Learning From the Past: 10 Common Mistakes to Avoid When Starting a Business

Mistakes are often taboo in society. We’re told to cover up mistakes or blame them on other people, doing everything we can to separate ourselves from the awful burden of doing something wrong.

Most people don’t start a business because they’re afraid to make mistakes. But here’s the secret: business mistakes don’t stop your momentum, they help you figure out a better path.

One of the best confidence-building strategies is treating your mistakes as learning experiences. And in the world of entrepreneurship, you’re going to make a lot of mistakes. You can’t avoid them.

Fortunately, you can plan for some of them. This article will walk you through some common mistakes, and tips for avoiding business failure.

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10 common small business startup mistakes

All businesses make mistakes. It’s OK. Whether you’re running your first or fifth business, prevention is key. Here are the common mistakes small business owners make, and how you can avoid them:

Not writing a business plan

Writing a business plan is an important part of creating a sustainable business and standing out from the competition. A strategic business plan creates momentum, which means that because you have a clear and researched idea, you are inspired to succeed.

But many new entrepreneurs begin their venture without thinking about the big picture. They then have no understanding of the market, financials, business model, or logistics, and that lack of understanding can cost time, money, and effort when things go wrong.

Avoid this common mistake by creating a business plan to help identify the unknowns and spot the gaps you need to fill. Do you need to work with a 3PL or ship manually? How will you manufacture products? Who are you selling to?

Every product you create should relate back to your business plan. This helps you stay on track to meet your business’ needs and goals—and build one that doesn’t fail.

Free: Business Plan Template

Business planning is often used to secure funding, but plenty of business owners find writing a plan valuable, even if they never work with an investor. That’s why we put together a free business plan template to help you get started.

Not focusing on cash flow and profits

One financial mistake entrepreneurs make is not paying attention to cash flow and profits.

If you ask any seasoned entrepreneur what the most important skill in running a business is, they’ll say it’s math. Many of them start their business as a hobby and don’t pay as much attention to the numbers as they should.

Business math works very simply. To see how profitable your business can be, use this formula:

Profit = Demand x (Revenue – Expenses)

And there are a lot of expenses to account for. According to our research, small businesses spend an average of $40,000 in their first full year of business. This is spent on the following things:

Let’s break down the profit formula above. Assume there are 20,000 people searching for your product online per month. If you can put yourself in front of even half of those people, that’s 10,000 potential buyers.

If you convert at the average of between 1% and 2%, that’s 100–200 sales. If your average order value is $100 and you have a net profit margin of 30%, your profit will be anything between $3,000 and $6,000 per month.

Of course, these are really rough estimates. But whatever you get into, if you’ve done the math, you know what you’re in for. Avoid this common mistake by keeping track of your potential profits and cash flow using the above formula.

Resources:

Not assessing your business idea

One of the biggest mistakes you can make when starting a new business is not doing market research. You want to learn about the competition and understand how you can differentiate yourself from them. Competition can be other small businesses carrying the same products as you, or it can be market giants like Amazon and Walmart.

Sometimes entrepreneurs dive into a niche market without determining if it’s a good fit or not. There are cases where a niche has low demand and too much established competition. If that’s the case, you may not want to build a business around it.

To understand the market landscape, you’ll need to do some research. Find your niche’s competitors and look at:

Number of online reviews
Social engagement
Blogging habits
Press coverage
Search engine optimization (SEO) rankings

You’ll also want to evaluate whether the market is just a trend or if it’s a sustainable category you can grow a presence in over time.

With a strong understanding of the market situation, you’ll have no trouble building a business in the right niche.

Resources:

Free: The Big List of Business Ideas

To help you find the inspiration to start, we compiled a list of 100+ in-demand business ideas, broken down into categories like fitness, apparel, and gaming.

Spreading yourself thin with products

A big mistake new business owners make is selling too many products. Sometimes if one product doesn’t sell well, owners will add more products to their store to attract potential customers. This doesn’t always help.

Say you have a store that sells eco-friendly recyclable bags, but no one buys them. So you add more eco-friendly products from your supplier. Eventually, you have a whole medley of products with no relation between them besides being eco-friendly.

If your branding is about bags and not other eco-friendly products, it’s going to be hard to attract the right customer.

The error here is more of a branding error than a product error. Building a brand is just as important as the products you sell, since your brand is how people perceive your business.

Not investing in organic marketing

One common mistake businesses make is not focusing on organic marketing. The lure of paid ads like PPC is reasonable. You pay for an ad, someone clicks through and buys your products. Immediate revenue.

But imagine if you could get traffic to your site, for free. Despite the upfront cost of organic content marketing, 70% of clicks go to organic Google search results. On page one alone, the first five organic results get 67.6% of all the clicks.

organic clicks — Image courtesy of: Zero Limit Web

Sometimes it’s difficult to write content for a boring niche. How much can someone manage to write about reusable bags, right? The key here is to do content marketing not according to a product, but according to your customers.

Continuing the reusable bags example, who would potentially want reusable bags? Someone that was environmentally conscious, right? It’s also likely that they are into eating healthy, working out, yoga, and natural wellness. These are all initial hunches, but a little bit of research can confirm them.

By building your content marketing strategy around this ideal customer rather than around a product, you have a lot more to write about and a lot more ways to connect with your audience.

Even if your niche is very technical and you manage to write 50 to 100 articles just on the nuances of your product, that information will only go so far. To really round off your effort, you’d want to have more in common with your customer than just the fact that they are buying something you sell.

Not thinking freebies and contests through

Businesses fail from overspending on stuff like freebies and contests. Some do very well giving away stuff for free.

