At least one of two business start-ups eventually fail and close down. That bit of statistics may be enough for business hopefuls to feel jittery and eventually opt out of their plan to go into business.
But look at it this way. If the figure is 1:1, you don’t have to be in the wrong side of the ratio. Be the “1” that makes it, not the “1” that fails.
One way of loading the dice in your favor is by carefully studying the odds before taking the plunge. By keeping in mind the traps that many failed businessmen before you have fallen into, you learn to avoid them when your time comes.
Here, from SERDEF business counselors, businesswealth.com and entrepreneur.com, are common pitfalls to avoid in starting your business.
- Starting a business without a plan. Do you go to some strange city without a road map? Do you rely on trial and error or on asking strangers for directions along the way? You cannot afford too many false starts and dead ends in doing business. That would mean a waste of time and money. You need a carefully laid out business plan, or at the very least a marketing plan, to guide you through your start-up phase.
- Failure to clearly define and understand your market, your customers, and your customers’ buying habits. Who are your customers? You should be able to clearly identify them in one or two sentences. How are you going to reach them? Is your product or service seasonal? What will you do in the off-season? How loyal are your potential customers to their current supplier? Do customers keep coming back or do they just purchase from you one time? Does it take a long time to close a sale or are your customers more driven by impulse buying?
- Being all things to your business. This may work at first — being your business’ production man, sales agent, finance officer, driver, errand boy, all rolled up in one. But as your business grows, you have to take on outside help. You need to delegate and let go of some areas of your business so you can concentrate on the more critical planning and controlling tasks.
- Taking on a business partner or joining with the wrong one. True there are partnerships that have worked, but most don’t. Unless you’re absolutely sure about your partnership, hire people to help you out instead.
- Inadequate cash reserves. This is the single most common reason why business fail. If you don’t have enough cash to carry you through the first six months or so before the business starts making money, your prospects for success are not good. Consider both business and personal living expenses when determining how much cash you will need.
- Failure to price your product or service correctly. You must clearly define your pricing strategy. You can be the cheapest or you can be the best, but if you try to do both, you’ll fail.
- Failure to adequately anticipate cash flow. When you are just starting out, suppliers require quick payment for inventory (sometimes even COD). If you sell your products on credit, the time between making the sale and getting paid can be months. This two-way tug at your cash can pull you down if you fail to plan for it.
- Failure to anticipate or react to competition, technology, or other changes in the marketplace. It is dangerous to assume that what you have done in the past will always work. Challenge the factors that led to your success. Do you still do things the same way despite new market demands and changing times? What is your competition doing differently? What new technology is available? Be open to new ideas. Experiment. Those who fail to do this end up becoming pawns to those who do.
- Thinking too small. Many startup entrepreneurs want to generate a wage for themselves and nothing more. Instead, aim to build a profit, aim to build something large, and aim to build something great. If you shoot for the stars, you may fail, but at least you’ll make it to the moon.
- Focusing on only one area of your business. Business success involves three main areas: sales and marketing, finance and administration, and operations. You have to keep all three working and growing in unison, not just the area you’re good at.
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