11 common startup business mistakes and how to avoid them
While some business mistakes are inevitable, you can sidestep common pitfalls by learning from the experiences of others.
Knowledge is power – that’s why it’s crucial to learn about the type of errors that startup businesses often make and how to steer clear of them. This guide delves into the following errors.
1. No business plan
A business plan is essential for any new business. Many entrepreneurs rush ahead with their ideas but fail to create a plan. This is a big mistake, which can quickly lead to failure.
A good business plan should:
Clearly explain your small business idea
Outline how you plan to make money, including financial projections
Detail your cash flow projections
Include your market research and target market
Define key milestones and objectives
Describe how you plan to grow your business in the future
A well-constructed business plan can help you stay focused during busy periods.
It is also crucial if you plan to borrow money or attract investment. That’s because most lenders and investors use business plans to evaluate funding requests. A strong plan demonstrates your business acumen and shows you have a path mapped out for the future. It’s more challenging to secure a cash injection without one.
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2. Underestimating startup costs
When planning the cost of starting a business, entrepreneurs often fall into two camps. Some assume it costs too much and never start, while others dive in blindly and run out of money. The key is finding a happy middle ground.
While there’s no one-size-fits-all price tag for starting a business, you can control many early expenses. Start by estimating operational costs – your business plan should help with this – and create a budget. It’s wise to overestimate your budget to account for hidden costs like legal fees, marketing, inflation or unexpected delays. You should also validate your numbers with a financial adviser.
Once you set your budget, stick to it. Avoid unplanned spending and wasting money. If unexpected bills arise, adjust your budget carefully to stay on track.
These unsecured and secured loans could help you grow your business, cover running costs or even fund a new company.
3. Neglecting market research
No matter how good the business idea is, if you launch it in the wrong industry or push it to the wrong customer base it’s going to struggle. Market research helps you:
Identify your target market
Understand your customers, their needs and struggles
Analyse the competition
Find market gaps your products or services can fill
Track industry trends
Conduct thorough market research by using surveys, analysing social media insights and studying competitors. Apply the findings to guide your overall strategy.
4. Poor cash flow management
Cash flow problems often sink new businesses. To avoid this, ensure you have a clear understanding of your business finances at all times. Modern tools and software make this easier than relying on outdated methods like logging finances in a tax book at the end of the week.
Start with a business bank account. This separates your business finances from your personal finances, which is useful for any business owner and a legal requirement for limited companies. A business account lets you track transactions through statements or in real-time through online banking apps. Many accounts also integrate with accounting software to help with taxes.
The key message is don’t ignore your business’s finances. Take a proactive approach and maintain a financial buffer to manage periods of low income. Staying on top of your accounts prepares you to handle challenges and act before problems escalate.
5. Hiring the wrong employees
As your business starts to pick up, it can be tempting to quickly hire new employees to meet increased demand. While recognising when you need help is important, hiring without careful planning can cause long-term problems.
One big mistake is hiring too many people too quickly, which can strain cash flow due to wages and taxes. Another common mistake is hiring the wrong people. Without taking time to determine the right roles and skills, you may end up placing the wrong person in a role or hiring someone who doesn’t align with your company values.
Hiring the right employees elevates your business, which is exciting, but it also brings added administrative responsibilities. You need to manage payroll, tax obligations and ensure a safe working environment while complying with employment laws. Additionally, you must secure employers' liability insurance if you hire staff outside of your immediate family.
6. No contracts
It’s tempting to jump into new business opportunities based on good faith and a handshake, but without the legal backing of a contract, things can quickly fall apart.
Contracts are essential for maintaining agreements and systems in any business. Whether dealing with a new partner, client, supplier or investor, always use a contract. Skipping this step puts any agreements, and your business, at risk.
7. Lack of networking
Networking is crucial when starting a business and failing to network is a common mistake. Even if you're not overly outgoing, remember that networking is more than just socialising. It’s an opportunity to promote your business to like-minded people and show confidence in what you do.
Attending networking events and industry forums, both in-person and online, lets you meet potential clients, suppliers, mentors and investors. These are the people who can help take your business to the next level. Plus, many people you meet may share their experiences, allowing you to learn from their mistakes and gain an advantage.
8. Bad customer service
Good customer service is crucial for any business that wants to maintain a good reputation. You can manage this in two key ways.
How you treat customers – This is customer service at its most basic. Treating customers fairly is essential, but do you go the extra mile? Are you and your team adopting a customer-first approach? Handling your customers well from the start reduces complaints and helps build a strong reputation.
How you respond to customer feedback – Whether it's an online complaint, a face-to-face dispute or a suggestion for improvement, how you respond matters. Don’t just listen so you can reply; listen so you can understand. Respond positively to feedback and follow up when customers suggest sound improvements. This shows customers they’re heard and makes them more likely to recommend your business.
Even with thorough market research, customer expectations can change quickly. Regularly update your strategy and stay agile with your customer service offerings.
9. Failing to delegate
If you’re used to running your business your way and doing everything yourself, you risk making mistakes. You’re likely to experience burnout and may miss important details in your rush to get things done.
That’s why delegation is so important. Distributing tasks to your team clears your headspace and brings fresh perspectives. For example, a colleague may propose a more efficient way of handling tasks.
Trust your staff when you delegate tasks. Communicate clearly and follow up but avoid micromanaging. Micromanagement undermines the purpose of delegating and can quickly lower team morale.
10. Overpromising
Learning to say no is difficult when starting a business, but overpromising and underdelivering is a mistake to avoid. It can damage your business’s reputation, cause stress and lead to complaints or refunds if things go wrong.
It’s better to set realistic expectations with customers regarding timelines for work or deliveries. And if you don’t say yes to every offer immediately, it shows potential customers that you’re in demand, which can work to your advantage.
11. Not adapting
Adapting in business is essential, whether it’s due to changes in customer expectations, the integration of artificial intelligence (AI) or the rapid expansion of your business. Things change quickly, so staying ahead of trends and adjusting your business plan and strategy is crucial.
One common mistake is failing to change your business structure at the right time. If you’re a sole trader, it may become cost-effective and tax-efficient to switch to a limited company. This requires registering your company and name with Companies House, which takes extra effort, but it can be a smart move for a growing business.
Don’t stick too rigidly to your business model either, especially if profits drop or customer sentiment shifts. Watch for new trends and evolve your business plan accordingly. This helps you stay ahead of the competition and continue offering a valuable service to your customers.
About Kyle Eaton
Kyle is a finance editor specialising in all things related to small and medium enterprises (SMEs). He has over ten years' experience working in financial services and as a writer.