Five Mistakes to Avoid When Starting a New Business
- When starting a new business, mistakes are a part of the learning process, but with some careful planning, they can be avoided.
- A solid plan is fundamental to setting your business on a path that aligns with your vision of becoming a success.
- Asking for help and guidance early and often from business incubators, associations, and other entities can minimize your time and money so that you don’t have to reinvent the wheel.
When you are launching a new venture, you are bound to make mistakes along the way as you chart your path forward. Unfortunately, mistakes can happen when we are unaware of how to properly run certain parts of our new business. Thus, we cannot spot them early or mitigate the risks when they occur.
Mistakes also happen in our zeal to get started and hopscotch over the slow and tedious steps of laying out a solid foundation and plan. But as the old saying goes, “if you don’t know where you’re going, then any road will take you there.” Rather than having your business end up on any road, let’s dig into the top five mistakes that most new entrepreneurs make and a game plan for avoiding them.
1. A Rock-Solid Business Plan
The biggest mistake most newbies make is rushing through, or more likely, skipping past the step of developing a business plan. A business plan, however, is critical to setting an intention and direction for your business. While business plans will differ across industries, generally, they will all answer five key questions:
- What are you selling
- Who are your customers?
- Who are your competitors, and how will you outshine them?
- What’s required to bring your product/service to market?
- What’s your target price?
Creating a business plan that answers these questions allows you to crystallize what you’re selling, the financial and operating resources required to create it, your ideal customer, your price points, and your competition, and how you’ll differentiate yourself from them.
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2. Develop a Budget
Your budget takes cues from your business plan in defining the top areas for income and spending. As an example, if your business plan lays out how you will turn your passion for baking homemade pies for family and friends into a thriving business, then your budget will include categories like ingredients (flour, butter, sugar, pie fillings, etc.), kitchen equipment (perhaps an upgraded or extra oven, fridge, and freezer), baking supplies (pie tins, boxes) and marketing (a webpage, flyers,).
Be Detailed With Your Budget
One mistake that new entrepreneurs often make when developing a budget is overlooking key categories or budgeting too little in each category. This may be especially prone to happen if the product or service offered is one that had been given away or offered at a discount before. To help ensure that you don’t sell your product for less than its costs to create, research your product and its costs objectively.
A second area that is overlooked is factoring a contingency into the budget. A contingency budget is a sum of funds set aside to cover unexpected costs (or higher-than-expected costs). A contingency of five percent to ten percent, or even higher, is an excellent place to start when you’re still in the early stages of rolling out your business.
3. Define Your Target Customer
When starting a business, it can be easy to think that your ideal customer is anyone who will buy your product or service. But having such a broad, unspecific view of your ideal customer makes it hard to determine who to target. To avoid the mistake of viewing anyone and everyone as your customer, spend some time imagining who your product would be perfect for.
In our homemade pie business mentioned above, ideal customers might be restaurants and neighborhood eateries looking for a dependable source of desserts for their menu. Also, caterers may seek a partner who specializes in desserts.
One way to help you picture your target customers is to look at your competitors' customers. Another way to identify your target customers is through online tools that analyze the demographics (for instance, age and income range), buying behaviors, and other characteristics of shoppers for various products and services. Lastly, surveying potential customers in person and on social media can help you understand what makes them tick.
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4. Set Specific Goals and Track Performance
Part of helping your business stay on track is setting goals, reviewing your performance, and addressing any developing risks or issues. This is important even if your business is of the me-myself-and-I variety. It’s even more important for sole proprietors to schedule goal-setting and performance meetings with themselves than for partnerships to ensure momentum and accountability occur.
One mistake entrepreneurs make is developing business goals that are too general or high level. For example, while writing down the goal, ‘I want to be rich’ feels satisfying, it provides few specifics. Developing goals based on S.M.A.R.T. parameters can help create concrete and realistic goals. Thus, making your goals more achievable.
S.M.A.R.T. goals are:
Using S.M.A.R.T. goals can pay dividends not just in your start-up business but also on the career and personal finance fronts. The S.M.A.R.T. approach helps you ground your goals in a realistic timeframe, create metrics to measure success, and set a timeline for achievement milestones.
5. Ask for Help
Numerous resources are available for little or no cost that most new entrepreneurs are unaware of when starting a business. While new entrepreneurs might feel pressured to become experts in all facets of their business, it’s important to bear in mind that no one person can master everything. Even if it were possible, time constraints alone would prevent a business owner from doing everything.
A great place to start when seeking support for a fledging business is non-profit, municipal, state, and federal entities that focus on business development and job creation. For instance, the Small Business Administration (SBA) is a federal government agency that offers a wealth of mentorship and industry and business planning support. Municipal and county agencies also provide online training materials and occasionally loans and grants to entrepreneurs starting a business in a particular town or industry.
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The Money Wrap-Up
Entrepreneurs aren’t immune to mistakes and shouldn’t be discouraged by them. Mistakes show that action is happening and you’re moving beyond your safety zone. Rather than see mistakes as cringe-worthy and an indication of failure, view them as a sign that you’re growing and actively pursuing your entrepreneurial dream.