According to data from the U.S. Bureau of Labor Statistics, around 30% of new businesses fail within the first two years of operating. Roughly half of companies fail to stay afloat beyond their fifth year. Despite these figures, surviving in a fiercely competitive environment is still possible, although it can be challenging.
Many factors can influence a company’s success, some of which are out of the owner’s control. Small business owners must accept and understand that mistakes — even costly ones — are bound to happen. How can small business owners sidestep some of the most expensive, common mistakes?
Take a deeper look at the most frequent mistakes business owners make, how they impact profitability and how owners can avoid making them.
Common Mistakes Small Business Owners Make and How to Avoid Them
Owning and operating a company comes with highs and lows. Running a business involves enjoying the thrills, such as times of profitability and recovering from the lows, like overcoming financial losses.
Even seasoned entrepreneurs run into issues when launching a new business, developing a new product or service or taking advantage of a unique market opportunity. However, the modern world would not be where it is today if entrepreneurs gave up on their ideas as soon as the going got tough.
Below are ten of the most common mistakes business owners make and how to avoid them.
1. Not Writing a Business Plan
A business plan is essentially an owner’s roadmap that guides them while running their company. Without a solid business plan, owners cannot determine if their business idea is feasible or not. It’s better to create a basic business plan than create no plan at all. A famous quote from Benjamin Franklin is, “By failing to plan, you’re preparing to fail,” and it rings true in this scenario.
Failing to create a business plan will make it challenging to succeed in today’s business world. A good business plan should include how much it costs to operate, which products or services to offer, who would buy them and other pertinent information.
2. Overspending on Unnecessary Expenses
This mistake may sound obvious, but small businesses can suffer when the owner overspends financially. The most common areas of overspending in business include labor, utilities, telecom services, waste/recycling, data storage and management and software subscriptions.
Mishandling finances and being irresponsible with cash flow can cause significant problems for startups or small businesses with limited capital. Business owners should be aware they may need to sacrifice spending in some areas — like buying a new car — to pay for essentials for the company.
3. Not Keeping Up With Property Maintenance
Unless a company is fully remote, owners are responsible for taking care of their headquarters. It could be a traditional office space, a restaurant or a brick-and-mortar store — no matter the type of property, business owners should keep up with basic maintenance and facilities management.
In 2020 alone, severe weather damage in Florida totaled almost $4 billion. Rather than submit a claim, companies can ensure they regularly inspect their business properties and avoid making costly repairs in the future.
4. Ignoring Competitors
Business owners should also learn about their competitors, including the products or services they sell, how much they charge and what types of customers they have. Additionally, entrepreneurs should research to determine market saturation and if their business idea can penetrate the market.
For example, a business owner might face challenges entering an oversaturated market. The company may struggle to garner new customers, offer competitive pricing and stand out from the competition. Finding out ways to be unique is vital.
5. Putting Marketing on the Back Burner
Some businesses focus more on generating revenue than other essential business elements, such as marketing and advertising. Effective marketing and advertising strategies can be a boon for a small business. Placing ads on local billboards or using geolocation to target nearby customers can help business owners improve their brand identity and recognition and increase sales and profitability.
6. Failing to Know Your Target Audience
Understanding existing and potential customer demographics is an essential part of doing business. Every company has a target audience — customers who most likely need or want the company’s products or services. Entrepreneurs who fail to identify their target audience may be casting too wide or small a net, depending on the demand for products and services they sell.
7. Hiring Too Soon, Too Many, Too Few or the Wrong Employees
Another type of mistake business owners make is in their hiring process. Some owners hire new people too soon, hire more than they can afford, fail to hire enough staff or hire candidates without enough skills, experience or characteristics needed for the job. Poor hiring can cause several problems down the road.
Instead, businesses should take careful consideration during the hiring process and ask themselves these important questions:
- How many employees can I pay right now?
- What roles are top hiring priorities?
- What qualities am I looking for in my team?
- When should I hire new employees?
Answering these questions and taking time to prepare is essential before hiring.
8. Not Making Data-Driven Decisions
The world is becoming more data-driven than ever, so it could be costly if business owners fail to gather data about their customers, performance or market. Various enterprise data analytics platforms are on the market today, making it easier for even the smallest company to leverage the power of big data. Entrepreneurs should consider investing in a platform that will help streamline data management processes related to their businesses.
9. Misunderstanding Strengths and Weaknesses
Every company, its owner and its workers have various strengths and weaknesses. Entrepreneurs should identify these qualities to capitalize on their strengths and overcome weaknesses.
For example, suppose a new restaurant owner is not particularly friendly. In that case, they may not want to be the host or hostess seating guests when they come to eat. In this scenario, the owner should acknowledge that they lack exceptional customer service skills and delegate host or hostess duties to another, more capable employee.
10. Taking on Too Many Responsibilities
The last mistake occurs when business owner convinces themselves they can add more tasks to their to-do lists, run that extra errand or spend more time developing the company. While maintaining a sense of independence and assuming a leadership role are positive attributes, owning and operating a business is no walk in the park.
Entrepreneurs need a reliable, dependable and high-performing team of employees to support the company and its mission. Business owners who take on too many responsibilities can experience symptoms of burnout, which can decrease productivity and become overwhelming.
Avoiding Costly Mistakes Allows Business Owners to Succeed
Making mistakes is a regular part of life, so it’s nothing out of the ordinary for business owners to make their fair share of errors when starting a new company, especially for the first time. However, it is possible to reduce the likelihood of making costly mistakes. Acknowledging mistakes are inevitable is a critical step business owners must take if they want to thrive.