In this post we will be looking at some of the most common business mistakes to avoid. This is aimed at anyone from solo entrepreneurs just starting out to established businesses. Be sure to avoid these common mistakes if you want to become successful.
Business Mistakes To Avoid
From solo entrepreneurs to larger businesses, people make mistakes all the time that can have a negative effect on business.
Failure rates of new businesses are high. According to Fundera, 20% of small businesses fail in their first year, 30% of small business fail in their second year, and 50% of small businesses fail after five years in business. Finally, 70% of small business owners fail in their 10th year in business.
We don’t want this to happen to you which is why we’ve compiled this list of business mistakes to avoid. Below is a list of 16 common business mistakes to avoid.
Lack Of Planning
First on the list of common business mistakes to avoid is lack of planning. Despite it’s importance, it’s surprising just how many businesses fail to create a business plan. Planning is critical to success.
As the quote attributed to Benjamin Franklin goes “By failing to plan you are planning to fail.”
A business plan is a guideline, outlining your strategy and action plan to be achieved over a number of years. It is also used by potential investors when assessing the business. Plans should be informative but concise.
A good business plan should cover;
- History and status of the business
- Details of key personnel, management & ownership structure
- Product information and specifications including benefits, USP, disadvantages etc.
- Information on the market segment you operate in – size of market, market share etc.
- Customer profile
- Information on your competition
- Marketing strategy – who you are promoting to, how you promote, which promotional channels you will use, pricing strategies etc.
- Business operations – premises, systems in place etc.
- Financial forecasts – include historical financial information if applicable and forecasts for the next 5 years. This should cover revenues, profits, profit margins, cash flows and costs of financing.
- SWOT analysis – identify your strengths, weaknesses, opportunities and threats.
- Business objectives, how you will achieve them and by when. I.e increased sales, higher margins, more customers, greater market share etc.
The Importance Of A Business Plan
Having all this information in place will help give you a better understanding of your market, competition, customers and finances. You can get a clearer picture of strengths and weaknesses of both yourself and the competition. This will help with identifying any opportunities and threats.
You will have clearly defined objectives with a plan on how and when to achieve them and be able to define priorities. It can also demonstrate to investors, partners or incoming personnel that you have a good understanding of your business.
If you are wondering is this business idea any good? By creating a plan you will be able to answer your own question. It does take time and research but can avoid a lot of pain further down the line.
Not sure how to create your business plan? Get help with a business professional on Fiverr.
Not setting Up Correct Legal Structure
A mistake people often make is to not register the correct business structure for their type of business. Choosing the right business structure is crucial – it can effect both personal liability and tax liability.
Corporate structures and their rules can vary depending on the country or state a business is registered in. In the US the main business structures are the following;
A sole proprietorship is owned by only one person and has unlimited personal liability but only pays personal taxes.
Operated similarly to a solo proprietorship with unlimited personal liability and personal taxes. A partnership is owned by two or more individuals.
Limited Liability Company (LLC)
An LLC is a limited liability company and is a very popular type of company structure. As it is defined as a seperate legal entity to it’s owners it means the owners are not personally liable. There are several different types of LLCs which can effect what the tax implications are.
A C-Corp is a type of incorporated company structure with one or more owners. Owners have limited personal liability and corporate taxes are paid on profits. This can result in what’s known as ‘double taxation’. This is where taxes are charged on corporate profits and then shareholders pay taxes again on any dividends.
An S-Corp is an alternative to a C-Corp that can avoid double taxation. Owners of S Corporations report corporate income on their personal income tax returns. There are a few different rules with this type of corporation. For instance there can be no more than 100 owners and they all must be US citizens.
There are also nonprofit corporations, these are organised to do charity, education, religious, literary, or scientific work. Because their work benefits the public, nonprofits can receive tax-exempt status. This means they don’t pay state or federal income taxes on any profits they make.
In addition to the right business structure it’s also important to consider other legal items. This includes taxes, permits, protecting trademarks and patents etc.
Leading corporation service companies like CorpNet can help you file a business quickly and affordably.
Failing To Conduct Research
We all have things we like or are passionate about. It’s easy to have a great idea for a new product or service. It may meet a personal need of yours. But is it something that others actually want or require?
It is important to conduct thorough research into your products and target audience. What is your target customer? Is there an actual need for your product? What benefit does your product offer them? How are you different to the competition? What price range are your customers willing to pay?
Surveys, questionnaires, product testing and focus groups are all good ways to gauge customer interest and gain feedback on products.
A common mistake new businesses make is to try to undercut the competition on price in an effort to gain customers and make quick sales. Be very careful with competitive pricing. Not only can it reduce your profit margins but it could also devalue your brand as well.
