Business mistakes are a part of life. But they can be minimized if you know how to avoid them. Learn what makes successful businesses fail — and avoid the same mistakes in your business.
The reason business is so hard is that it’s not a puzzle you can solve with a computer. Thousands of people have tried to build companies, and the ones that succeed are the ones that make the right choices below the threshold of conscious awareness.
The 9 mistakes below are just some of the ones I’ve seen entrepreneurs make. As you read them, keep in mind that they’re all understandable — even predictable — given how hard it is to be a successful entrepreneur.
If you’re starting your own company, you’ll be making plenty of decisions. Some of them will be good ones, and some won’t.’
Most Common Mistakes to Avoid
If you’re starting your own business, you’ll be making a lot of decisions. Some of them will be good ones, and some of them won’t.
In fact, if you’re like most entrepreneurs, you’ll make plenty of mistakes. If you’re fortunate, they’ll be the kind that teach you important lessons. But if you’re not, well … let’s just say that some mistakes can tank a startup.
To help you steer clear of the really bad ones, I’ve highlighted below what I consider to be the nine most common and costly errors entrepreneurs make. Avoid these missteps, and you’ll improve your odds of building a successful — and profitable — company.
- Skipping the business plan
Successful entrepreneurs have a lot to say about the importance of planning. “By failing to prepare, you are preparing to fail,” said Benjamin Franklin.
“I’ve always believe that if you plan for the worst — then you can manage it,” said Michael Dell. And “if you don’t know where you are going, any road will get you there,” said Lewis Carroll.
But despite these warnings, too many entrepreneurs race ahead without having created a formal business plan. In fact, according to author Tim Berry, only 40 percent of new businesses have written business plans when they launch. That’s a mistake — and here’s why:
In his book It’s Not Rocket Science: 4 Simple Strategies for Mastering the Art of Execution, entrepreneur and early-stage investor Elad Gil explains that business plans are not just for fundraising. Rather, they serve as a blueprint for how you will build your company over time and help your team make better decisions on a day-to-day basis.
Whether you’re seeking funding or not, consider this: If your startup doesn’t have a business plan in place, no one knows where you’re going or how long it will take to get there.
2. Neglecting to conduct market research
Starting a business without first talking to prospective customers is a bit like driving a car with your eyes shut. You might get where you want to go, but the odds are stacked against it.
If you’re starting a business, or introducing a new product or service, market research can tell you if there’s a demand for what you want to sell. It can also help you understand how your potential customers define value and identify their purchasing criteria. That information in turn can help you create messages that resonate with your target audience and determine which marketing channels promise the best return on investment (ROI).
3. Choosing a wrong business model
In other words, if you’re setting out to be an entrepreneur, you should not focus exclusively on your product or service. Your product is just one of many business models you can use. In the United States, for example, you can offer your services as a consultant, a contractor or an employee. You can sell solutions to other companies (e.g., through a software development company), or provide product design and consulting services directly to consumers. There are also many companies that combine all three of these functions in one package (e.g., as a “consultancy-to-hire” business).
The key point is that most people who start companies have no idea what business model they should be using.”
4. Ignoring data on customer lifetime value (LTV)
The most valuable business decisions flow from careful calculations of the lifetime value of customers. Yet many small businesses don’t bother to calculate LTV — and those that do often lack sufficient data to make an accurate determination. As a result, they may not understand why they’re struggling to turn profits or keep the lights on. If they did have this information, however, they’d know that they need to spend more money acquiring new customers — or that they need to work harder at retaining existing ones.
5. Not setting aside enough money for marketing
Another common business mistake I see entrepreneurs make is not setting aside enough money for marketing. They just assume that because they have a great product or service, people will automatically beat a path to their door. But that’s not how it works. You need to let people know — over and over again — what you’re selling, why it’s great, how much it costs and where they can buy it. And that takes marketing dollars.
What should you spend? My advice: Set aside 10% of gross revenues for marketing purposes;
6. Failing to identify a large market opportunity
Your first goal is to build a solution for a problem that millions of people care about and are willing to pay money to solve. If you’re not solving an important problem, don’t expect someone to pay you for it.
7. Underestimating the competition
Unless your idea is truly unique — and very few are — there’s always going to be some competition. If you can’t tell me who your competitors are, I know you haven’t thought enough about your business and its underlying economics.
8. Spending too much time and money on product development before testing the market
Remember: The goal of a startup is to figure out the right thing to build–the thing customers want and will pay for–as quickly as possible.
9. Failing to create an effective marketing plan
The best product in the world won’t sell without proper marketing, so make sure you devote sufficient time and funds to this critical function. And be sure you test different channels until you find what works best for your business, whether it’s direct mail or social media or something else entirely.
The most important thing is to avoid mistakes so you can make progress. There are many kinds of business mistakes, but these are the ones I find most common, and therefore worth warning you about. I hope this helps, isn’t it?