Typical Pitfalls of New Business Startups
- jim1817
- Dec 16, 2014
- 4 min read
There is nothing quite like fulfilling the American Dream and owning your own business. Time and again, new businesses make critical mistakes in the early onset of the business launch which leads to early financial problems or long term consequences. Many of these mistakes and poor decisions seem to be commonly repetitive among new business startups; I have listed 6 of the most common which I have experienced below.
Focusing on the product, not the business We’ve all heard the stories about the amazing idea that started on a napkin or in the garage and eventually developed into a successful business story. What you rarely hear is the more common story about an even greater idea that lacked a well-thought out business plan and never made it to the top. In the early stages of the business, it’s very easy to become so focused on the product or service, that we fail to focus on the business itself. There is much more to a successful business than a good product. In fact, you're more likely to succeed with an average product and a good business plan, than having a great product with a poor business plan.
The Wrong Business Partners
Some partnerships work out, though many do not. It can be very easy to allow emotions and excitement to sway good judgment when considering a new business partnership, especially when it involves a friend or family member. When starting a business partnership, approach it much like you would a marriage. It is a long term commitment and will likely have long term actions and consequences.
If you chose to have a business partner, do it because it adds value to the business. Make sure to discuss and clearly agree on the goals of the company, the responsibilities of the partners, and have resolutions in place if things don’t work out as expected.
Don’t chose a partner as part of a friendship because those situations can (and usually do) turn sour very quickly. Always consult with an attorney and have a well-thought-out partnership agreement in place, which will make life much easier if things go south.
Cutting corners in the wrong areas
Having a well-thought-out, realistic budget is a key component for all startups. Most startup budgets are unrealistic, too conservative and try to avoid costs in the wrong areas of the company. Hiring cheap employees to save money, for example, is rarely a wise decision. Having to replace and train employees can be not only costly, but time consuming. Under qualified employees will have a direct impact on your production, customer service, sales, and just about everything else that impacts your profits and bottom line. One of the most important aspects of getting a startup on the right track is a team of good employees.
Many startups also see branding and marketing as an area to save money- don’t do it. I have seen some great products fail solely because the branding and marketing didn’t support the product. It might feel good at first to save $500 on that logo and business card design by having your friend do it for you, but trust me it’s not worth it.
Other short-term skimming ideas may seem helpful at first, but in the long run it takes away from your focus on the company and the integrity of what you are trying to create. While it is wise to be frugal with your budget, just make sure you are doing it in the right areas and are staying realistic.
Legal Agreements Especially for first-time entrepreneurs, legal issues can make or break a company. Lacking the proper agreements are surefire ways to send your company into turmoil in the future. Patents, licensing, product and service liabilities, employment policies, partnerships agreements and personal guarantees of the partners are just a few of the things you need to have in place. Attorneys are expensive, but it is much more affordable to utilize their service to properly setup your company than it is to defend your company later on.
Accounting and Tax Preparations
Like legal agreements, it’s important to have a good accounting system in place. Too many businesses try to save money and handle this on their own. A company can save some money initially, only to suffer problematic results at a later date. These problems typically cost more to resolve than doing it right in the first place. With a myriad of ever-changing tax regulations and requirements, simple mistakes can become extremely costly and lead to a lot of stress on both you and the business. If you cannot afford an accountant, be sure to make yourself aware of all the new taxes and regulations that come with starting a new business and keep good records of everything you do. Good records will not only help you if a tax issue surfaces, it will help you analyze and understand your business.
Lack of an online strategy
Starting a new business without a well-thought online strategy is like going fishing without a boat. You can still fish from shore, but your options for success are greatly reduced and you will be missing out on a huge demographic. If you think the internet is just for those selling product online, you are badly mistaken. There are many advantages of being online, the key is to have a strategy in place.
I am regularly discussing business life, strategies, and decisions with other entrepreneurs. Whether you facing an existing obstacle or perhaps an ongoing concern, sometimes an outside viewpoint that otherwise may not have been considered may be the difference of where your company will be headed tomorrow. The approaches to making decisions and strategizing your business is almost unlimited. If you would like further ideas or guidance, feel free to contact Jim Schmitz for additional information by submitting this contact form. Jim will be in contact with you promptly.
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