It’s a harsh reality that most start-up businesses fail.
Even harsher, the mistakes that cause a business to go bust are often ingrained at the beginning of the journey. Before the founders even make their first sale, they likely already made their first mistake.
To help you dodge these costly errors, we’ve drawn up 10 of the biggest mistakes small business owners make. Avoid them to increase your chances of success.
1. Jumping in without a plan
Plenty of small businesses start on a hunch. People walk around town and realize it’s missing something. Take a bakery or a high-end barber, for example. They might see a petty problem that could be fixed with a simple invention, or they believe they can provide a product or service better than existing vendors.
This is completely normal, and a valid starting point for your business journey. But, a common small business mistake is to jump immediately from this initial “aha moment” to starting your business—investing time and money into your idea without properly testing the theory first.
Take the bakery example. There might not be one in your local neighborhood, and everyone eats bread, right? Surely, there must be ongoing demand for fresh baked goods and, if you set up shop, customers will flood your business. It’s a no-brainer.
Or, is it?
Bakeries fell in number during the 1980s due to competition from major supermarket chains. These competitors started selling baked goods so customers could get more of their weekly shop in one place. Bakeries are making a comeback, with artisan offerings and tempting product ranges, but don’t think this guarantees success.
The best way to improve your chances is to test local opinion before you commit to the business. Draw up a survey, take it into town on a Saturday and invite people to respond. The key questions to answer are, do people want a bakery and, if so, would they buy from you?
If there’s demand—and you must be honest about this—then you’ll need to research other aspects of the business, including the availability and cost of premises, cost of supplies, branding, marketing, pricing, and logistics.
The more you know about your business plan before you start, the fewer nasty shocks that can happen after, which has to be a good thing.
2. Getting careless with cash flow
Sometimes, businesses fail even though they have healthy sales and are turning in annual profits. It happens when the team allows money to leave the business faster than it comes in, perhaps because they want to invest in new stock, machinery or premises.
Cash flow problems often arise when expected payments don’t materialize—the bigger the expected payment, the bigger the hole in company finances when the client either pays late or fails to settle their bill at all.
Business finance professionals recommend saving an amount of money that can be used as a buffer when cash stops flowing unexpectedly. The amount depends on the size and nature of your business, but a six-month salary pot will cover your operations in all but the most extreme circumstances.
If you are paid via invoices, credit-checking prospective clients will protect you against the worst payers and save a lot of heartache.
Forking out too much is a major cause of business failure, but so is not spending enough. Forecasting cash flow means predicting ups and downs in demand and investing appropriately in stock, people and materials. Failing to buy enough stock, for example, could result in a missed opportunity to increase sales.
The same applies to investing in growth, in the form of branding, marketing and advertising. The adage, “build it and they will come,”doesn’t apply in business, so you’ll need to spend wisely on promoting your products and services to ensure demand meets supply.
4. Fixating on—or forgetting—the competition
Every business exists in a competitive landscape, meaning that there will always be a rival trying to grab a slice of your pie. People who start and grow businesses should be aware of competitors and understand the threats and opportunities they represent.
If, for example, a rival is underperforming in a certain area—maybe you’ve heard a client of theirs is unhappy—you could jump in with a well-timed offer. Equally, if another business launches a new product in your market, you need to know how to respond.
But, competitive analysis only gets you so far. It’s important to know the market, but businesses are sometimes guilty of focusing too hard on what everyone else is doing—and not enough on their own operations. It can cause you to drift off-track and lose focus, or, just as bad, miss opportunities emanating from within your business.
So, work on creating a happy medium—keep one eye on rivals, but don’t lose sight of where you and your team are headed.
5. Pricing too high, or too low
Economists will tell you that there is such a thing as a Goldilocks price—one that tells customers you’re not too cheap and not too expensive. They are reassured that the thing they’re buying—whether it’s a car or a haircut—is what they’re looking for.
