8 Mistakes first-time entrepreneurs make when starting a business
A good startup will float, yet most will sink: here’s how to avoid that
According to startup statistics from 2020, around 250 companies are founded in Canada each day. While 98.9 per cent of startups are categorized as small to medium firms, nine out of ten startup companies will likely fail.
As we’ve previously discussed, the key to having a successful business comes from building a strong foundation: A solid team, great ideas and of course, the right means of funding. However, as simple as these golden rules may sound, when you take a deep dive into each of them, they’re
a lot more complicated to achieve than one might originally think.
And, as of March 2021, only 80% of startups survived past their first year. According to business owners, reasons for failure include money running out, being in the wrong market, bad partnerships and ineffective marketing. But, what if we could provide you with some tips worth taking into consideration when starting your own business?
Below is a list of eight mistakes most entrepreneurs might make when building a company, and how to avoid them:
- Having a flawed business model
Having a business plan is probably the most crucial step in starting a business; it’s done early-on and makes up the entire backbone of the company itself. Business models are supposed to identify revenue sources, customer bases, products, and even cover the details of financing most would typically rather ignore.
However, just because you have a business model doesn’t mean it’s a strong one. Many startups fail because they just don’t meet the mark; usually a flawed business model will fail to take into account factors that later become important, especially as you start to scale your business. Some of these factors include miscalculating costs, underestimating timelines and failing to properly understand your customer base. It can also include generally gathering false information, and inaccurately predicting the market.
In order to avoid this, establish a contingency plan. Craft a detailed SWOT analysis of the business and work to better understand your goals and your company goals, and how they align with one another. Assess the situation and if you have to, change direction. And most importantly, with everything you do, practice long-term planning. Long-term planning includes the overall goals of the company set to four or five years in advance, and are usually based on reaching medium-term targets. This strategy helps to complete short-term tasks with long-term goals in mind.
- Changing market conditions
This mistake goes hand-in-hand with #1, with the perfect example being the COVID-19 pandemic. Even if you feel as though you have an accurate view of the market, sometimes sudden market changes lead to businesses struggling or failing in an effort to keep up.
With COVID, businesses were forced to shut down suddenly, or prohibit certain services from taking place. With these shutdowns and capacity restrictions, businesses saw a drastic decrease in volume.
To date, smaller businesses have had to contend with labour shortages as well as inflation. What exactly is happening? Higher cost of goods and a competitive labor market have forced small businesses to increase spending to stay competitive, which ultimately has them diving into their profits.
While there’s no sure way to completely avoid changing market conditions, it’s important to keep an eye on the economy. Use research to gain market insights and try your best to stay attuned to your target customers’ needs. Take things slow and stay flexible and attentive; in doing so, you’ll likely be able to figure out what the next step should be.
- Poor recruitment practices
More or less, great employees add to the productivity of your organization. While some general people skills are easier to come by than others, hiring competent, creative and driven people makes a world of difference when it comes to the success of your company. The more well-rounded the employees you hire turn out to be, the more you’ll reduce the need to hire for leadership positions down the line and ultimately, the less work you’ll have to foot by yourself.
Many entrepreneurs can be hesitant at the beginning, and take on more responsibility out of fear of hiring the wrong person. This eventually leads to stress and burnout, which we’ll talk about later on. Alternatively, they also might lower their hiring expectations just to staff the company, meanwhile the personality and character of said employee is compromised.
Following a good recruitment practice is important as great employees are investments that are sure to pay off in the future. Hiring hard workers off the bat is crucial in ensuring overall success of the business, and is more cost-effective and productive altogether.
- Failure to make adjustments when necessary
In every startup, there are going to be mistakes and miscalculations made along the way. While any ups and downs you face will help you come out stronger at the end, it’s still important to recognize where you went wrong, and make adjustments when necessary.
