Avoid these start-up mistakes
Business is booming in Canada — new businesses, that is! Remember that report about more Canadians striking out on their own? Our country could see as many as 150,000 new businesses pop up in within the next decade, according to one prediction. For many people, starting their own business is a life-long dream or a challenge to embrace in retirement. For others, it’s a financial necessity in a tough job market.
But here’s a sobering statistic: Nearly one half of businesses will fail within the first five years. Industry Canada says our numbers are looking good — anything above 50/50 shows strong entrepreneurship — but you might not like those odds if you’re considering a new business of your own.
Mistakes are part of the learning process for any new entrepreneur, but some errors can be devastating in the long run. Here are some common traps experts warn to avoid.
Not doing your homework first
You’ll need more than a great idea — many businesses don’t thrive because there isn’t room in the market. For example, does your product or service fill a specific need, or is it an imitation or reiteration of an existing business? Who are your potential customers, and how can you reach them? Who are your competitors? What is the going rate for similar products or services?
If you’re new to entrepreneurship, you’ll also want to learn more about running a business — such as creating a business plan, management, marketing and taxes. Unfortunately, many businesses fail because people don’t have the skills or experience to successfully build them.
Getting too much advice
You know that old adage about “two many cooks spoil the broth”? There is a wealth of information online, in books and available through mentorship programs — and a lot of it can be conflicting, confusing and irrelevant.
Preparation is important, but getting swamped in information can paralyze potential entrepreneurs. If you’re starting a business in retirement, delaying decisions can cut short the years a business will have to grow. Many successful entrepreneurs wish they had started sooner.
Your business model isn’t clear
You’ve got a great idea — but is your business model too complicated to communicate to others? Are you trying to do too much at once? Experts say to keep it simple. If you can’t sum up what you do in a 60-second “elevator pitch” (or on a social media profile page), chances are you need to do a little refining.
A sound business model and a strong business plan will help keep you focused, but it will also help others see the value in what you’re doing — especially potential investors or customers. Know your goals and how you plan to accomplish them.
Not minding your money
Chances are you didn’t need a Statistics Canada report to figure this one out: one of the top reasons new businesses fail is poor financial management. Many new companies can spend themselves into bankruptcy or find their funding runs out before their business takes off. With many older entrepreneurs using their own capital to fund new ventures, there can be incredible risks.
Tracking spending, creating a budget, anticipating expenses, planning for taxes and steering clear of non-essentials are sound strategies for home and business.
Not having a marketing plan
How will you get the word out to customers, investors and partners? Failure to create and implement a solid marketing strategy is another top reason businesses don’t succeed. It takes time to build a recognizable brand and establish trust, and making sales is a priority for any new venture.
Flyers, business cards and ads won’t cut it anymore — in fact, experts say they can be an unnecessary expense in the early stages. You’ll need to discover what methods work best for your business or industry and be prepared to put a fair amount of time and money into marketing. You may find yourself delving into online and social media marketing too, especially if your business has an online component.
Undervaluing your product or services
Are you charging enough for your product or service to actually make money? Experts say there are a couple of classic mistakes first-time entrepreneurs make when it comes to pricing. The first: not factoring in high enough profit margins. All businesses expenses need to be considered — not just labour and materials. A profit margin of 20 per cent won’t carry a business for long.
The second: underestimating what a product or service is worth. For example, sometimes consultants or freelancers undercharge for their services — and end up with a wealth of work earning less money than their established peers. Once you’ve set a price, it can be hard to raise it. In some cases, a better long-term strategy could be offering a discount to first-time customers rather than keep rates artificially low.
Hiring the wrong people
Experts say that new entrepreneurs shouldn’t attempt to go it alone, and that bringing the right people on board can be crucial. Some new business owners hire friends and family who may not have the right expertise. Sometimes they hire people they like rather than people who have the needed skills.
Furthermore, the culture of start-up companies is very different than larger organizations — usually involving close collaboration with little or no organizational hierarchy. Some people are suited to the lifestyle of start-up businesses while others prefer working environments with regular hours and a salary.
Bottom line: recruiting the right people and managing them well are crucial for success.
Not remaining flexible
Many successful businesses go through a lot of changes, experts say. Unfortunately, some entrepreneurs hold fast to their original idea, even if experience and advice suggests otherwise. Successful entrepreneurs need to be flexible to adapt to new challenges, learn from their mistakes and respond to a changing market place.
On the flip side, some entrepreneurs give up at the first sign of trouble rather than adapting or growing. It often takes a lot of perseverance — and sometimes a few attempts — to create a successful business.
What does all this advice boil down to? The success of a new business often hinges on successfully managing money, people and resources — not just a good idea for a product or service. New entrepreneurs can’t control everything, but there is a great deal they can do to help their business be a success.
ON THE WEB
If you’re thinking of starting a new business, try Industry Canada’s Start a Business website for tips on getting started.
Additional sources: About.com: Small Business, BusinessInsider.com, Entrepreneur.com, Forbes.com, FoxBusiness.com, Statistics Canada, The Wall Street Journal
Have you ever started a business or worked for someone who did? We invite you to share your tips for success in the comments section below.