Learn about the common startup mistakes that small business owners make
ComplianceAugust 18, 2023

11 common startup mistakes and how to avoid them

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Starting a business is fraught with mistakes and mishaps. It doesn’t matter how much business experience you have, it’s easy to overlook important tasks or run into problems.

No one is perfect, but the key to success is quickly recognizing your mistakes, learning from them, and taking steps to ensure you don’t repeat them.

In this article, we explore 11 common startup mistakes that small business owners make, plus steps you can take to avoid and mitigate them.

1. Diving in without a clear plan

Writing a business plan can seem like an unnecessary distraction. But if you’re looking to finance your venture with a bank loan or private equity, you’ll need one. Your plan can also help guide business decisions and keep you on track, think of it as a GPS for business success.

Your business plan should include:

  • A definition of your business goals, products and services, and how you intend to operate and expand your business.
  • A discussion of your industry, market forces, competitors and how you plan to compete.
  • Detailed financial projections so that investors can see a return on their investment, including cash flow, income statements, and annual balance sheets for at least three years.

For more information, check out these resources:

2. Not researching legal requirements ahead of time

Legal and regulatory responsibilities often get sidelined during the startup phase, but doing so comes with risk. Failing to make the right decisions about how to legally structure your business can have negative impacts on your business’ standing as well as tax ramifications.

Other obligations include registering your business with state and local authorities and checking zoning laws early. Zoning restrictions can impact your ability to conduct business in a certain locale.

Also, be sure to research any government tax, business licensing, and business insurance requirements, especially if you have employees.

3. Forgoing contracts

Contracts can protect you and your business against business and financial losses. Professional contracts ensure all parties – employers, employees, vendors, and investors – are on the same page and protected if something goes wrong.

Consult a business lawyer to ensure you have contractual agreements in place before you open your doors.

4. Not having a clear marketing strategy

Marketing is a function that many small business owners overlook because of the perceived cost or resources required. But that’s a risky move to make.

Whatever market you’re in, it’s likely to be a competitive one and you can’t afford to put mixed messages out there. Having a clear marketing strategy can help you focus on your differentiators and craft a clear, consistent message for communicating it. It should also include a mix of tactics – email, website, social media, referrals, events, etc. – for getting the word out.

5. Neglecting your cash flow

Cash flow is king. Without it you will struggle to pay your bills, your employees, and yourself. Cash flow also ensures you can cover unexpected costs or a dip in sales.

Develop the habit of diligently monitoring costs and expenses and compare them to your revenue. Track receivables and have a process for collecting promptly.

Develop a cash flow projection spreadsheet so you can see any problems down the road and take steps to mitigate them. For example, if you need to make a large equipment or inventory purchase, consider applying for a business loan or line of credit so that the costs are distributed over time.

6. Undervaluing your product or service

Don’t price your product or service too low just to gain market share. Setting prices low will limit your ability to pay off startup costs, breakeven, and make a profit. This strategy also limits your ability to grow and expand your business. Moreover, low prices could undermine your brand and perceived quality of service.

Refer to your business plan, financial predictions, and marketing strategy to inform your price point. Monitor actual costs and make any needed adjustments based on sales volume, competing products or services, and customer feedback.

7. Relying too heavily on a single client or income stream

Relying on a single client, channel, or income stream is high risk. If a client makes up 75% of your business, any market shift, customer service issues, or other disruption could have a negative impact on your business. For example, if a client cuts their budget or shifts their business to a competitor, how will you fill the gap? Don’t rest on your laurels, develop have a plan to diversify your client base – today and tomorrow.

8. Not protecting your intellectual property

Intellectual property (IP) can be confusing territory for a startup. If you’ve developed a product the law doesn’t automatically mean it’s yours to claim – patent law applies. The same goes for your business name, trademark, and even the content you produce (copyright).

You can be caught off guard if you don't understand IP law or fail to register your assets from the beginning, especially if your competitor claims ownership. In these instances, you could be subject to fines and be restricted from going to market with a product.

Don’t overlook the importance of developing an IP strategy for your startup. It’s an important step to ensuring your assets are legally protected and can be monetized without risk or violation of IP law.

9. Not being a good leader

The success of your business hinges on effective leadership. This doesn’t mean being the boss that everyone fears or micro-managing every employee. A good leader sets the course for the business, conveys its mission and values (often), and inspires a happy, productive team who are as invested in the success of your business as you are.

Find ways to lead by example, be present but not overly so, and seek advice from others when you need it.

10. Doing it all yourself

Starting a business means wearing many hats. But you can’t go it alone forever. While you have many strengths, you have weaknesses too. Find ways to supplement them by delegating and hiring people who can help your business succeed and grow.

If you’re struggling, ask others for help. A mentor or outside consultant can shine a light on areas where you can let go of the reins a little while driving your business forward.

11. Failing to monitor progress and making adjustments

As you navigate the ins and outs of running a business, keep an eye on your business goals. They serve as your compass, guiding you towards your desired destination and informing what you need to do to get there.

Continually refer to your business plan. If you’re not tracking in the right direction, learn from your mistakes and pivot. Test a new idea, such as a new layout for your business space or a new pricing strategy. Get feedback and keep refining so that you’re always meeting customer needs and expectations – as well as your own business goals.

Nikki Nelson
Customer Service Manager
small business services

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