A lot of entrepreneurs skip this step; many times, start-ups fail because they were unable to learn from their mistakes and change their perspective, audience, brand, or whatever it may be to allow them to flourish. It’s important to reflect on what was done wrong and turn your losses into wins. Focus on doing better and figuring out how you can accomplish that is a wonderful step in the right direction.
- Doing everything yourself
Like mentioned above, most entrepreneurs feel as though they have to do everything themselves. Obviously you would know more about your business than anyone else, even your employees. However, doing everything on your own is a sign of bad leadership.
Enable your employees to take on more responsibility by teaching them what they’re supposed to do. Let them gauge how things are to be done, and let them make mistakes. As frustrating as that might seem, it’s the best way to get them to learn what is expected of them. In fact, kicking that “all by myself” attitude to the curb might be the saving grace in helping your business survive: here’s why.
Apart from the obvious, like undergoing stress and burnout among a multitude of other things, completing every task by yourself leaves no room for growth and puts a lot of strain and responsibility on yourself, while you already have a business to manage. Even though you’d achieve a lower operational cost by doing everything yourself, the smartest decision you can make is asking for help. This lessens your overall load, improves productivity and increases your trust, helping your employees grow and trust in one another. Wouldn’t you rather that?
- Not spending on marketing/neglecting company branding
Another big mistake entrepreneurs tend to make is forgetting where to invest their money. Even a startup needs to invest in tools and services to get some jobs done, jobs that they can’t perform on their own.
There are two main factors to take into consideration when trying to deduce the right marketing budget for your company:
Know your estimated or gross annual revenue - It is suggested to make your marketing budget a percentage of revenue, so it’s worth knowing what you’re working with.
Factor in your company’s age - Newer companies should allocate more money to marketing to maximize their growth, especially in the beginning stages.
While your marketing budget may fluctuate depending on events and holiday seasons, for the most part it should remain fairly constant. It is recommended that younger companies (between one and five years) should invest 12 - 20 per cent of their recorded gross revenue into their marketing strategies, though it depends on the company.
Where companies usually fall short is the amount of money they invest into their marketing strategy. They usually assume it to be lower on the list of priorities than it is, and don’t exhaust every opportunity to market their brand.
With good marketing and branding, you can create a loyal customer base and attract the most customers to your business. The more money you put in, the more quality you’ll likely get out of it. Marketing strategies include (but are not limited to) posting on social media, targeted advertisements in newspapers and on websites, commercials, billboards, etc, really anything that can be seen by the naked eye in order to influence and attract. By creating a detailed plan with marketing tactics that work for you, you’re sure to see results.
- Not sourcing growth capital from alternative entities
Looking for financial aid to help in the process of building a business can be daunting at first. While you could take out a regular bank loan or even take out a merchant cash advance, our recommendation is partnering with us at CAKE Capital. If you’d like to read more about the services we offer, feel free to visit our site linked above to help you better understand what we do and make a decision that sits right with you.
Our best advice is to gather all the necessary information about your business and the funding you’d like to acquire for it, and then weigh out your options depending on your qualifications. While CAKE is definitely the most favourable option, never commit to anything without knowing the facts and knowing how said investors can benefit you and your company.
- Forgetting the competition
Lastly, it’s important to remember that more often than not, high competition leads to startup failure. Approximately 20 per cent of startups fail to find success because they forget about the amount of competition in their field.
While competition is impossible to avoid completely, it is important that your business demonstrates differentiating factors in order to stand out among others. Competition can be a healthy motivator for a company, excepting the fact that it can be difficult to come up with completely new and original ideas all the time.
It’s important to be aware of your competitors so that you can properly price and reinforce your own brand and message. By knowing your customer and identifying a target audience, you can build a strong relationship with them, extending the customer lifecycle beyond a couple of purchases. Make sure you look after your existing customers while continuing to try and build a larger market at the same time. Continue to innovate by exploring and expanding on both old and new ideas, and never accept defeat, even when you might want to.