It may seem like you could attract more customers by lowering your prices below your competitors. But by pricing your products too low or constantly cutting prices you will be reducing your profit margins. This means you have to generate a lot more sales just to bring in the same revenue as before.
It can also devalue your brand as pricing can have an effect on how buyers perceive the quality of your brand. A new company that has prices considerably lower than an established competitor may be viewed by a customer as selling lower quality products.
Cutting prices often leads to a ‘race to the bottom’. Instead focus on positioning your brand above the competition by communicating your USP that sets you apart from the rest.
Find more information on pricing strategies and the 9 laws of price sensitivity here; Pricing Models And Strategies.
Lack Of Effective Marketing
You could create an amazing product but if you fail to market it then how are people going to be aware of it and purchase it? Marketing is essential to the success of a business and that’s why it’s important to create a marketing plan first.
A marketing plan is a strategic guide containing marketing strategies that a business will use to sell it’s products. A marketing strategy should define; the target audience, the best channels to reach them, product pricing and how to track the success of the strategy.
As well as people that don’t give much thought to marketing their business there are those on the flip side that go too far the other way – constantly bombarding customers is not a good method.
One thing you must never use in your marketing efforts is Spam. E.g. A customer signs up to your newsletter, this is a good lead that you can now market to by email. But don’t abuse this by spamming them with dozens of sales emails every day. That’s a sure-fire way of losing a potential customer.
See also; A-Z Marketing Terminology You Need To Know.
Trying To Take On Everything Yourself
As a business starts to grow there will come a time when you need to start hiring staff. You may be used to doing everything single-handedly as a solo entrepreneur. But if a business is growing then it becomes essential to hire staff and delegate responsibilities to others.
There are many reasons why business owners are reluctant to employ others. This may be for financial reasons or feeling a loss of control over their business operations. But taking on every task can lead to stress, exhaustion and lower productivity. This will ultimately end up harming your business.
That’s why you need to analyse your own strengths and weaknesses. You can then hire somebody that is stronger in your weak areas which leaves you to focus on your areas of strength.
Making an investment in people will have benefits both to you personally and your business. It can ease the burden on your workload, giving you better personal well-being. Working with others can mean new ideas through more collaboration as well as staff being focused on their strengths.
You might like to read this post about the benefits of hiring a virtual assistant to help grow your business.
Not Understanding Financials
You may not be an accountant but as a business owner you do need to have some basic financial knowledge. It is important to get an understanding of what is coming in and going out of the business; sales, taxes, debt repayments, salaries etc.
You need to be able to set budgets, produce financial forecasts and reports and identify any need for external financing.
Not having a good grasp of your finances could lead to poor investment decisions, overspending or inaccurate sales figures. Find a business finance tutor on Fiverr.
See also; A-Z Investment And Financial Terms To Know.
Successful businesses require strong and effective leadership. Strong leadership doesn’t mean you have to be authoritarian in your approach. But it requires good communication, decisiveness and an ability to make difficult decisions.
There is a difference between being a leader and being a manager. A strong leader should be able to unite and inspire employees and help turn a vision into reality. They tend to be innovators, valuing uniqueness and willing to take risks.
A manager tends to stick to more traditional rigid processes and structures, creating little change or innovation. Whereas leaders take on risk, managers seek to control it.
There are some excellent books on effective leadership that should be read. A great way to do this is by reading executive book summaries.
Just Wanting To Make Money
If the sole reason for your business is to just make money and is lacking a clearly defined purpose, objectives and strategy then it will likely fail.
Successful businesses have a clear purpose why they were founded – it’s what makes a business unique. They have a mission statement defining what their purpose is, their values and the overall goal of the business. They then devise strategies that will allow them to achieve these goals.
Many successful businesses start out with the aim of achieving something; improving the customer experience, making a service more accessible to consumers, even disrupting entire industries.
A good example to use is Amazon. We all know it’s the world’s largest online retailer worth over 1 trillion dollars. It’s founder Jeff Bezos is worth hundreds of billions of dollars. However making money isn’t in Amazon’s mission statement – that’s as a result of delivering on their statement;
“To be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices.”
Think hard about why you created your business. What you want to achieve, your values and what unique selling points you have.
Not Learning From Mistakes And Failures
Whilst this is a list of business mistakes to avoid, one thing is for sure – you will make mistakes.
‘To err is human’. In other words all humans make mistakes and we all have failures of one sort or another. People have failures in business all the time, even successful people and businesses.
But the thing that makes them stand out as successful is the way they can learn from their failures. Take Warren Buffett as an example. He’s one of the greatest investors to ever live but he has also made many mistakes over his career.
