Top 10 Business Mistakes

 

According to most statistics, fewer than one quarter of newly formed businesses survive for more than 15 years. Half do not reach their fifth year of operation, and as many as 30 percent do not make it as far as their second year. What causes so many new businesses to fail so quickly?  

1. They expand too fast.

In some ways, the only thing worse for a newly formed business than not enough customers is too many customers. How can a business ever have too many customers? If demand for a business product or service spikes too quickly, the business can end up with more orders than it can reasonably fulfill in the allotted amount of time. Before long, the business is missing deadlines and earning a reputation for being unreliable. Or the business meets its demands for more work, and gets the work done on time, but lowers its quality standards in order to do so – quickly earning a reputation for shoddy workmanship. Another thing that can happen is that the business manages to keep up with rising demand, but at the expense of its employees, who end up overburdened and overworked. When employee morale starts to sink, so does the business.

2. They do not conduct market research or set up a marketing plan.

Did you think that market research was only for large corporations? Think again. Any business, large or small, must be able to identify its target demographic and have a plan for reaching that demographic. If you build a better mousetrap, the world will not beat a path to your door unless they know you have a better mousetrap. Even then, the world is not likely to beat a path to your door – you will have to have a plan for getting that mousetrap out in front of people who can buy and use it without having to go out of their way to look for it first.

Don’t assume that because other businesses are making money selling the same product or service in the same market that the market is ripe for new businesses offering that same product or service. For this to be the case, the market in question would have to be underserved by the businesses that currently serve it. If the market is saturated with that very product or service, then it’s unlikely that a new business will be able to gain a foothold.

3. They do not begin with a realistic business plan.

Planning lies at the heart of most business success. A good business plan needs to include more than just the product or service that you plan to offer and where and when you plan to offer it. Instead, it must include projections for the operating capital, supplies, and employees that you will need to have in place before opening the doors of the business. It will need to include projections for business expenses that can reasonably be anticipated, and projections for any expansions that can reasonably be foreseen at the time that the plan is written.

In addition to projecting the expenses of the new business, a business plan should include projected income. Projected income should include start up capital from investors, as well as projected profits based on a realistic analysis of the business’ target demographic and current trends in the marketplace. Better yet is to have projections of income that are based on existing orders from existing clients or customers of the business.

However, a good business plan should include more than money – it should also include a schedule that projects what products or services the business will provide by what dates. Successful entrepreneurs budget their business and employee time, as well as their money.

4. They run out of capital.

See point 3, above. Many businesses lose money during their first few months of operation. If you anticipate that this could be the case for your business, you will need to begin operation with a cushion of money that has been set aside to pay for the continued operation of the business during early expected hard times. It’s not a good idea to pay for operating expenses by going into debt unless you are very certain of being able to repay that debt. Debt tends to snowball, and can pull down a business that has become successful but that has to pump too much operating capital into debt payments.

5. They do not adapt to changing conditions.

The same business plans that led companies to success 50 years ago, 10 years ago, or even five years ago would not work well today. The business climate has changed. Businesses must continually adapt to changing conditions, such as new developments in technology, changes in the economy, and often to news events that may not seem immediately relevant to a business but that could affect its suppliers, employees, or customers. Likewise, businesses sometimes do not respond to spikes in customer interest in one product or service versus others. If your customers are begging you to fill a particular niche, even if it was not a part of the original business plan, it might be wise to at least consider filling that niche. For example, there is a Chicago rock band that turned out to be more popular with children than with adults. At the time, it was hard to find music that was appealing to parents and children alike. Although that band originally marketed itself to adults, it ended up experiencing dramatically greater success when it began to revise its songs to make them appealing to younger audiences.

Most of the most common mistakes made by new entrepreneurs boil down to one problem: lack of planning. To avoid making mistakes like these, think through every aspect of your business and plan every detail carefully – if you do, chances are that your business will be one of the survivors. 

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