A new business starts with a new product or a new version of an existing product. Without the product/service, there will be no business in the first place. However, all too many budding entrepreneurs fall prey to this common mistake—they get too caught up in their vision. Yes, there is the vision, the idea, the drive and the ambition. However, success in business depends on so many other factors as well. And unless you, as an entrepreneur, keep all those bases covered, you’ll be in for big disappointment majority of the times.
In this article, we’ll discuss some of the biggest mistakes new businesses commit and which often prove to be their downfall. We’ll not touch upon some very basic (and altogether naïve) mistakes such as not having a detailed business and marketing plan or ignoring the sales aspect of the business, etc. Instead, we’ll try to focus on mistakes and/or bad decisions that are made all too often even by otherwise intelligent and savvy entrepreneurs.
Common Mistakes to Avoid for New Entrepreneurs
1. Micromanaging and Cutting Corners at Wrong Places
Typically, most new businesses begin their journey with a limited budget. So, it’s understandable that they will be circumspect about where' and how they spend their money. However, attempting to micromanage too much can spell trouble for a new business before long.
There are so many aspects to running a business. First, there is product development, then sales, then there is accounting. Let’s take the case of accounting, for example. Now, you may have some basic knowledge about the subject but are you really that good with numbers? How well do you understand the pitfalls as well as the benefits of tax strategy? Do you have a proper strategy in place vis-à-vis your cash flow? Managing the finance side of a business is a specialist’s job.
As an entrepreneur, you may be a natural in developing products. Most entrepreneurs are. But very few come with a good knowledge of finances. So, what we’re getting at is that as a newbie in the business world, every entrepreneur needs to acknowledge his strength as well as his weaknesses. And as such, needs to hire the right professionals for things he feels he cannot manage on his own—or cannot manage well enough. One should never forget that in business, a single mistake can often prove to be fatal, and this applies even more for startups. The bottom line, don’t try to do everything by yourself. Your idea or vision can translate into a thriving business only when you have qualified and efficient operational partners by your side.
2. Not Putting in the Work after Initial Success
Achieving initial success is one thing, but to build on that success and keep growing is a different ballgame altogether, says Drivonic founder and CEO Matt Mead. According to Mead, all entrepreneurs need to put in “work outside the work.” They need to keep educating themselves about stuff that fall outside the daily operations of their current venture.
Just now, we were talking about the importance of acknowledging one’s weaknesses. But once someone starts to get his foot in the business world, he must also strive to fill up those knowledge gaps as much as possible. This is not necessarily to manage everything on one’s own. However, once you have a more or less holistic knowledge of all the different aspects of business, you’ll be better able to gauge the right or wrong of any decision made by your colleagues.
As a way of example, an entrepreneur may not necessarily have great PR, management or leadership skills when he’s still a ‘new kid on the block’. Now, if this is the case with you, you should put in extra hours mastering those skills. Having done so, now you’re in a position to make better decisions when hiring new recruits or getting better prices from your suppliers and vendors thanks to more efficient negotiation tactics.
3. Failing to Stay Ahead of the Curve
This is closely related to our previous point. Due largely to the rapidly changing technological landscape, business in modern world is becoming more hectic every passing day. This means that every entrepreneur needs to monitor closely the whole spectrum of growth, expansion, and innovation in the field of technology. Of course, not all innovations will be relevant to your business vertical. However, if you don’t stay up-to-date with modern technology, you may miss out on some amazing opportunities. On the other hand, if your competitors manage to leverage those opportunities to their benefit, you’ll be pushed out of the market in no time.
4. Underpricing and Working with too Small Margins
New businesses often commit the critical mistake of underpricing their products. And this results from a number of common fallacies. One is of course that keeping your prices low will help undercut the competition. This may be true at times; however, not always. Customers are often actually willing to pay higher prices for a product/service as long as they receive quality and value, especially if the product comes from an established brand.
The next thing is that even if it works for a business for the time being, it’ll still be working with a too small profit margin. And that’s always a dangerous game to play. Not having a healthy margin and enough bankroll mean it’ll be so much the more difficult for you to endure rough business cycles.
Finally, once you set your prices too low, the customers will definitely frown upon it when you try to raise it in the future. So, before you set yourself on this (somewhat dangerous) path, have a good look at your current operational and production costs and determine the range of flexibility there is. If and when the need arises, will you be able to bring down these costs? If the answer is no or if you’re in any doubt, play safe and settle for a higher profit margin.
5. Not Getting the Right Insurance for your Business
This may sound like one of the basic mistakes we alluded to at the beginning of the article. However, the fact is that a good many of new businesses still fail to get proper coverage for the type of business they are in. And in the process, make themselves vulnerable to huge financial losses in case of a potential mishap.
More commonly, however, businesses will invest in plans that will incur unnecessary costs for them. For example, an article at publicliabilityaustralia says a new restaurant owner will commonly invest in 5 types of insurance: Public Liability, Commercial Property, Cyber Liability, Workers Comp and Crime Insurance. Now, this is alright for a small restaurant. However, it’ll be much more beneficial for a larger establishment to invest in General Liability Insurance (GLI) in place of Public Liability (PLI). This is since although the former costs significantly more than PLI, General Liability will provide much more comprehensive coverage and as such, will be a more cost-effective option for the business. Bottomline, as a new business, always invest the time to educate yourself about the ins and outs of business insurance and always use this knowledge to make smart business investment plans.