Entrepreneurship is a risky business, as most people know. Most entrepreneurs thrive on risk, but it’s a fact that most small businesses fail in their first two years.
As Dana Brownlee points out on Entrepreneur.com, the startups that do survive didn’t rely on passion alone – or luck, for that matter.
After a decade’s experience of running her own company consulting for businesses, Brownlee highlights seven of the most common errors she has seen novice entrepreneurs commit with “alarming consistency”:
1) Not withholding enough cash reserves to support themselves. Brownlee comments: “I believe that one of the reasons why so many small businesses fail within the first few years is not because the business model isn’t viable or the entrepreneur isn’t ‘good enough’ to make the business work, but it’s the fact the financial ramp up time is a firm reality.
“Most entrepreneurs simply run out of money to support the business and/or themselves before the business is profitable enough to sustain itself.”
2) Being overly optimistic when planning. Many novice entrepreneurs get caught up in what they believe is a great business idea and make assumptions that turn out to be poorly thought through.
Brownlee suggests finding between three and five completely objective people to help you identify the vulnerable areas of your business plan.
3) Not fully evaluating their business model. A great idea is only the start. You need to work out the business model that translates the potential of that idea into real profit. Don’t be afraid to seek professional advice to help you with this.
4) Trying to save money by doing everything themselves. Brownlee advises: “A good rule of thumb is if it’s not part of the core competency of your specific business, you have little expertise in the area, it’s time consuming and there are many suppliers who can provide the service at a reasonable cost, consider outsourcing.”
5) Not being prepared to put the hours in. You can’t expect to turn your new business into a success by working regular office hours. Realise you will be giving up a large chunk of your spare time – if not all of it.
6) Getting their pricing wrong. Turning a profit relies on an effective pricing strategy. It’s a fine balance and you can’t afford to go too high or low. Research what your competitors charge and make your figures add up.
7) Not having a growth strategy. You need to plan for success so you don’t find yourself with more business than you can handle without letting standards fall.