5 Common Mistakes Made by New Small Business Owners
Mindi’s Note: Are you on the fence about starting a business? A number of my blog readers are in a transitionary phase between working in a successful day job and deciding whether or not to pursue an entrepreneurial venture. If this is you, you’ll enjoy this guest post from Derek Goodman below.
Approximately 20 percent of small businesses fail before their first anniversary, while 50 percent shut down within their first five years of operation. Moreover, about 66 percent of small businesses close before reaching their 10th anniversary — largely due to issues with cash flow, market research, and business management.
While these statistics are certainly discouraging, you can learn a lot from current and former business owners to avoid making many of the same mistakes they did.
Here are five common mistakes made by new entrepreneurs — and discusses some of the things you can do to avoid these pitfalls when starting your first business.
1. Choosing the Incorrect Legal Entity
Choosing a legal entity and submitting your business formation documents may not be two of the most exciting startup tasks, but they’re some of the most important. The legal entity you choose plays a role in how you file and pay taxes, protect yourself from personal liability, and obtain funding for your small business.
When delving into entrepreneurship for the first time, it’s important to think long and hard about your business entity and take some time to weigh the pros and cons of forming a sole proprietorship, partnership, limited liability company (LLC), or corporation. Sole proprietorships are the simplest type of legal entity, but they don’t offer tax benefits or liability protection. Partnerships, however, offer some tax benefits but no financial liability protection.
If you’re looking for personal asset protection, tax incentives, and access to small business funding, an LLC or corporation will be the best legal entities for you. And while you may choose to change your business structure at any time, a lawyer or accountant can help you to select the right legal entity right off the bat and submit the business formation documents to your local Secretary of State (SOS).
2. Lacking Practical Business Knowledge
Many beginner entrepreneurs jump right into business ownership without knowing how to successfully run a company. And while this strategy may work for some entrepreneurs-in-the-making, others will fail without having a true understanding of how businesses operate. Therefore, the more skills and knowledge new business owners have, the greater their chances of success.
Having a passion for entrepreneurship is important when starting a new small business, but so too are skills in finance, marketing, strategic planning, and human capital management. So if you haven’t already developed your business acumen, now is the time to take a few business courses or enroll in an advanced degree program. Online master’s degree programs are available to teach you key business administration skills, while also giving you the flexibility to balance learning with work, family, and other responsibilities.
3. Mixing Business and Friendship
Starting a business with a friend can be a wonderful experience if you’re lucky, or it can destroy your relationship and business plans. So before mixing friends and business, it’s a good idea to consider the following:
● Your friend’s positive characteristics, including things like work ethic, persistence, and integrity
● Any negative qualities your friend has, such as being overly passionate or having an inflated ego
● Your friend’s motivations for starting a business and how they compare to your business goals
If you’re looking to start a business with another person, a business partner or cofounder may be a better alternative to launching a startup with a friend or family member. Randa Kriss of Nerdwallet shares some tips for finding the right business partner online.
4. Not Having a Marketing Strategy
As excited as you may be to jump right into entrepreneurship and get your small business off the ground, not taking the time to develop a solid marketing strategy will surely set your business up for failure. A marketing strategy helps you to determine how you’ll advertise and sell your products and services to your target customers, and not having one can lead to missed opportunities, overspending, and profit losses.
When developing a marketing strategy for your new business, you’ll want to start by defining your target market, highlighting the benefits of the products and services you’ll offer, and learning about your competition. After doing so, you’ll need to choose the right marketing techniques for your target market, which may include the use of social media platforms such as LinkedIn, Facebook, and Instagram. Some other effective marketing strategies for startups include content marketing, search engine optimization (SEO), email marketing, and referral marketing.
5. Trying to Do it All
You may be on a shoestring budget as a new entrepreneur, but if you can afford it now or in the future, several tasks can and should be outsourced to freelancers or employees. If you attempt to do it all without any help from a team, you may suffer from entrepreneurial burnout — and your business could fail to grow. A few of the tasks you may wish to outsource include:
● Appointment scheduling and tracking.
● Bookkeeping and accounting.
● Graphic design and copywriting.
● Website, software, and hardware support.
● Social media marketing.
If you can’t afford to cover the cost of employee benefits, you can still get the help you need by recruiting a few freelance professionals. Several places to find freelancers include Upwork, LinkedIn, Indeed, and Toptal.
Avoid These 5 Common Mistakes for Long-Term Success
The entrepreneurial journey is an exciting one, but it’s important to carefully plan your new small business before jumping in headfirst. Take the time to choose a legal structure, develop your business acumen, find the right business partner, create a marketing strategy, and hire a few freelancers — as these steps will minimize the risks of business failure and set you up for success as a new entrepreneur!
About the Author: Derek Goodman is an entrepreneur. He’d always wanted to make his own future, and he knew growing his own business was the only way to do that. He created his site Inbizability, to offer you tips, tricks, and resources so that you realize your business ability and potential now, not later.
