7 of the Most Common
Starting a new company means facing many challenges and learning how to overcome them. New business owners often make common mistakes in their first few years of operating before learning valuable lessons and hitting their entrepreneurial stride.
The U.S. Bureau of Labor Statistics reports annually on the private sector survival rate of small businesses. One has to really dig into the numbers to figure out how many fail and thrive, and the numbers change from year to year. On average, about 30% of businesses go under in the first year, and by year five, 70% do.
Those numbers shouldn’t scare new entrepreneurs, though. About 30% of businesses still thrive past the five-year mark. Knowing what common mistakes to avoid can set a new company up for success.
What Are the Most Common Mistakes New Business Owners Make?
Different industries face various challenges, but there are some common problems all new businesses face. Many entrepreneurs blame these issues for the reason their companies eventually shutter their doors.
Here are the ones easily avoided with just a bit of planning and foresight.
1. Placing Poor Signage
If people don’t know a business is there or what it does, they aren’t likely to frequent it. Outdoor signage can make or break a brick-and-mortar establishment. Invest in a sign that draws patrons in.
Start by choosing your colors wisely, which is one of the top mistakes businesses make with their outdoor signs. The colors should have enough contrast for people to read the words as they drive past. The hues should also pop and grab attention. The sign should be different from other stores in the area.
Size of font and readability matter as well. Business owners should get feedback from multiple people on how well the signage works and make any necessary changes to draw in foot traffic.
2. Succumbing to Fear
Starting a new business is scary. Many entrepreneurs have families counting on them to keep income flowing. They may also have new employees relying on them. The fear of failure keeps people from taking chances, which is good in some ways, but they sometimes have to take mitigated risks to profit.
New business owners must learn where their comfort level lies and what risks have the biggest chance of paying off. At the same time, they should ensure any mistakes are ones the company can recover from.
3. Misunderstanding the Target Audience
Sometimes it’s hard to know who a company’s customers are. After all, a new brand typically starts with family and friends as clients and may not have data to draw on. In the first months of business, it’s vital to constantly refine buyer personas and dig into the data on who buys from the brand.
The more information a company gathers from current customers, the better they’ll know how to reach others in the same demographic. They should send out surveys in exchange for coupons and determine where customers spend their time. If most of a company’s patrons are millennials, the owner should go to the social media sites they frequent, such as Instagram and YouTube.
4. Growing Overwhelmed
Most small-business owners try to do everything themselves. It’s easy to burn out quickly. They should take steps to build a support system and hire the right people. Contracting out some work is fine, especially in the early stages of a new brand.
Entrepreneurs should take time for self-care, such as starting a low-impact cardio program to reduce stress. Running a new business is harder than most people think, so people should protect their mental and physical health during the building stages.
5. Hiring Too Quickly
Full-time employees cost more than just an hourly wage. Training costs, benefits, paid time off and other perks all add up and quickly send a company into the red. Most entrepreneurs get overwhelmed and hire new workers too quickly. They then either run into a cash flow issue or have to lay people off.
Instead of hiring a full-time employee, company owners should start by contracting with a local freelancer to complete tasks they need help with. If the contract work increases and it is cheaper to pay someone plus benefits to do the job, it’s time to hire a new staff member.
6. Flowing Cash Poorly
Cash flow issues are a problem for most new businesses. Whether products get sent before payment arrives or orders come in so fast the company can’t keep up with inventory, there is often a time when a brand needs more money than it has on hand. The moment cash flow is an issue is a make-or-break moment for most brands.
Guidant’s latest Small Business Trends report surveyed 2,400 small-business owners. The No. 1 issue business owners cited was lack of capital or cash flow, with about 23% of entrepreneurs pointing to the issue. Even though 17% of companies cited employee recruitment and retention as a current problem, it still didn’t rise to the level of cash flow problems.
How can business owners avoid cash flow problems? When things go well, they should set aside a portion of profits in a rainy day fund to help offset times when things are more challenging. They should also have some backup funding sources in mind to get over humps, such as paperwork ready to file for a small-business loan or investors interested in coming on board.
7. Not Taking a Salary
Many entrepreneurs take zero salaries in the early days of their business, but the problem with that attitude is that they must survive. They probably had some savings to get them through, but if the company can’t support the owner taking a salary, it isn’t really viable long term.
It’s OK to start with a lower salary and then take more as profits rise, but business owners must pay themselves just as they would any other employee.
Find a Mentor
The above seven mistakes are common ones many new business owners make, but there are dozens more. Finding a mentor to help navigate the difficult stages of growing a business can be a tool to help overcome problems and learn from mistakes.
Entrepreneurs should plan ahead, watch out for the well-known pitfalls and stay organized to find success. With a little focus, any business can hit the ground running and never stop.