Thinking about launching a startup, but scared of the legendary failure statistics? Today’s post covers the nine most common mistakes small business owners make in the first year—so you can learn how to avoid them and set yourself up for smooth seas ahead.
Mistake #1: Failing to Plan
By and far, the number one reason why a startup fails is because an overly eager entrepreneur comes out of the gate swinging too hard, too soon. It doesn’t matter how brilliant your idea may be; it’s doomed from the start unless you carefully strategize every detail of its execution.
Coming up with a business plan is a ton of work, as it should break down exactly how much money you’ll need to get started and how much income you expect to make. Unless you’re investing in your startup with your own capital, lenders will need to know this information before providing you with funding, since it’s essential to when they can expect to be repaid.
Mistake #2: Skipping the Market Research
Your business plan should also include critical research that evaluates the market for your service or product, as well as the competition you can expect to face. Who are your ideal customers? Define your target-audience as narrowly as possible to understand who you’re catering toward. Who are your top competitors? How are they operating, and how can you do it better?
After running a thorough research report, you might find that there isn’t really much of a market for what you’re selling and that your big idea maybe wasn’t so great after all. Doing this before launching your startup can prevent you from having to learn the same lesson the hard way.
Mistake #3: Waiting Too Long to Hire
Most entrepreneurs are frugal and believe themselves to be a Jack-of-all-trades. It makes sense, then, that they often defer on paying wages to someone for something they can do themselves. Waiting too long to hire, though, can ultimately cost more if things fall through the cracks, details get overlooked, and customers are left unsatisfied.
Employee retention strategies are also very important when it comes to cutting down the high cost of employee turnover, which can cost 16-213% of the lost employee’s salary. That number can be particularly painful to any small business, not to mention the detriment it places on your short- and long-term goals. Therefore, when it’s time to hire, don’t throw your new employee into a chaotic mess. Doing so will only give them a reason to quit sooner rather than later.
If you find yourself in a scramble for help, you might be tempted to pull the trigger and hire someone as quickly as possible—but in business, any rushed decision is a bad decision. You need to take the time to thoroughly vet each and every job applicant with pre-employment screening. This will help you confirm that there are no red flags lurking in their criminal history and that you can entrust the fate of your fledgling business into the hands of your new team member.
Don’t forget to call the candidate’s references and cross-check the information they provided on their application. By asking their former employers if they’d be eligible for re-hire, you can glean insight into their work ethic for better judgment on whether they’d be a good fit.
Mistake #5: Spending Too Much
If you’re launching a startup and want to avoid becoming another statistic, remember this lesson: manage your overhead costs. Margins are everything, and you need yours to be wide and cushy as you test the model set forth in your business plan. This is hardly a spoiler alert, but things rarely go perfectly as planned and you’ll need some wiggle room as you wait for revenue to start trickling in.
Your sales forecast might have been a bit off, or perhaps the seasonal sale didn’t drive as much traffic as you’d predicted. These variables may be out of your control, but you have a much greater say on the company’s expenses. Carefully manage how much you’re spending to avoid bankruptcy and ensure your lenders receive their monthly repayments in full.
Mistake #6: Underpricing Goods or Services
Another sure-fire way to lose money is by setting your price too low. This is a common mistake among new businesses who are either trying to undercut the competition, or neglected to do their homework when setting the going rate. Either way, charging too little can make it challenging to cover even the most basic overhead costs, let alone drive a profit.
Depending on the structure of your business entity, you’ll more than likely be required to pay quarterly estimated taxes (so long as you expect to owe $1,000 in taxes when your return is filed, or $500 for corporate entities). Failure to do so, or failure to pay the correct amount, can lead to steep interest penalties and late fees—on top of a large year-end tax bill that you didn’t budget for.
Be extremely cautious with your accounting and bookkeeping processes, and if you’re not good with numbers, hire a professional to run the books for you. The IRS doesn’t take it easy on the little guys, so this is one costly mistake you should be sure to avoid.
Mistake #8: Passing on Insurance
“I won’t need that”? Think again. You may be able to protect your personal liability from business obligations by forming an LLC, but that won’t protect you if you’re sued by a customer who slips and falls on-premise. Plus, disasters like floods and leaks are nearly impossible to predict, so it’s always better to be safe than sorry. The monthly insurance premiums will seem insignificantly small compared to the exorbitant legal fees and repair costs you might face otherwise.
Mistake #9: Building a Bad Website
Can Google crawl the backend of your site? Is your content indexed? Do you rank high on the SERP, and are you included within local listings? What KPIs have you set up? How’s your UX looking in terms of bounce rate?
If you don’t know the answers to these questions—or, worse yet, you’re not even sure what these questions mean—hire a web developer and search engine optimization strategist for help. Your website is the cornerstone of your online presence and you need to be confident it’s done to a T.
Keep these common mistakes in mind as you get ready to launch a startup and you’ll be geared up for success in the year that follows.