Freebies, contests, and giveaways are an effective way to market a product, but they aren’t a good fit for every niche. Freebies could work on perishable or consumable products: skincare, foods, supplements, and the like. For all other products—even if it’s something that someone could order another one of, like a piece of clothing—it’s very hard to make work.

What I learned from that expensive experience was that these gimmicks don’t really drive sales; they build a brand. And to build a brand, you need to have a plan.

Not hiring help

Doing it alone is the main school of thought for many entrepreneurs.

In economics, there is a concept of opportunity cost. Essentially, when you choose to pursue any one opportunity, the “cost” of that to you is that your time is no longer free for other opportunities. So the cost of one opportunity is actually every other opportunity you have.

If you are bootstrapping your own business, chances are you did everything yourself. You set up the website, you tinkered with it, you uploaded products, you wrote all the product descriptions, you did all the marketing. A spectacular one-person show.

The problem here is that while doing everything yourself is great, it’s also incredibly time consuming. This is time you could be using elsewhere—spending it with your family, cooking up new ideas, or building business relationships, just to name a few.

Menial tasks come in two varieties: necessary and unnecessary.

You want to try and automate as many necessary menial tasks as possible. This process will cost a bit of money, but the headache and heartache you save typically outweighs the money you’ll spend. Besides, you can often find people that will gladly do these tasks (inventory uploading, data entry, etc.) for you for a reasonable sum.

Unnecessary menial tasks have to go on the chopping block. By unnecessary, I mean things like spending too much time tinkering with your site’s logo, fiddling with image sizes, going into unnecessary detail about the color of a button, or some other minor change that probably you alone have noticed.

Some of the things mentioned above can have a positive effect on your conversions. But you’ll only know once you have a lot of visitors and sales to compare it to. In the early stages of your business, you want to avoid those things. Especially since, after two hours of tinkering, you’ll feel like you did a lot of work, but realistically, your time could have been better spent.

A business decision you’ll have to make is if you need to hire help. This could be a co-founder, a freelancer, or even a part-time or full-time employee to get tasks done and help you grow your business. You don’t have to do it all on your own.

Not knowing your target audience

Doing quality research comes in two parts: finding product ideas and knowing your customers. The tricky thing here is that you can have customers and then build a product, but it’s very difficult to have a product and then hunt for customers.

Most of the conventional wisdom says to look at numbers and analytics when researching a niche, and that’s absolutely necessary. But another critical step most entrepreneurs miss is finding an ideal customer and building a customer profile.

“The best approach a bootstrapping entrepreneur can take to understand their customers is to process consistent conversations with them,” explains Adrienne Barnes, Founder of Best Buyer Persona. “Create an environment where every person who interacts with the customer is gathering data to know them better.”

When you know who your customers are, how they behave, and why they behave the way they do, you’ll be able to serve them in a way that meets their needs.

Adrienne Barnes

Even if your niche has sufficient demand and a good selection of products, without knowing your ideal customer, it will be a lot harder to sell.

If you dig deep enough, you will find that niches have niches within them. The more you can target, the better, since it will be easier to identify with your customers’ needs.

Not having a solid marketing plan

“Fail to plan, plan to fail,” or so the saying goes.

When you set up an ecommerce website, and you know who your customers are and where you can find them, setting up your marketing plan should be easy.

Unfortunately, if you don’t know either of those things, your marketing campaigns will be more like throwing spaghetti on the wall: doing one thing after another and hoping something sticks.

The truth is, marketers with a documented strategy are 313% more likely to report success.

While every ecommerce business should have a well-rounded marketing plan that covers all bases, some channels will obviously be more effective than others. Some businesses will do better with pay-per-click (PPC) advertising, while some will shine with SEO or social media. Email is a steady sales channel, too.

Whatever your plan is, make sure it is in place from the time you launch. New opportunities will naturally arise, but your foundation, if strong, will allow for steady and scalable growth.

Not securing intellectual property

Intellectual property is the right you have to anything created as a result of your original idea.

Your business may have intellectual property (IP) you’ll want to protect from competitors. This includes copyrights, trademarks, patents, and trade secrets—in addition to business property such as equipment. If your IP is stolen (infringed on), international regulations can be used to take your case to court and defend your IP.

Intellectual property rights vary geographically. So you must protect your rights in accordance with the IPR laws of your country.

Starting a successful business from scratch

With all those mistakes laid out, you might be wondering: How do I know when I’m on the right track? No one can predict the future for you, but to help in some small way, here’s a shortlist of the hard but worthwhile work you should do to successfully launch and run an online business:

Write a business plan.
Research your niche: is there demand?
Know your customers: who exactly are you solving a problem for?
Find a gap in the market: is there some value you can add, or are you just a me-too store?
Have a marketing plan in place and invest in organic search.
Avoid wasting time with distractions.
Hire help.
Secure your intellectual property.

And last, but certainly not least: persevere!

Truth is, even as your business grows and succeeds, the mistakes don’t stop coming. What changes is how you overcome them. We learn just as much from our mistakes as we do our successes.

By understanding these common business mistakes in the first place, you are well on your way to overcoming any challenges that confront your business.

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Small buisness mistakes FAQ

Why are mistakes good in business?

An MRI study published in Nature Communications found that making a mistake can feel good, if you give your brain a chance to learn from it. The same concept applies to business. Mistakes provide the wisdom and experience you would otherwise miss out on. Mistakes help you learn that business isn’t perfect, and they are a necessary part of the growth process.

What are common mistakes in business?

Not writing a business plan
Not focusing on cash flow and profits
Not assessing your business idea
Spreading yourself too thin with products
Not investing in organic marketing
Not thinking freebies and contests through
Not hiring help
Not knowing your target audience
Not having a solid marketing plan
Not securing intellectual property

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