Starting a business is not an easy thing to do. So much so that statistics says “9 out of 10 startups will fail”. There must be something the remaining ten percent are doing that the 90% do not know about or are not yet implementing.
How can your business be enlisted among the top 10% that will scale through the startup stage?
In my brief study of startup, I have found out seven major mistakes startups make that cost them their businesses. If you can avoid making these mistakes your business can undoubtedly scale through the startup stage.
1) Not Planning Ahead:
Just having a great idea is not enough to start and grow a successful start up.
A lot of people think their idea or product is so fantastic and that they would make good sales right from the start of their business. Nothing is farther from the truth. If you don’t plan your startup, this won’t go as planned. It is only “Proper Preparation that Prevents Poor Performance”. Before starting a business, it is important you sketch a business plan. If it is a very small business, you might not need to write down all the details, but you should have plans. You should plan how much you would like to invest, who you want to work for you, how to get to your target market, how to attract investors, where you want the business to be located as well as what percentage of your first profit you want to reinvest. Plan everything. Never be too confident of your product or service. Don’t get me wrong, there is a level of confidence you need for business success. However, overconfidence is deadly. In my opinion, deadlier than “underconfidence”.
2) Spending all your profit on personal expenses:
Yes, don’t ever do that. The reason why your business is stagnant or failing might be because you have not made a clear cut difference between you and your business. You are not your business and your business is not you. The earlier you realize that, the better for you and your business. I once invested some money into a startup and few weeks later, when reporting to me, she said her mother needed some cash for something urgent and she had to give up her profit and some of the capital she started with. Too bad she was not able to get back the money she loaned her mother. She had to struggle for about a month or more to get the business back on it’s feet.
This is usually my advice. Pay yourself not more than 25% of your profit, save about 25% and invest the remaining 50% profit back into the business. This is my recommendation, yours could be different. The more you reinvest, the better. Just make sure you always have some reserved cash for unexpected expenses.
I also recommend that you create a different account for your business. It might not carry your business name for a start, but just an account different from the one you use for your daily transactions. This way, you don’t mix up your personal cash and your business cash.
3) Focusing only on getting new customers rather than retaining the existing ones.
In one of my articles, I wrote on How to retain existing customers and get new ones. I stressed the importance of spending your resources more on customer retention than only on customer traction. I also mentioned the fact that it is easier to sell to an existing customer than to a brand new one. All these are true and will remain true as long as business is concerned. The success of any start up is largely dependent on how much effort they put into retaining their existing customers.
Don’t be carried away by the influx of brand new customers and then ignore the ones that you already have. No matter how much water you pour into a basket, it will never get full. No matter how much new customer you attract on a consistent basis, if you don’t have a system that will make them stay, you will soon lose them all. This definitely will lead to the fall of your business.
4) Dedicating crucial tasks to people that don’t understand your vision.
When your business starts growing, you will need employees. First, you have to be very discerning to know who should work for you. Your employees have the capacity to pull your business down in no time. But if you recruit the right team, they have the ability to help your businesses soar higher than you expect. Next, there will be one or two individuals in your team that have bought totally into your idea and understands the goals and vision of your company. You have to identify those kind of people in your team. If you are ever going to assign a very crucial task, it should be to such people. Never make the mistake of giving someone else such a task. If for example, you need someone that will represent your company in a meeting or so, having the wrong person undertake this kind of task can make you lose a deal or lose an investor. Chose wisely.
5) Premature Expansion:
This is one of the major mistakes you should avoid when starting a business. In some cases, business might be very good. You might close so many sales and make much more profit than you bargained for. The usual temptation is to start expanding. You may be tempted to employ too many staff too quickly or open too many new branches. Those are the two things most startups spend too much money on. In any of those cases, they think they are doing the right, but are gradually draining their budget.
As essential as expansion is for every business, it is dangerous to do it at the wrong time. When you start spending money, be sure that you are spending it on things that are needed for the growth of your business at that particular time and be sure you still have more money or can easily generate more. Because if you finish your money before you experience any tangible growth in business, you may find it difficult to raise money again.
6) Depending on Promised Cash
If you are going to create a budget for your company or business, you have to base it on only physical cash. Don’t spend money believing that you would receive another soon. Most people get disappointed when money is concerned. If you have a list of expenses to make, settle IMPORTANT and URGENT needs before any other need follows. Because the money you are expecting will probably take 3 times more time than it should normally take to arrive. If you had spent all you had on less important and less urgent needs, you might get totally disappointed in the end.
7) Not paying for Expertise:
Few years ago, I started a small business of producing some educational materials for undergraduates. In producing these materials, I needed to do a lot of typing. I was so happy about how much money I would make that I didn’t want to pay anyone to type for me. I ended up making a lot of profit, but definitely not the kind I would have made if I had delegated the task of typing to someone else. Production speed would have been higher and sales would have been better. Few years later, I now realize the mistake.
Even if you can do so many things yourself, try to delegate as often as needed. There are some tasks that are not too crucial. You can begin by delegating those ones.
I understand why you may not want to delegate. You are very strategic and you are very concerned that other people would not be able to meet up to your standard. Well, for how long will you allow that concern keep your business small. You just have to delegate if you are serious about growing your business. Start by clearly outlining all the processes involved in the task you want to delegate. This way, whoever is working for you knows exactly what you want and will over time learn match up to your standard.
You might already know about these mistakes and are probably making some of them already. But if you know these things, you can only be free from it consequences when you avoid them strictly. Like a friend said, “Knowledge is Power, but you can remain Powerless if you don’t implement that Knowledge”.