Business Ownership Is an Opportunity, Not a Guarantee - 7 Mistakes to Avoid
45% of businesses fail during the first five years. Avoiding these 7 common mistakes can help companies stay on the path to success.
Many Americans own a business. However, according to the Bureau of Labor Statistics, 20% of companies fail during the first two years, 45% during the first five years, and 65% during the first ten years.
In my experience, companies that encounter hardships have often made one or more of these seven mistakes.
Mistake #1: Unclear Market Focus
Many passionate entrepreneurs only have a vague idea about what they are good at and how to turn this strength into a marketable product or service.
However, not knowing your business's X-Factor can result in a weak brand addressing an overly broad target audience, which can significantly increase expenses. To sharpen your market focus, follow these four steps.
Develop your business's X-Factor.
Define your brand compass, promise, and personality.
Identify your ideal customers.
Develop your business model.
Build a marketing strategy to reach your ideal customers.
Mistake #2: High Complexity
Dealing with a small number of products or customer orders differs significantly from managing a large quantity.
As a retailer, whether you offer five products or 500 makes a big difference in the way you run your online store. You may be able to handle five products with pen and paper. But tracking and transacting a catalog of 500 items is another level of complexity.
As a contractor, event manager, or interior designer, it is much easier to manage a single project at a time than five or ten going on simultaneously. Working on multiple projects in parallel requires standardized processes, excellent logistics, and clear responsibilities between all team members within and outside your organization.
Streamlined, digitized workflows can help reduce the complexity and make your business scalable.
Mistake #3: Unrealistic Business Plan Assumptions
Entrepreneurs are natural optimists. This optimism about the future often translates into unrealistically favorable assumptions and ambitious goals that can lead to enormous growth rates.
However, these growth rates could collapse if one or two of these assumptions don't materialize. A company that relies heavily on external funding could quickly run into existential trouble if it breaks specific financial metrics (so-called covenants) and the bank threatens to call the loan.
Instead of developing a single business plan, create three or four business plans and base them on different assumptions from favorable to adverse. Each scenario projects the same key financial metrics, such as sales, profitability, and cash flow. You can glean from these projections how your finances would react if the economy went into recession or your product launch missed a crucial milestone.
Mistake #4: Over-Reliance on Paid Social Media and Search
Many companies pay a lot of money to promote their brands on social media and search. However, the return on their advertising spending (ROAS) is often questionable.
If your referral rate is low and your cost per acquisition (CPA) is high, you are likely relying too much on external marketing platforms to acquire new customers.
Instead, shift your focus on increasing referrals through word-of-mouth marketing and signature presentations in front of live audiences.
Mistake #5: Not Reading the Legal Fine Print
Signing a legal document like a franchise agreement without completely understanding what you are agreeing to can haunt you in the future.
Many contracts contain non-compete clauses that could stay in effect long after the franchise term expires, limiting you from starting a new business in the same or an adjacent industry.
It can also be helpful to inquire about the value you receive for the franchise fees and challenge your thoughts on why establishing an independent business isn't an option.
Mistake #6: Messy Finances
Few business owners review their company's finances monthly. However, understanding where you stand and how you perform against your goals is crucial for adjusting your approach, terminating initiatives that are not working, and accelerating those that are yielding positive results.
Having messy finances is like flying blind. Managers may not realize the company is in trouble until they cannot pay a bill. However, this situation can often be avoided by regularly reviewing the company's monthly profit and loss statement and balance sheet.
Mistake #7: Lack of Delegation
Although initially, you wear all the hats in your business, filling all the roles in the front and the back office.
But as your company grows, you must learn to focus and delegate tasks that others can handle more effectively. Because if you keep wearing too many hats, you will either burn out or your company will underperform its potential.
Pursue the Opportunities That Matter
Successful entrepreneurs share one crucial trait: discipline. They don't chase after every opportunity that comes their way but instead focus on pursuing only those essential to achieving their goals. However, the path to reaching these goals may change when external factors beyond their control dictate a shift.
Entrepreneurship is never a straight line; it involves countless detours. But that's where the fun lies.