When starting a new business, everyone is going to make mistakes at some point. But there are several mistakes that can be avoided just by learning from the problems others have encountered. Here, we'll take a look at the top three reasons entrepreneurs fail and how to avoid these mistakes.
According to Michael E. Gerber, author of The E Myth Revisited, over 40% of small businesses go out of business within the first year and 80% will close their doors within five years. What are all of these entrepreneurs doing wrong? What can you do to avoid the same fate?
Mistake #1: No Business Plan
Many new entrepreneurs, or even serial entrepreneurs, fail to write a business plan. Some feel overwhelmed by the idea, while others insist that all the information they need is in their head. Even if all of the basic information is in their head, they most likely do not have market research, an advertising plan, or a cost/profit analysis.
Remedy: Find a basic business plan template or just read up on them some and develop your own. A business plan can be a 50-page book or it can be notes on a piece of paper. You can even enlist the aid of a software application like Business Plan Pro to walk you through the creation process. The key elements of any business plan are:
- Business Name
Prospective Customers (Who is going to want what you have to sell?)
- How are you going to advertise or market your product?
Short term goals (3 month and 6 month)
- 1 year goals
- 5 year goals
- 10 year goals
Do not worry about writing long essays for each category. A sentence or two will do. The point of a business plan is to visualize your business realistically and set some dreams for the future. As Michelle Goodman says in her book My So-Called Freelance Life, “You need a roadmap if you want to arrive."
Mistake #2: Too Many Unnecessary Purchases
Buying “necessary" office supplies and space, is another common mistake. Admit it - you have spent an entire day in Office Max, Staples, Office Depot or similar store purchasing binders, post-it notes, pens, index dividers, filing cabinets, and desks. This is a common weakness among entrepreneurs, we feel like we need to be prepared for that big client to walk through the door at any moment. What will they think if I do not have a day planner and a stack of “paperwork" on my cherry finish desk?
Remedy: Before purchasing anything, take inventory of what you already have. Write down realistic scenarios and what you will need for them. For example: I am a Freelance Writer working out of my home, although I would love to own a cherry finish desk with green marble tops, with presidential leather chairs for my clients – all I need is my computer, printer, paper and a binder to keep my assignments organized. There may be some items you will need, but research them first. There is no sense in buying a computer program for $200 if you can find a suitable freeware version.
Mistake #3: Underestimating Your Time
So many entrepreneurs overestimate the amount of time they have available. Just because the work week is 40 hours a week does not mean you have 40 hours to dedicate to your billable hours. Every business has invoicing, phone calls, quotes, research, and marketing to do.
Remedy: Schedule time for “office work". Unless you have a trust fund or some other means of hiring a secretary from day one – you are going to have to do this work yourself. Many successful entrepreneurs schedule the first or last hour of the day for returning phone calls, emails, billing and filing. Figure out what works best for you and stick to it.
There are many more mistakes that entrepreneurs make, but these are the top three. If you take these remedies and apply them to your business right now, you will have a much higher chance of success. Remember, you are in business for you – make sure you keep a hold of the long end of the stick, and everything will work out just fine.
My So-Called Freelance Life: How to Survive and Thrive as a Creative Professional for Hire by Michelle Goodman, Seal Press, 2008.
The E Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It by Michael E. Gerber, Harper Business Publishers, 1995.