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7 Small Business Start-Up Mistakes.

The most common 7 Small Business Start-Up Mistakes and how to avoid them and launch a successful business, with Henry Lopez.

How to identify and avoid or minimize some of the most common small business start-up mistakes. Henry shares his top 7 common small business mistakes to avoid, so that you can start and grow a successful and profitable business.

Top 7 Small Business Start-Up Mistakes:

7. Poor Research and Planning:
One of the biggest mistakes is not having a detailed business plan. A comprehensive plan should include market research, a clear understanding of the target audience, a solid marketing strategy, financial projections, and an operational plan. Without thorough planning, businesses may struggle to define their direction, manage finances effectively, or understand their market, leading to poor decision-making and strategy execution. Other specific mistakes with research and planning include:

6. Bad Partners and Hiring the Wrong Team.

5. Starting Too Big – not taking the MVP or iterative approach.
When starting a small business, is important to consider starting with the most Minimally Viable Product (MVP) or the smallest version of your solution so that you can validate the demand for your solution. Resist the urge, assuming your have the resources, to launch with the fully developed version of your business. Instead, take an iterative approach to launching you business.

4. Poor Marketing & Sales.
Your great solution is meaningless if no one knows about it. Neglecting Marketing and Customer Acquisition – Some entrepreneurs focus so much on the product or service that they neglect the importance of a strong marketing strategy to attract customers. In today’s competitive market, understanding your audience, effective branding, and a solid online presence are crucial for success. Without a strategy to attract and retain customers, even the best products or services may go unnoticed.

3. Getting in Your Own Way.
Trying to Do Everything Alone: Many entrepreneurs try to save money by doing everything themselves, from product development to sales and accounting. However, this can lead to burnout and may prevent the business from growing. It’s important to recognize when to delegate tasks or hire professionals, such as accountants or marketing experts, to focus on areas where the business owner may not have expertise. It’s also important to identify when you need to pivot and perhaps significantly or completely change your business model.

2. Not Starting! Getting overwhelmed and paralyzed.
When you focus on all that has to get done you can become overwhelmed and paralyzed. Making critical decisions is critical to the success of your small business.

1. No Money!

  • Not enough Working Capital to cover until break-even and for on-going cash flow needs.
  • Overly optimistic start-up financial projections.
  • Not managing Cash-Flow.
  • Not managing receivables.
  • Not planning for large expenses like inventory purchases.
  • Not having a back-up plan (i.e. credit line or additional cash to invest).
  • Ignoring your business tax obligations.
  • Related Resources:
    395: Financial Projections for Small Business Startup

Avoiding these common mistakes can significantly increase a small business’s chances of success. It’s also beneficial to seek advice from mentors, join entrepreneur networks, and continuously learn from both successes and failures along the way.

Key Takeaways:

  • There are no guarantees of success in business ownership. Even when we do everything “right”, we often can use a bit of luck. But you can significantly improve your probability of success by avoiding or greatly minimizing these 7 common mistakes.
  • You can’t avoid all mistakes – but you should plan and prepare to hopefully avoid the most common mistakes. The avoidable blunders.
  • Learn, prepare, and get help as you develop your business idea and launch your small business.

Episode Host: Henry Lopez is a serial entrepreneur, small business coach, and the host of this episode of The How of Business podcast show – dedicated to helping you start, run and grow your small business.

Resources:

Books mentioned in this episode:
[We receive commissions for purchases made through these links (more info)].

Podcast Archives:

You can find other episodes of The How of Business podcast, the best small business podcast, on our Archives page.

Transcript:

The following is a full transcript of this episode. This transcript was produced by an automated system and may contain some typos and some other minor inaccuracies.

Henry Lopez (00:11):

Welcome to the How of Business Podcast. This is Henry Lopez, and this episode is about helping you identify and hopefully avoid or at least minimize some of the most common small business startup mistakes. I’m going to share with you my top seven common small business mistakes to avoid so that you can start and grow a successful and profitable small business. For the show notes page for this episode and all my other small business resources, and to learn more about my one-on-one coaching and group coaching programs, please visit the thehowofbusiness.com. I also encourage you to please subscribe to my show wherever you might be listening so you don’t miss any new episodes. And I want to take a moment to thank a few of my recent small business coaching clients, including West Dave and MI welcome the opportunity to serve as your coach and help you start and grow your businesses.

