10 Mistakes Entrepreneurs Make When Starting a Business
Are you thinking about starting a business?
Or maybe you have a business, but are facing more challenges than you anticipated.
We’ve worked with dozens of entrepreneurs (in addition to starting and running several businesses ourselves). During that time, we’ve come across many common mistakes that most entrepreneurs make that cause additional stress and challenge with their business.
In addition, we have made every one of these mistakes below at one time or another. Be smart, learn from us and save yourself time and money that could be put to better use in your business by avoiding the mistakes below and learning from our lessons.
#1 – Assuming Their Business Idea is Great
Many entrepreneurs come up with an idea, then automatically rush out to create a business around their “great” idea. There is so much more to running a successful business than just having a great idea.
Just because you think your idea is great does not automatically make it great. You may not understand your target market or ideal customer. You may not truly understand their problems or potential solutions that will solve their problems. You may not understand how your product is unique and will beat out your competitors. Or even though your idea is great, it may not be able to turn into a viable business because your costs may be too high.
Lesson: Don’t just assume that your idea is great. Spend some time validating your idea, doing things such as talking to your target customers and understanding their world and how this idea could fit into it. If it turns out to be a great idea, go with it. If not, let it go and focus on validating another idea.
We discuss the process on the below podcast episode.
#2 – Registering a Business Entity, Struggling Over a Name & Creating a Logo
Your brand is important, I get it. Building off of the first challenge above, far too many entrepreneurs focus on the wrong activities when starting a business. In addition to not validating their idea, the first thing that new entrepreneurs do is focus on much of the “branding” aspect of their business. They rush out and create a business entity (ex. LLC or S-Corp) before they need one (even potentially choosing the wrong entity).
In addition, instead of spending time talking to their target market, validating the idea and getting customers, they spend countless hours and dollars on creating the perfect name for their new business and designing the perfect logo.
Lesson: These things matter, but not as much as you think (especially early on). Your early focus need to be on validating your business idea. Until you have paying customers (one form of idea validation), time and money spent on these other items is a waste. Your company name doesn’t matter much, and can be changed at any point in time by spending $25 and filing a DBA (Doing Business As). As for you logo, it is not as important as you think, especially early on in your business. Instead of focusing on it, use that time and money to work on acquiring customers.
#3 – Not Getting Their Personal Finances in Order
One of the reasons that many people start a business is to help increase their financial situation. The problem is if they are struggling financially, that likely means that they may struggle to manage their money and/or have made poor financial decisions in the past. Not only does starting a business require investing their own money, but it also requires being able to manage the business finances. How a person handles their personal finances will often be indicative of how they will handle their business finances.
Lesson: Before starting a business, be sure that you have a grip on your personal finances. This means creating a monthly budget and managing your cash flow. It also means paying off debt, especially if you have high interest debt such as credit cards. Money paid towards these cards will generate an instant return (ex. 15%), as well as put you in a better financial position. Finally, be sure to build up an emergency fund to not only support you and your family, but also to support the business.
We walk through how to get your personal finances in order in this podcast episode.
#4 – Not Talking With Their Significant Other
Starting your own business is no small decision. It will have a significant impact on your life. It will require and investment in both time and money, and can cause undue stress on a relationship. Entrepreneurs tend to view starting a business differently than non-entrepreneurs, and they have a different view/appetite for risk.
There will be struggles in the business, especially early on (like the time we miscalculated when we owed sales tax and how much we owed, which led to us having to put an additional $3,000 into our business only months after opening it).
Lesson: Before even thinking about starting a business, spend some time getting on the same page with your spouse. Identify some of your future goals and what you want your lifestyle too look like. Then compare that to your current lifestyle and determine what changes you need to make (one of which may be starting the business) in order to achieve your desired lifestyle.
We discuss all about how to get your spouse on board with your business idea in the below podcast episode.
#5 – Not Determining How Much Time They Have
There are typically two paths to starting a business; either leaving your job and going all in (a challenge) or building it up while keeping your job. With either route (especially the second one), it is important to understand your priorities and spending your time in a way that helps you get to your goals. Many people do not know what they do with their time, and how much extra time they have to invest into a business. On top of that, many people often pick a business that has a disconnect in terms of how much time it needs compared to how much time a person has available.
