Whether it’s overspending, not spending enough, failing to market, or undervaluing products and services, starting a new business is filled with pitfalls.
For companies and startups just getting off the ground, the list of mistakes made during the formative stages of development is a long one.
The good news, however, is that with proper planning and expert mentoring, most errors are avoidable. Here are the five most common mistakes and how to avoid them.
It’s easy to overspend at the beginning, because most new businesses have lots of needs, and most entrepreneurs optimistically overestimate the amount of sales and revenue they’ll generate in their first year.
Spending mistakes can add up quickly, however. Ordering more inventory than necessary, hiring too soon, or buying more equipment than the business can support are all common, but avoidable, mistakes new businesses tend to make.
Develop a budget that’s based on realistic expectations, and search for cheaper alternatives to your highest spending categories. For example, maybe you can use contractors until you are financially ready for a full-time staff or team member. Or maybe you can work from home instead of leasing an expensive office.
Try to limit your overhead as much as possible in the early days. There will be plenty of time to invest more copiously when the business is in a stronger financial position.
It’s good to be frugal when starting out, but skimping on necessities can be just as problematic as spending too much.
While it’s certainly possible to grow a business on a shoestring budget, major issues can arise if you’re not investing enough into the products or services you sell. Quality can suffer, orders can back up, or sales can slow down.
The rule of thumb when it comes to spending is to develop a solid understanding of your industry’s startup costs and ongoing expenses, and then balance that against a reasonable estimation of your business’s particular profit potential.
Often new businesses wait until they are up and running to think about marketing. Failing to properly market —or to market at all — can have devastating effects on your business.
Good marketing starts when you craft your business plan. Your business plan should include a competitive analysis to allow you to exploit holes in the market and develop a brand advantage that differentiates you from your competition.
You also need a clear picture of your target audience before you can think about your approach to promotion (ads, email, blogs, social media, etc).
One of the biggest mistakes small businesses make when starting out is failing to price their products or services correctly. This is particularly true among service providers who tend to undervalue their worth in the marketplace in an effort to build a customer base.
Unfortunately, these service-oriented businesses fail to realize that they are boxing themselves into a pricing structure that makes it very difficult to raise prices.
If your competition is a bigger company that has been around awhile, use that to your advantage. If your product or service costs more, or about the same as your more seasoned competitors, distinguish yourself by your high level of customer service, your rapt attention to detail, or the superior quality of your merchandise.
Be prepared to justify your value and, most importantly, don’t back down from it.
When you are in a position to hire, be sure you go about it the right way. All too often, new business owners will make a hire based on gut instinct, familiarity — read: friends or family — or desperation.
Before you even start your search, develop a job description and outline the characteristics of the ideal candidate. Look for the proper skill set first, and then use cultural fit, personality and salary demands to winnow the field.
Whether you’re a small business looking to get established or an established business looking to make it to the next level, contact SCORE to get the free mentoring you need to help your business grow.
• Bill Stratton is a volunteer mentor with SCORE Lancaster-Lebanon.