Henry Lopez (00:58):

Here is my top seven most common reasons small business startups fail. These are the mistakes that you hope to avoid or minimize to give you the highest probability of success with your small business startup. Number seven, poor research and planning. One of the biggest mistakes I see people make in starting their first business is not spending the time or learning how to or doing the work of creating a detailed business plan. Now, I’m not necessarily referring to an elaborate, highly verbose business plan. Maybe that is what you need, but in most cases, what we need, even if it’s just for ourselves, is a document that gathers and presents all of the research, all of the planning, the details of our business model, our financial projections. It compiles all of that work that we’ve done to hopefully do the best planning we can to give us the best probability of success and to validate at least in the way of projections that the business idea that we have.

Henry Lopez (01:58):

We have an underlying business model that has a high probability for profitability and scalability. So a comprehensive plan should include market research, a clear understanding of your target audience or your ideal client, a solid marketing strategy, financial projections, and an operating plan. And so without thorough planning, businesses are likely to struggle initially, especially to define your direction. And in the meantime, you’re burning through cash that you may not have a lot of, you may not manage your finances effectively. You may not really clearly understand your market or what they really want. What is their real pay that you can solve? And so this leads to rudderless execution and poor execution that often leads to a failed business. So specifically some of the components as a process of planning that I see are often a mistake is being overly optimistic on your financial projections. For example, assuming your business is going to get to break even sooner than it might or not preparing for the that it doesn’t scale that quickly.

Henry Lopez (03:01):

And then what do you do to cover your expenses? Another common mistake is ignoring your competition or dismissing your competition instead of learning from the competition and helping you understand by learning from the competition what you can do differently, what you can do better, what will be your differentiator in that market. A flawed pricing model is another big mistake. Often this results from just a lack of research, a lack of calculating what the right markup should be so that you have enough profit on their product or service that you’re offering. And also just being overly optimistic about how much money someone is willing to pay for your product or service without any proof to that. That relates to not listening to the customer. And that’s why it’s so critical, and I’ll probably repeat this several times throughout this episode, of not validating as quickly as possible with your target customer that they’re in fact willing to pay for their product or service that you’re offering.

Henry Lopez (03:56):

Of course, there’s a little bit of timing involved in everything, although that’s a hard thing to do when I get asked, is this the right time to start a business? I always say it’s the best of times and the worst of times, but of course there’s some obvious times when perhaps a certain type of business shouldn’t be started. If you told me you were going to start a full service restaurant sit down restaurant in the middle of Covid, I probably would’ve said you might want to wait. If you were thinking about starting a mortgage brokerage back in 2008 after the financial crisis, probably bad timing. So there are some obvious timing considerations this you have to be careful with because it can hold you back and it’ll never be the perfect time to launch a business. So I have related resources on this topic of research and planning, including episode 3 82 on business plans, episode 3 95 on financial projections for small business startups, and then two workshops, two online workshops, one to help you create and finalize your business plan and another workshop on financial projections to help you create those critical important financial projections to help you validate that most important decision before you move forward is this business idea and business model financially viable.

Henry Lopez (05:05):

The sixth most common mistake small business startups make is either partnering with the wrong people and or hiring the wrong team. So I’ve lumped those together because these are the people issues. Let’s start with hiring the wrong team. It’s critical when you’re a small business, when you’re a startup, when you’re probably making a few, maybe not even initially, but eventually those few key hires, those are impactful because again, you’re a small team, so everybody that joins has an impact. So you want to make sure you have a process and that you are methodical about trying to hire the right people. I say try because in my experience, hiring is as much an art as it is a science, but there are things that you can do to improve that process to get better at hopefully finding the right fit for your business, but then if that person is not a right fit, the biggest mistake I see small business owners make is hanging on too long to those people.

