead of industry trends and remain competitive.
5. Thinking you don`t need a business plan
Not every small business needs a business plan. You could start without one, but you could also set sail without a compass, and odds are you’ll get wet feet!
There are two types of business plans, a one-page and a traditional one.
A one-page business plan suits small businesses that don’t need start-up funding. It s like the traditional plan but less focused on financial projections.
A traditional business plan convinces others to buy into your vision and support your business. It requires a comprehensive section of your current financial position and future projections.
Both, however, should validate your business idea, identify your target audience and competitors, show how you’ll sell your products or service, detail your marketing strategies, describe your business structure, and ensure you have enough cash to stay in business until you reach your break-even point.
Business plan tips:
- An executive summary: A brief explanation of your business, the problems it solves, your target audience, and your goals.
- Conduct market research: Identifies your target market, competitors, and industry trends to ensure your business idea is viable and your products/services are on target and help create a marketing strategy that engages your audience’s attention.
- Define your business model: Explain how you’ll make money and where you’ll spend it.
- Develop a marketing strategy: Here’s where you use your market research to create branding, advertising, and sales tactics targeting your ideal clients.
- Create financial projections: Estimates your income, expenses, and cash flow for the next 3-5 years; you’ll need this for funding.
- Outline your management team: Describe who’s responsible for the business’s day-to-day operations and responsible for important decisions.
- Review and update your plan: Your business plan is a living document you must update as your business develops. For example, when you achieve one goal, you can add another.
Business plans take time and effort to create. Still, you’ll need one to navigate the challenges of starting and growing your business. And when the going gets tough, you’ll be glad you have a business plan to guide you.
6. Overestimating revenue and underestimating expenses
Business owners are naturally optimistic; it’s why we do what we do. But unrealistic revenue expectations and underestimating your expenses are surefire ways of putting yourself out of business.
You’re selling a product or service and have a few profitable months. You decide to use your expendable cash flow to reinvest in your business and estimate your future revenue and material costs will remain consistent, but your income predictions fall short, material jump in price, and now you can’t cover your costs.
Tips on how to do it:
- Research your revenue streams: Identify where your money comes from; if it’s just one source, try to add another so all your eggs aren’t in one basket. And review your pricing strategy to determine if you can change it to meet any fluctuations in your market.
- Determine all the expenses: List all the costs of running your business, including direct expenses like rent, utilities, and employee salaries, and indirect expenses like marketing and advertising costs, so you know how much cash you should keep in reserve.
- Review your plan: Update your business plan and financial strategy as your business grows and market conditions change. Monitor your expenses and revenue, and adjust your debits and credits to suit.
Creating a realistic financial plan means just that, being realistic. Avoid overestimating revenue and underestimating expenses, and only spend what you can afford.
7. Failing to diversify
Business environments constantly change, such as rising raw material costs, falling sales prices due to increased competition, or product/service update opportunities.
To stay ahead, you must adapt and offer your customers the best deal, value, or service available; otherwise, your competitors most likely will, which could undo all your hard work!
How to keep your finger on the pulse:
- Stay informed: Every niche has platforms informing of new technologies, market changes, and consumer behavior. Yours could be industry publications, relevant blogs, or conferences and events. Find out what they are in your niche and follow them.
- Be a contortionist: When storms hit, the rigid oak trees fall, and the flexible ones survive. Your business strategy is similar, so ensure you can adjust your products, services, or prices to stay relevant in your marketplace.
- Focus on innovation: Everything in life is transitory, especially business. To stay relevant, you must embrace innovation and infuse it into every aspect of your brand. That way, you’ll stay ahead of the competition.
- Listen to feedback: Listen to your customer and employee feedback and use it to identify areas where your business can improve and stay competitive.
Running a small business is hard enough without making costly, avoidable mistakes. And only some of us can afford to learn from experience.
But if you remember the mistakes to avoid when starting a business and use my tips on what to do instead, you won’t have to.
Because as Oscar Wilde once said, “ Experience is the name we give to our mistakes. ”