Did you know that 80% of businesses fail within the first 18 months? It's a sad, frightening reality that often scares budding entrepreneurs away from the idea of starting a business of their own. But as hard as the facts are, they shouldn't discourage you from trying — instead, take the opportunity to learn from the mistakes of others.
There's a time-tested process for starting a business, and the better you do in these early stages, the more likely you are to survive later on, even in the face of unexpected obstacles.
When you start your business, you have a chance to build a solid foundation on which it can thrive and grow, so don't squander the opportunity by making these common mistakes.
1. A Poorly-Defined Business Idea
No business can start without an idea, and for best results, that idea has to be fully formed, fleshed out, and solidified before any further action is taken. If you can't explain in a few words what your business actually does, you need to hold off on proceeding until you can.
If your idea is flimsy, everything you do with it will be equally unstable. Your planning process will suffer from lack of clarity. Your branding might be impossible to get right. You'll constantly need to go back and change things. Make sure your idea is fully evolved before you put it to work, and everything afterward will be much smoother.
2. A Poor Business Plan
If you don't thoroughly plan out all aspects of your business's formation, operations, and structure, you're going to run into huge problems later. A lack of planning bleeds through into everything, from company culture and morale to supply chains, and the longer you go without a plan the worse it gets. You, your employees, and the business itself will struggle to find footing and may collapse altogether.
A business plan isn't something you can make up as you go along. It needs to be laid out in full before you take one step further. Plan your organizational structure, vision and mission statement, standard operating procedures, and everything else. Your business plan is your map to success, making a complete checklist for starting your business and following it is the best way to get started.
3. Lack of Research
Research for a business comprises several areas, including researching the validity of your idea, finding and understanding your target customers, studying competitors, learning about taxes and laws, and more. And it's all completely necessary in order for you to make informed decisions.
Your understanding of your industry needs to be complete. For example, what types of materials do you use and how do you calculate their costs? If you don't know, you won't be able to price your products accurately, and you'll end up losing profits — and in fact, pricing mistakes can be devastating enough to end a business. This is why research is crucial.
If your business plan is your map, your research is the light you use to follow it. Of course research can be tedious, time-consuming, and even expensive, but without it, your business will be in the dark. This makes you vulnerable.
4. Bad Financial Planning
Good financial planning is the difference between staying in business and closing up your office, wondering what went wrong. Your business's budget needs to take all your possible expenses into account, including taxes, fees, costs of materials and labor, and more. You need to be fully prepared for every expense far ahead of time, because unexpected costs are often impossible to recover from. Research comes into play here, too, as without it you can't budget correctly.
Of course you can't see into the future, but you can foresee typical business expenses and plan for them accordingly. Base your budget on research and informed projections, not guesswork or wishful thinking, and always know exactly how every penny is being spent. Calculate how long it will take for you (and any investors) to start seeing a return on investment. And above all, don't leave anything out of your budget.
5. No Unique Value Proposition
Your business needs to stand out from the competition, and the only way to do so is to present a special quality that shines through in everything your business does. This is your unique value proposition, and you need to work it into the fabric of your business from the very beginning. What makes you different? What makes you a better choice for a certain kind of customer? This can be anything from a pricing structure, to a product guarantee, to a policy or aspect of your company culture, but it has to be something that will attract people. Otherwise, you'll fade into the crowd.
Your unique value proposition also needs to be well-communicated to your customers — if they aren't aware of it, it's just as bad as not having one at all. Customer awareness is the main reason your unique value proposition needs to be evident at all times. Your business's website can be a great resource for spreading customer awareness, especially if it's built on an eCommerce platform geared toward branding and SEO.
So why are these five mistakes so dangerous to a new business? Because they'll set you up for failure from the very beginning, and if you don't know about them, they're easy to make. Knowledge is your most valuable asset, and can prevent you from heading in the wrong direction or skipping over a vital step in the process.
That's why we created our How to Start Your Own Business ebook; to help you arm yourself with even more entrepreneurial knowledge and increase your chances of success. Download it for free below!