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Starting a new business is full of new challenges, as well as triumphs. While you may feel confident in your product or service, that’s not the only thing you need in order to run a successful business. In fact, according to Fundera, 20% of small businesses fail within their first year, and 30% fail within their second. The most common reasons behind new business failures typically come down to two things: money and leadership.
Financial uncertainty is virtually a given when it comes to opening a new business, and it can be an insurmountable hurdle. However, the structure and leadership of your business are just as important to success, if not more so. By avoiding common mistakes new business owners make in these areas, you can increase your margin of business success, both in the short and long term.
Inability to adapt and rethink
While it’s important to have a clear vision when starting a new business, it’s arguably more important to understand the need to be flexible with that vision. During the early stages of creating your business plan, you should keep in mind that you won’t be opening your business in a vacuum. There will be things you just can’t plan for, or directions you didn’t anticipate your business going in. The difference between success and failure in these moments will be your ability to adapt.
For example, let’s say you open up a candy store, and you get a lot of inquiries about vegan candy options that you don’t currently offer. While vegan candy may not have been in your original business plan, if the demand exists it could be a lucrative new path. Alternatively, ignoring these requests could damage your business’s reputation, which can result in profit loss, and even customer loss. Successful business owners can adapt to new opportunities and challenges, even — and sometimes especially — when they aren’t planned.
Overselling your product or service
When it comes to marketing your product or service there’s a fine line between actively pursuing new clients and overselling. Now, overselling in this case doesn’t mean running out of inventory or being completely booked up, which are generally positives, especially for new business owners. Overselling means making promises that you, or your product, can’t keep.
For example, if you’re marketing an all-natural cleaner, and make claims that it can remove any stain, you’re opening yourself, and your product up for criticism if it can’t meet those claims. If you continually oversell the capabilities of your product or service, you’ll likely have a hard time retaining customers.
This isn’t to say that you should undersell your product either. This is why it’s important to understand completely the ability of your product or service through testing and experimentation, so you can market with accuracy and appeal to your customers.
Failure to understand your industry
Understanding your industry is crucial to opening a new business. Market research can help you understand the direct competitors in your area, as well as the needs of the market you’re planning to serve. However, you should have an understanding of your industry as a whole as well, to stay competitive.
For example, sustainability has become a huge priority for many consumers. This influences many consumer industries, which can attract more customers by using sustainable packaging, or marketing green business initiatives. By understanding industry trends like these, you can stay relevant to your consumer base and compete with others in your industry. Both of these competencies can translate to business success.
Not investing in good technology (and support)
Digital transformation has become more and more popular among business professionals over the last few years. 90% of leaders concur that the COVID-19 pandemic has accelerated their digital transformation efforts by an average of five years. What does this mean for the new business owner? It means that skipping over investing in the right tools and technology for your business could spell out profit loss, or even closure.
Not only are business leaders’ attitudes trending up on digital transformation, but so are consumer demands. Eighty-eight percent of consumers are expecting companies to accelerate digital initiatives, showing just how important digitally integrated services are to the consumer. Digital transformation can improve your customer-facing processes, as well as internal processes.
Not considering cybersecurity
Cybersecurity is an incredibly important investment, particularly for new business owners, who can be the target of cyberattacks. Investing in software like remote monitoring and management, and real-time alerts helps secure your networks, and alerts you to any suspicious activity. Regardless of the size, location, or profitability of your business, anyone can be a target for cybercrime. Cyberattacks can cost you money, reputation, and customers. Without the proper protections, even one serious security breach can seriously damage your business.
Biting off more than you can chew
Planning is incredibly important, both before, during, and after opening your new business. Creating a quality business plan can not only help you create tangible goals to measure success by — which will help lead you to securing funding to keep your business running — but it can also help you understand your business’s capacity for growth, and areas you may need to improve in.
While it can be tempting to try and expand all at once, when you have the money and energy to do so, it’s not always feasible. A business expansion should be a well-planned-out, meticulously executed decision. It requires market research, securing extra funding, marketing a new location, and a host of other steps. While opening a second location may be easier than opening a first, because you’ve done it once before, that doesn’t mean you should treat it any less seriously.
Not encouraging quality feedback
Knowing the difference between quality feedback and unnecessary comments can be a difficult skill for any business owner to learn. Especially when you’re emotionally involved in the success of something, like a business, learning how to process and implement constructive criticism may be hard. However, only using internal metrics of success can stunt your business, which is what makes feedback from outside sources, such as previous employees, experienced professionals, and customers so valuable.
When trying to determine whether or not the feedback you’re receiving will serve your business, ask yourself these questions:
- Is this easily solvable?
- Is this impeding the ability for customers to shop or use the product?
- Is this a shared opinion or repeat instance?
By answering these questions, you can start to think critically about areas of improvement, for both your business processes and your customer experience.
Choosing the Wrong Business Structure
Your business structure doesn’t just refer to how you establish leadership and the processes you put in place. It also refers to the legal structure of your business. Determining a legal structure will help determine the kind of licensure, tax documents, and other paperwork you need to operate legally. The IRS lists the following as the most common for-profit business structures:
- Sole proprietorships;
- S corporations;
- Limited liability company (LLC) ;
Changes to your business operations, such as becoming a non-profit, will require changes to your legal business structure. Your business may also combine business structures if you believe this is the best approach. Determining what legal structure is best for you will depend on the type of business you’re wanting to run, as well as your long-term goals. It may be helpful to get a legal consultant’s opinion on this, if you’re completely unsure.
Failure to get insurance
There are several types of insurance that business owners need. They help protect against damages, lawsuits, and liability that can be fatal for a new business. Some insurances you’ll want to look into as a new business owner include:
- General liability insurance;
- Commercial property insurance;
- Home-based business insurance;
- Worker’s compensation.
Depending on your legal business structure — as well as other considerations such as if you have employees and what machinery you use — will help you determine the kinds of business insurance you need. You can learn more about the insurances available to small business owners from the Small Business Administration.
Starting your own business can be incredibly rewarding — and incredibly stressful. Going in armed with the information you need to avoid these common pitfalls will help you reduce some of that stress, and improve your chances of long-term success.