Lesson: Before starting s business, sit down and do a time audit. Figure out how much free time you have to invest into a business, and be sure to select a business that is feasible based on your time available to invest.
#6 – Underestimating How Difficult It Is
Many new entrepreneurs do not understand how challenging it is to start and grow a successful business. They may see a show like Shark Tank, or read an article about how a person quite their job and travels around the world, all while making $10,000 a month. What these shows and stories often leave out of the amount of work, sacrifice, time and mental stamina is required to build your own business.
Lesson: Starting a business is hard. It will test you, and you will fail (a lot). There are a few things that set apart successful entrepreneurs from those who give up; the right training, the right support and being mentally strong to work past failures are a few. Before starting a business, spend some time talking to various business owners to get a sense of what is is really like to run a business.
We walk through the mindset required to have success as an entrepreneur on this podcast episode.
#7 – Not Setting Up a Support System
Building off of the last point, you will run into challenges and failures as an entrepreneur. You will likely have friends and family that are not supportive, and you mat feel like giving up. It is in these times that it is important that you have built up a support system. This could be with a mentor or coach, being part of a group of entrepreneurs or a variety of other things. The key is that when things get tough, you need a way to work past the challenges and keep yourself going.
Lesson: Focus on getting your own support system setup (before you need it). Think about who can support you and what you will need to get past the challenges and failures that will come with being an entrepreneur.
#8 – Not Being Clear On Why They Want to Start a Business
Understanding your “why”, meaning what is your purpose behind starting a business, is critical. A strong why will drive you and remind you of the importance that creating a successful business has for you. People without a strong why can fall off the wagon easily; just look at people who are successful at losing weight vs. those who are not. The successful ones likely had a strong enough reason, their why, to get them through the challenges. Their why is what helped them maintain a healthy diet and got them to the gym, even when they didn’t feel like going.
In business, you will have similar feelings. You will face challenges, and their will be days when you want to give up. Having a strong why will help get you past those challenges.
Lesson: Spend some time defining your own “why”. Be sure that whatever you come up with is important enough to you that it will get you past any challenges that you face along your business journey.
In this videocast episode, we walk through the process to define your ideal lifestyle and determine how the business that you start will support it.
#9 – Not Establishing an Operating Model
Planning and launching your business is great, but how will your business operate after it is open? How will you define your business goals and strategy? How will you track if you are achieving those goals? How will you determine what roles you need in your business and if you should hire people? How will you manage risk and challenges? What criteria will be used to determine how to make decisions?
An operating model will help you run your business effectively. It will help you define the answers to a lot of these questions, so you spend less time trying to figure out the answers to these questions and more time getting work done to move your business forward.
Lesson: It is important to establish an operating model for your business. This includes how you set and work towards achieving goals, who is responsible for what and how you will make decisions.
#10 – Not Understanding How to Find Their Customers
Having the best product or service doesn’t mean much if your customers don’t know that it exists. Many entrepreneurs spend a lot of time building a great product or service, only to see their business fail because they didn’t have enough customers.
It is important to understand that acquiring customers while building out your product/service is critical. The old model of building your complete product and then selling it is more and more challenging to implement. These days, businesses are utilizing approaches such as the Lean Startup, whereas they create a Minimum Viable Product (MVP) and get it in the hands of customers for feedback. Then they build and evolve the product/service based on their feedback. This is one of many approaches, but the key is making sure that acquiring customers is at the forefront of your business strategy.
Lesson: You need to understand who your target customer/market is and how to find them. Otherwise, you will end up with a business that fails because it could not find enough customers that needed the product/service that you are offering.
As you can see, there are many pitfalls to avoid when starting your own business, and these are just a sampling of them.
From working with and interviewing hundreds of entrepreneurs, we’ve identified 3 common struggles that underline these mistakes:
- They don’t know the right steps to take, in the right order
- They don’t have the right knowledge and training to take the next step
- They don’t have the right support and accountability to take the next step
To help entrepreneurs overcome these challenges, we put together the Startup Roadmap, which is a step-by-step guide to address the struggles above.
We are offering a free training class on this roadmap, where we will be providing you with the 5 main phases of a startup business, along with step-by-step guidance to help you figure out which phase you are in and how to navigate through that phase.