But one thing he’s never done is shied away from them or blamed others. He has always used these mistakes as opportunities to learn. Read more about Warren Buffett’s business mistakes.
You must also see setbacks as opportunities rather than failures.
Lack Of Networking
Business networking is a way of exchanging information and growing working relationships with other people and businesses. It is a way of learning and exchanging information that is mutually beneficial to both parties.
The sharing of knowledge through networking can have many advantages for small businesses. It can help identify new opportunities, provide industry news, generate new clients or advice on how to grow your business.
It is a mutually beneficial business relationship so you should also be providing something in return to others. Networking can help businesses and individuals grow through the sharing of knowledge.
Hiring The Wrong People
We’ve talked about the importance of hiring people rather than try to take on everything yourself. But another important consideration is ensuring you hire the right people for the job.
The people you hire should not only have the ability to get the job done. They should also have the right attitude with their values aligned with your company.
It can also be tempting to hire people close to you to help out. They have some benefits such as being reliable, trustworthy and genuinely wanting to help you.
But hiring family and friends also has some disadvantages. One of the main being a loss of leverage that you have over other employees. Disagreements and decisions can cause issues that carry over into personal lives. This can cause people to avoid making the hard decisions so as not to disrupt family life.
They may also not be fully qualified or have the skills required for the role. It may seem good to have an extra pair of hands but if they aren’t right for the role then they shouldn’t be hired.
Another issue is that a family member may simply give you what you want to hear rather than what you need to hear. Is this new product idea good? Will this marketing campaign work? You need people that are not afraid to speak up and voice concerns without being afraid to hurt your feelings.
Hiring family members can still have it’s positives. But be aware that where money is concerned, even the most cohesive family units can have disputes over it.
Not Listening To Customer Feedback
Customers can make or break a business. Especially these days with the internet full of social media and review sites. Negative sentiment can quickly spread. You’re probably familiar with the expression ‘the customer is always right’. Well even when they aren’t you must listen to them.
Not listening to your customers and acting on their feedback can result in loss of reputation and loss of customers. Take the opportunity to collect and analyse customer feedback at every step of the customer journey. These can be used to improve products, services and processes.
Low Quality Content Or Website
The internet has become a great tool for marketing businesses. A website is pretty much essential nowadays to any type of business. But you must ensure it is fit for purpose.
A poor quality website that causes a lot of friction will increase your bounce rate. This is where visitors immediately leave your web page after landing on it. Friction is anything that negatively affects the user experience. It could include; poor layout and font that is difficult to read, hard to navigate, excessive use of popups etc.
Likewise the content that you produce such as blog posts should contain quality, useful information that actually helps the visitor. Focusing purely on making sales in your marketing efforts won’t increase sales. People don’t take too kindly to being pushed into buying something. It needs to focus on clearly communicating the benefits to the user.
Good organizational skills are crucial for running a well functioning organisation. Being disorganzed can result in deadlines being missed, money being lost and lower productivity and efficiency.
This can also filter through to your workforce as it sets a bad precedent. After all, if the boss seems careless then your employees aren’t going to care either.
It is essential to improve your own organisational skills. Create dedicated plans, clear clutter, learn how to prioritise tasks and manage your time more effectively.
Finally on our list of common business mistakes to avoid is having unrealistic expectations. Far too many people start a business with unrealistic expectations. There are lots of reasons people start a business. They have a passion that they want to monetize, they want to be their own boss, earn more money.
As we’ve covered in the points above there is a lot of work that goes into setting up, operating and growing a business. A lot of people don’t do enough research and aren’t prepared for the many obstacles in the way.
When people consider the idea of running their own business it’s easy to see all the potential positives like freedom, money, independence, success. But little thought is given to how to actually achieve this success.
Be prepared to put in a lot of time and effort researching, planning, dealing with finances, branding and marketing, networking and much more.
Most businesses will not make money for some considerable time – several years in many cases. This can cause people to quit too early simply because they thought they’d make money straight away. This could be avoided if they had taken the time to actually research and create a plan.
Business Mistakes To Avoid Conclusion
Hopefully this list of business mistakes to avoid has been helpful to you. Whether you are a solo entrepreneur, small business or just venturing into business for the first time, avoiding these business mistakes is crucial for your success.
As we’ve seen there are lot’s of reasons that people fail in business. From not researching their market and failing to plan to poor hiring and lack of marketing. By taking all of the above points into consideration there’s no reason why you can’t create a successful business.
If you like our business mistakes to avoid post then you can find more essential reading for business success here; 13 Steps To Riches And 30 Causes Of Failure To Avoid.
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