Henry Lopez (05:59):

I get it that maybe this is someone who’s a family member or a friend that you’ve hired, but if you keep them and they’re the wrong fit, it can destroy your business. Certainly it’ll destroy morale, which means it impacts everything else within your organization, including the service and the quality that you’re going to be able to deliver to your customers and clients. There’s a whole series of episodes and resources that I have for you at the how of business.com. Just go to the archives page for the podcast, and then on the employee section, click on the employee section and you’ll find all of the employee related episodes there. Now, partnerships I can talk about for hours, and I have spoken about it for hours on many of the episodes of this show, but to summarize it here, this is a killer of small businesses, is partnering with the wrong person, right?

Henry Lopez (06:47):

We go into it ideally thinking we are in alignment with that person, that we know that person, but things change. Money changes us, business changes us. And so it’s important to upfront before you start the business, to have those difficult and detailed and pointed conversations with the person or persons you’re going to partner with. And then you must have a detailed partnership or operating agreement that’s been created by an attorney to make sure it spells out all of, if not most of the potential scenarios that might come up, that if there isn’t something in writing as to how you deal with it, it could paralyze and kill a business. So related resources on this one, I have episode 4 65, prepare for a successful business partnership and other related episodes. And then the key tool here that I have for you is I encourage you to download the business partnership checklist.

Henry Lopez (07:41):

This checklist, while it doesn’t cover everything, it covers the majority of those things that you need to at least talk about with a partner before you start the business, and I’ll have a download for that checklist on the show notes page for this episode at the how of business.com. I also have a workshop, a business partnership workshop that you can join an online workshop to help you get this right. The fifth most common business startup mistake that I have on my list is starting too big. We’re not taking the MVP, the minimally viable product approach or the iterative approach. In other words, we all have probably a vision or an idea of what we want our business to be or look like, and that idea and vision is understandably and necessary that it be big. It needs to be a big vision. The challenge is though, that we need to scale or niche down typically, and in most businesses it doesn’t apply to every business, but I think it applies to most business ideas, and that is, how can I get started?

Henry Lopez (08:43):

It’s a question to ask yourself. How can you get started with a small aversion as possible so that I can get it to market as quickly as possible with investing as little capital as realistically possible so that I can get the validation, the true validation, the only validation that matters, which is your target audience saying, yes, I want some of this and I’m willing to pay your price. The takeaway is this. And the mistake to avoid is this starting too big and therefore being strapped for resources. You’ve got all in, you’ve got no more money in reserve. That usually leads to failure. Reason number four or common mistake number four that I see a lot of small business owners make is poor marketing and sales. Now, the marketing part of it certainly ties back to reason number one, which is poor planning, marketing and your marketing plan, at least how you’re going to go to market initially should definitely be part of your business plan.

Henry Lopez (09:43):

But then ongoing marketing and sales, we can have a great solution, but it’s meaningless of nobody knows about it. And of course, the challenge that we have added to this as small business owners with limited resources is we simply don’t have the budget to make it known to everyone. So neglecting marketing and customer acquisition, some entrepreneurs focus so much on the product or the service that you neglect the importance of a strong marketing strategy that’s going to attract your ideal customer. And in today’s competitive market, understanding your audience effective branding and a solid online presence of course, is crucial for success. And without a strategy to attract and then retain customers, even the best, and we can find these historically, even the best products or services will go unnoticed and therefore fail. Part of this, as I said, is trying to cast too wide of a net, trying to be everything to everybody.

Henry Lopez (10:39):

Instead, you want a niche down, and initially you want to pick a target niche audience. I hear this often from people starting a business saying, well, my product or service is for everybody or a broad range of people. And that may well be true, but what I’m here to share with you is that at least initially for small businesses with limited resources, you’re not going to win there. You’ve got to focus your efforts and your resources on a small viable audience as possible. And then as you achieve success there, you can begin to expand. Sales is part of this as well. So not focusing on sales either because you feel you’re not good at it or you feel people will just discover you without having to sell. Again, it depends on the type of product or service that you’re offering, but marketing and sales are critical resources that I have for you.

