Business Ownership Is an Opportunity, Not a Guarantee - 7 Mistakes to Avoid
Dealing with a small number of products or customer orders differs significantly from managing a large quantity.
Many Americans own a business. However, according to the Bureau of Labor Statistics, 20% of companies fail during the first two years, 45% during the first five years, and 65% during the first ten years.
In my experience, companies that encounter hardships have often made one or more of these seven mistakes.
Mistake #1: Unclear Market Focus
Many passionate entrepreneurs only have a vague idea about what they are good at and how to turn this strength into a marketable product or service.
However, not knowing your business's X-Factor can result in a weak brand addressing an overly broad target audience, which can significantly increase expenses. To sharpen your market focus, follow these four steps.
Develop your business's X-Factor.
Define your brand compass, promise, and personality.
Identify your ideal customers.
Develop your business model.
Build a marketing strategy to reach your ideal customers.
How to Find Your Business’s X-Factor: Your business's X-Factor can help you gain a durable competitive advantage, leading to faster growth and higher profits.
Narrow Your Business Focus to Boost Sales: Focusing on 5 services and doing them 100 times instead of offering 100 services and doing them 5 times will likely increase sales and profitability.
What Is a Brand Compass and Why Your Business Should Have One: A brand compass is a crucial tool to anchor your brand decisions and ensure coherence across all brand elements.
Mistake #2: High Complexity
Dealing with a small number of products or customer orders differs significantly from managing a large quantity.
As a retailer, whether you offer five products or 500 makes a big difference in the way you run your online store. You may be able to handle five products with pen and paper. But tracking and transacting a catalog of 500 items is another level of complexity.
As a contractor, event manager, or interior designer, it is much easier to manage a single project at a time than five or ten going on simultaneously. Working on multiple projects in parallel requires standardized processes, excellent logistics, and clear responsibilities between all team members within and outside your organization.
Streamlined, digitized workflows can help reduce the complexity and make your business scalable.
Simplicity Keeps Your Business Growing: Fast-growing startups often follow internal processes that may have been suitable for much smaller-sized businesses. That leads to unnecessary workarounds and complexity.
Is Your Business Idea Scalable? Even if you want your company to stay small, scalability is the main reason your business is financially viable.
Unlock Your Business’s True Potential With an Effective Digital Strategy: A digital strategy that consolidates your digital marketing strategy and digital workflow strategy into a single coherent plan has the power to transform your business, unlocking its true potential.
Why You Should Digitize Your Work Flow: A digitized and integrated workflow has many advantages. Above all, they make it easier to do business with you and thus save you and your customers a lot of time.
Mistake #3: Unrealistic Business Plan Assumptions
Entrepreneurs are natural optimists. This optimism about the future often translates into unrealistically favorable assumptions and ambitious goals that can lead to enormous growth rates.
However, these growth rates could collapse if one or two of these assumptions don't materialize. A company that relies heavily on external funding could quickly run into existential trouble if it breaks specific financial metrics (so-called covenants) and the bank threatens to call the loan.
Instead of developing a single business plan, create three or four business plans and base them on different assumptions from favorable to adverse. Each scenario projects the same key financial metrics, such as sales, profitability, and cash flow. You can glean from these projections how your finances would react if the economy went into recession or your product launch missed a crucial milestone.
How to Write a Business Plan You Will Use: A business plan that you like to refer back to should prioritize strategic aspects crucial for your company's success.
Avoid This Common Mistake: Extrapolation: Extrapolation is the prediction of the future based on past trends. It can be a dangerous shortcut. Instead think in scenarios of risks and opportunities.
How Business Cases Can Improve Your Decision Making: How decisions will turn out in the future is sometimes hard to predict. But not always, if you develop a business case before making an important decision.
Mistake #4: Over-reliance on Paid Social Media and Search
Many companies pay a lot of money to promote their brands on social media and search. However, the return on their advertising spending (ROAS) is often questionable.
If your referral rate is low and your cost per acquisition (CPA) is high, you are likely relying too much on external marketing platforms to acquire new customers.
Instead, shift your focus on increasing referrals through word-of-mouth marketing and signature presentations in front of live audiences.
5 Key Marketing Metrics Every Small Business Owner Should Track: Tracking 5 standard metrics offers an efficient way to evaluate the effectiveness of a company's marketing spend without adding much extra time.
What Is CPL? The cost per lead (CPL) measures the average amount a company spends on getting one new lead from an advertising campaign. Apply these five tips to reduce the cost per lead and increase the effectiveness of your advertising campaign.
What Is Return on Ad Spend (ROAS) and How to Use It? Understanding ROAS and how to use it is critical to evaluating the effectiveness of your advertising.
Word-of-Mouth Marketing: Word-of-mouth marketing is a highly effective marketing strategy for acquiring new customers without spending on social media pay-per-click advertising.
Mistake #5: Not Reading the Legal Fine Print
Signing a legal document like a franchise agreement without completely understanding what you are agreeing to can haunt you in the future.
Many contracts contain non-compete clauses that could stay in effect long after the franchise term expires, limiting you from starting a new business in the same or an adjacent industry.
It can also be helpful to inquire about the value you receive for the franchise fees and challenge your thoughts on why establishing an independent business isn't an option.
Mistake #6: Messy Finances
Few business owners review their company's finances monthly. However, understanding where you stand and how you perform against your goals is crucial for adjusting your approach, terminating initiatives that are not working, and accelerating those that are yielding positive results.
Having messy finances is like flying blind. Managers may not realize the company is in trouble until they cannot pay a bill. However, this situation can often be avoided by regularly reviewing the company's monthly profit and loss statement and balance sheet.
Don’t Put Off Your Bookkeeping! If you have trouble answering how much money your company makes monthly and what its profit drivers are, your bookkeeping probably needs an upgrade.
5 Reasons Why Knowing Your Profit Is Crucial for Your Company’s Success: Profit is the most straightforward metric that will bring financial transparency to your business and allow you to uncover long-hidden underperformance.
You Can’t Improve What You Don’t Measure: You don't need to rely on your gut feeling to tell if your business is going in the right direction. Shopify provides an easy-to-use dashboard for your online store that requires no configuration. And it is free with your subscription.
Mistake #7: Lack of Delegation
Although initially, you wear all the hats in your business, filling all the roles in the front and the back office.
But as your company grows, you must learn to focus and delegate tasks that others can handle more effectively. Because if you keep wearing too many hats, you will either burn out or your company will underperform its potential.
How to Prepare Your Business for Growth: Many small businesses are not prepared to add employees and grow. Their workflows are too founder-centric.
Invest in Your Employees: To create a high-performance work culture, you should follow 10 dos and avoid 5 don'ts.
Pursue the Opportunities That Matter
Successful entrepreneurs share one crucial trait: discipline. They don't chase after every opportunity that comes their way but instead focus on pursuing only those essential to achieving their goals. However, the path to reaching these goals may change when external factors beyond their control dictate a shift.
Entrepreneurship is never a straight line; it involves countless detours. But that's where the fun lies.