The bad news is that this price is different for every product and every individual customer, and it has a tendency to move up and down over time. Yet, pricing strategy is one of the most important skills in business.
Price too low and customers might assume your product is junk, but set the number too high and you risk pricing interested customers out of the market. Neither is a good look for your business, so work on getting it just right.
Research the market for similar products or services, secure feedback from customers, and check back routinely to ensure your pricing strategy hasn’t become dated.
When it comes to insurance, it’s usually better to have too much than too little. Shunning appropriate cover is a good way to destroy your business in a heartbeat. In addition to the basics of fire, breakage and theft, you might need professional indemnity insurance and employers’ liability insurance, as well as public liability if you welcome customers onto your premises.
Every business has its own insurance thumbprint. A tree surgeon in one part of the country may have very different needs than a florist in another part, so if you’re unsure, ask an expert. Business is a game of risk, but if you can stack the odds in your favor, then you can avoid disaster.
7. Hiring the wrong employees
People are the backbone of any business. From the smallest convenience store to the biggest tech giant, the people you trust to run your business will either make it or break it. So, choose wisely.
Some experts say they would rather employ someone with low skills but a great attitude than someone who’s right for the job, but wrong for the business. Everyone has their own strategy, but, ultimately, your goal is to build a team that is talented, enthusiastic and supportive.
Common errors in the HR department include hiring too early (paying a salary out before you’ve got off the ground, for example) or too late (not being able to fulfill a contract on time because you weren’t able to bring in people to deliver it).
But, businesses should also focus on training staff members in your company’s core values and strategy, while providing a welcoming and exciting environment that makes your people want to get up at 7 a.m. on a Monday in February. Leave your people to their own devices and watch them drift away.
Digital technology has done more to disrupt the global economy than anything else in the last three decades. Fifty years ago, you needed hundreds of thousands of people to build a billion-dollar business; today it takes just a handful, thanks to huge advances in communications and project management software, for example.
Yet, many businesses still forgo basic tech, such as a website or social media page, even though it could provide a significant boost to their business. Technology can improve marketing, finance and teamwork—in fact, there isn’t a business department that can’t be enhanced.
Take a look at what’s on offer, consider the pros and cons of adoption, and buy—or subscribe to—technology that will give you an edge. If you don’t, you can bet someone else will.
9. Failing to make concrete business decisions
Despite all the advice above about doing your research, weighing up the options and taking your time, there is a limit to the amount of beneficial groundwork any one company can carry out. Problems arise when decision-makers are overwhelmed by information and fail to commit one way or another.
Analysis paralysis, as it’s affectionately known, is potentially just as damaging as hurtling into decisions without gathering any evidence first. It can cause your business to miss out on lucrative contracts, efficiency-fueling investments or mutually beneficial partnerships.
There’s no such thing as perfect information, so learn all you can in the time available, and then make your choice and be prepared to stand by it.
10. Not delegating or entrusting staff who have earned it
You’ll often hear founders describe delegating as one of the hardest steps in a business’ journey. For months, even years, you make all the big decisions. You win the contracts, make the investments and build the team, but for every successful business, a time comes when you have to let go of the reigns—at least a little bit.
In the beginning, entrepreneurs are all-rounders. As your business grows, your strengths and weaknesses start to become obvious, so fill these gaps with people who do it better than you. By failing to delegate, you’ll stifle the potential of your best employees, restricting the growth of your business.
A top team with decision-making powers is faster, more efficient and better equipped to capitalize on opportunities. Doing it all yourself slows progress, and soon people will start looking around for alternative employers prepared to put faith in them.
All successful businesses have a history of little wins and losses, risks that paid off, and those that didn’t. But, by avoiding mistakes where there is no upside, you’ll eliminate a whole host of factors that could lead to failure.
Do your research, invest in tech and trust your team. That way, your business will be ready to rise up the ladder, while avoiding the biggest pitfalls.