Henry Lopez (11:28):

On this topic of marketing and sales, include a whole series of marketing episodes. Just go to the archives for the [email protected] and then click on the marketing episodes category and you’ll see a whole list of marketing episodes there, including how to put together a marketing plan. And then for sales, I encourage you to start with episode four 30 Sales fundamentals for small business owners, common startup business Number three on my list is getting in your own way. Certainly in the early days of your business, you probably have to do everything or you and your partners or maybe one or two key employees, and that’s understandable and that’s necessary. The challenge then is to get past that early startup phase. You continue to try to do everything either because it’s your identity or it’s what you’ve always done or you’re great at that. And so that keeps you from being able to step back from the business, from being able to empower and develop your team, and it will keep you from being able to scale.

Henry Lopez (12:25):

So you have to avoid at a certain point trying to do everything alone. So it’s not just in our hiring of employees, but it’s also in the help that you may get or should get in those early stages of planning and launching your business. And this can lead to burnout, and of course it’s going to prevent your business from growing. It just will because you only have so much capacity. So it’s important in those early stages of your business to recognize when you need to start delegating, when you need to start hiring, whether it’s on staff or virtual, such as perhaps a bookkeeper or an accountant or a marketing expert. And you focus on the areas of the business where you bring the most expertise and you delegate the other pieces to others. A great book of course, related to this topic is the E-Myth by Michael Gerber.

Henry Lopez (13:13):

And one of the key takeaways from that book is you need to get very quickly to working on your business as opposed to just working in the business, making the donuts every day. And then related to this, related to getting in your own way is, and I understand it because it’s hard to pivot, it’s hard to adjust, it’s hard to say to yourself and perhaps to your team, this business model that we’ve gone to market with, it simply doesn’t work. It doesn’t scale. It’s not profitable. So we have to be willing to adjust and sometimes adjust dramatically so that we can now begin to build a profitable and scalable business. This of course ties back to common mistake number five, starting too big. So a combination of starting small, as small as possible, validating that you have a market and that willing, that people are willing to pay for the product or service that you’re offering.

Henry Lopez (14:04):

And then this common mistake of not getting out of your own way is partly tied to not willing to adjust or pivot to what the market is telling you. Then you’re getting in your own way, and that’s a common reason why I see small businesses can fail. Common reason for small business startup failure. Number two, really, this one should have been last, but the one I’m saving for last is a little bit more dramatic, but number two that I have on my list is just not getting started or getting overwhelmed by the process of planning and research and preparation, because a lot of work, a lot of hard work, letting that overwhelm or paralyze you very common. And it’s okay if that happens. What I suggest if that does happen to you, but it’s still something you want to move forward with, is that you take it a step at a time.

Henry Lopez (14:50):

You break it down, you’re on your own individual path. There really is no rule on how long it might take you versus someone else to plan and get ready to launch your business. You may not be ready right now, and so it’s better to wait until you are to get launched. But we also, and I have a tendency of doing this, of overanalyzing of analysis paralysis. Now, how do we know when we’re there? Well, that’s tough for us to tell ourselves that. So that’s when a coach or a mentor or some other advisor or someone else who started a business talk to them and they can give you the honest feedback as to whether legitimately you’re not ready, you need to do some more work, or you need help with breaking it down and putting together a project plan that you can take a step at a time or if you really are not ready or it’s an idea that isn’t viable.

Henry Lopez (15:41):

And so those might be legitimate reasons, but again, the common mistake is that you’ve done all the work or you begin doing the work, it gets hard and it is hard, and then you get paralyzed and you never do it. And that’s the worst thing we want, is to become one of those people that always talks about the business that you’re going to start, but never actually does it. I’ve mentioned getting help several times here on this episode, and of course, that’s one of the things that I offer is small business coaching, both one-on-one coaching and accountability programs and group coaching programs. So if you’re interested in that and you need help, I encourage you to visit the how a business.com. Just click on the coaching link at the top of the screen, at the top menu bar, and you can learn more about my coaching offerings there.

Henry Lopez (16:23):

And then if you think it might be a fit, I encourage you to schedule a free coaching consultation with me. There’s no obligation. And on that call, we’ll get to know each other a little bit better. You’ll understand a little bit more about my coaching approach. I will hopefully be able to give you some initial guidance on those top questions or concerns that you might have as you’re planning to start your business or growing your business. And then I’ll share with you more details on my coaching program on that call. So to learn more about my coaching offerings, just go to the how a business.com, click on the coaching link at the top, and that’s where you’ll find all the information about my one-on-one and group coaching programs. And the number one most common small business startup mistake in my experience and observation is running out of money or not having enough money.

