Building a successful business from the ground up is never easy – but making one or more of the following critical errors can make your journey from start-up to exit significantly more challenging.
Learn from the mistakes of others by avoiding these common missteps when starting a new business.
1. Skimping on Research
There’s a common saying in the entrepreneurial world that goes, “Ideas are worthless. It’s all about execution.” But this only holds true if your idea is a good one to begin with!
Running with an idea before taking the time to adequately research its viability is a recipe for disaster. Put in the upfront legwork to confirm that the concept is viable.
2. Failing to Find Truth Tellers
Running business plans by friends, family and subordinates is a smart strategy for seeking out emotional support and confirmation. It’s not a great method for learning the truth about your ideas or if a strategy is applicable to you.
Seek out professional advisors who will tell you the things you don’t want to hear. Uncovering these inconvenient truths is the only way to overcome them.
3. Overestimating Ease of Capturing Market Share
It’s easy to fall into the trap of seeing a massive market of buyers and presuming it will be painless to slice off a tiny percentage of market share.
Remember that it is always a challenge to capture market share with a new venture. Beware of making unrealistic financial projections that lead to impractical sales targets you won’t be able to hit.
4. Underestimating Capital Investments & Operating Costs
A good rule of thumb when estimating start-up costs is that the real financial requirements are almost always greater than initial calculations. Undercapitalization is the root cause for many business failures – as is failing to be accurate when mapping out projected operating costs.
There are always unknowns that pop up when running a business. Make sure you have a budget planned from day one to cover these contingencies so you don’t run out of money.
5. Undervaluing Profit
Focusing too heavily on fast growth and maximizing gross revenue can lead you astray from what’s really important: turning a profit.
Once you are profitable, then you can switch gears and scale off your success, but a big company that loses money is generally in trouble.
6. Going All-In on Hiring & Facilities
Opening the doors on your new business is exciting, as is hiring employees and leasing space – but putting the cart before the horse on staff and facilities can push overhead through the roof before you have the revenue to sustain the expense.
Start with the minimum viable number of employees until you have adequate demand for your product or service to support growth. Take the time to hire the right people, with the right skillsets, with the right frame of mind to excel in a start-up work environment where most people need to wear multiple hats.
7. Adding Partners with Zero Strategic Value
Choose your business partners wisely. All partners should earn equity in your enterprise, either through financial investment or by providing a legitimate strategic value you cannot succeed without.
8. No Backup Plan
Giving your new business sufficient runway to succeed requires a solid contingency plan to keep the company afloat through the unforeseen challenges that are bound to happen when building a start-up.
Even if all your estimates are realistic and conservative, outside forces beyond your control need to be accounted for.
9. Hyper Focusing on One Small Aspect of Your Business
As the founder of your new business, it is your responsibility to maintain a view of the entire company. Getting too involved in a single facet of business operations is a great way to lose sight of your big picture.
10. Giving Up Too Easily
Part of being a successful entrepreneur is knowing when to refuse to accept “no” as an answer.
Sometimes the only way is to find a way.
11. Trying to Do Too Much Too Soon
The simpler the vision for your business, the better. Don’t spread financial and labor resources too thin by trying to grow your enterprise like a spiderweb from day one.
Figure out your core competency and concentrate on your main product or service. Once your primary income stream is established, you can more easily branch out to complementary products and services.
12. Lack of Long-Term Goals
Your business needs a strong identity and a clear vision of what exactly you wish it to achieve. It’s OK to change your long-term goals over time but you need a target to aim for in order to develop a roadmap and strategic plan.
13. No Exit Plan
It might sound counterintuitive to make plans for exiting your business before you even begin, but having an exit plan is a vital element for building a business that suits your personal and financial needs.
Whether your plan is to sell in five years for a large profit or build a family legacy to pass on to your children, knowing how you wish to leave the business helps clarify how you should run it.
Guidance for your future business
If you are considering the launch of a new venture or need coaching with an existing one, schedule a free consultation with our experienced Seattle based Team. Our talented team is here to help you avoid the financial pitfalls that hold many businesses back.