Henry Lopez (17:09):

So not having enough working capital cash into business or readily available to help you get through to break even is the critical mistake that I often see. Now, there’s a lot to that calculating break even goes back to your financial projections part of the business planning mistake. Now, there are small businesses, especially if you niche down and you start very small, where you may not have very much in the way of ongoing expenses, and online is an example of that. So it may well be that you don’t need a lot of working capital. That’s great. That shows that also you have scaled down to start with a very niche or MVP version of your solution. But for most small business owners, we need some level of cash into business to get us through that startup period and cutting corners there. And then not managing the cash well is what leads to running out of cash, running out of places to go get more cash.

Henry Lopez (18:07):

And that’s when we have to close down. Pretty simple. But that’s the way it works. When a business runs out of cash and you can’t meet your obligations and there’s not enough coming in to cover the overhead, the expenses, then we have to shut it down, and that’s how businesses fail. But it is the biggest reason why small businesses fail, and it’s often why you might’ve seen that business that seemed like it was doing incredibly well. Always a lot of people there, a lot of a buzz, a lot of excitement, seemed like a no fail idea, and yet all of a sudden their doors are closed. Well, in all likelihood, they probably had a cash management issue. Either they weren’t charging the right price and therefore the expenses were out of line, or it could have been a partnership issue as well. But in all likelihood, they ran out of cash.

Henry Lopez (18:49):

They got caught in a cash crunch that they could not overcome. So there are other components to this, not managing receivables, not planning for large expenses. Of course, not having a backup plan like a credit line, or as I said before, additional cash to invest. All of those things can add up to running out of money and having to shut down your business. So the most important thing to do to avoid this is that in your planning process, in particular, in your financial projections, that you are allowing for enough working capital, enough cash in reserve into business or quickly available so that you can cover the expenses in particular, if the business doesn’t ramp up as quickly as you thought, or if you’ve got a bump in the road, a downturn that you weren’t expecting, then you have the cash to get you through that period of time to survive that period of time and then continue to grow the business.

Henry Lopez (19:45):

So those are my top seven most common mistakes that you want to avoid when you start your business. To recap them again, number seven, with poor research and planning. Number six is partnering with the wrong person or not having established the right partnership agreement and understandings, and then related to the people part of it. Number six is also about the wrong team and letting that go on and having it destroy your culture and your business. Number five is starting too big, not taking the MVP or iterative approach if at all possible for your business. Number four is poor marketing and sales thinking that people will just find you or that you don’t have to do sales or having a misconception as to what sales is. So poor marketing and sales is number four. Number three is getting in your own way, which often has to do with not letting go, not letting go control, feeling like you have to do it all, not getting help when you need it, and refusing to adjust, refusing to pivot in the face of what your market is telling you that they really want.

Henry Lopez (20:50):

Number two is not getting started at all or getting overwhelmed and paralyzed. And the number one reason or most common mistake that small business owners make is not having enough money being underfunded. That’s what kills a lot, if not most small business owners. The other thing, probably one A and one B is partnership issues. So if you can avoid or mitigate these common mistakes, then you significantly increase your chance of success with your small business. There’s no guarantees, of course, there’s always a risk, but if you’ll address these issues, be aware of them, plan for them, get the help that you need to avoid them, then you give yourself a much higher chance of achieving success with your small business. And then of course, you’re going to continuously learn from mistakes. You’re going to make mistakes that’s part of being in business, but hopefully you avoid the big critical mistakes that others have made and that you can learn from.

Henry Lopez (21:44):

Even when we do everything right, we often can use a little bit of luck, but you can significantly improve your probability of success by avoiding or greatly minimizing these seven common mistakes that have outlined for you. I wish you the best as you do launch and grow your successful and profitable small business. This is Henry Lopez. Thanks for joining me for this episode of the How of Business. I release new episodes every Monday morning. You can find the show anywhere you listen to podcasts, including the How a Business YouTube channel, and at my website, the How of business.com. Thanks for listening.

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