According to GEM Global report, more than 100 million businesses are launched annually. But how many new businesses survive their first year? A study by Bloomberg suggests that 8 out of 10 entrepreneurs fail within the first 18 months. On the whole, this is due to avoidable mistakes.
While a lot of people would argue that the most effective way to grow as an entrepreneur is by making your own mistakes, this is by no means the only way you can learn. It's enormously beneficial to observe other’s mistakes as you embark on your own entrepreneurial journey.
If you are an aspiring entrepreneur, or you’re planning to kickstart your own business in 2018, make sure you watch out for these 5 elementary mistakes all startups must avoid:
Weak business plan
Inappropriate business planning is one of the top reasons new businesses fail.
For your startup to stand out from the pack, it is important that you have a strong business plan and a flexible business strategy. Some startups make the mistake of thinking that a rigid business plan is for the benefit of the shareholders only, forgetting that a proper business plan is the basis of a successful business - and a road map that directs all business activities to their desired destination. Without proper planning, a new business will always struggle to succeed.
Impatience or overconfidence
No doubt, lack of confidence in yourself and your product will definitely lead your business to crisis. But at the same time, overconfidence and impatience can also have disastrous consequences for some startups.
A lot of new startups hold the belief that their own product is perfect for their target market. Hence, they forget to study the market trends and produce a product that people actually want. Fortune reported that the number one reason why startups fail is because “they produce an unwanted product.” In fact, a survey of failed startups revealed that 42 percent of them identified the “lack of market need for their product” as the top reason for their failure.
As long as people don't want your product, your company is not going to succeed. But many startups still believe it is not important to produce what people want, wrongly thinking it’s more possible to convince people that they need their product. And that is reason for their failure.
Hiring the wrong people
For any startup, the most common factor in driving the company to the next level is hiring competent employees. But the moment you hire the wrong people your company is at stake.
What attributes do you seek in an employee? The common thought is that it’s better to hire someone with exceptional skills, knowledge and better experience, but arguably it's even more important to hire someone with a good attitude and drive. Skills with knowledge and experience is of no use without an enthusiastic spirit, as you need someone who is ready to work with their whole heart. You can train skills and impact knowledge, but you can't train enthusiasm.
According to a study, only 11 percent of the new hires that failed within the first 18 months failed due to deficiency in technical skill. The majority failed due to problems with motivation, willingness to be coached and emotional intelligence.
Just by hiring the right set of employees, your company can be guaranteed a secure future and you are protected from unnecessary financial cost and complications.
Neglecting customers value
Building a good relationship with customers can prevent a company from experiencing many financial problems and downfalls. One Adweek study shows that bad customer service costs US companies a whopping $41 billion a year.
Good customer service is a key element in satisfying your buyers needs. It's important to bear in mind that for every single customer that has been attended to in a good manner, there is the potential for them to refer your product to further 10 people on average. Likewise, if you neglect your customers, it can be the downfall for your entire company. A 2013 study by market research firm Harris Interactive showed that 85% of customers whose service needs are not met will retaliate against the company.
Inappropriate financial plan
Your finances are another important factor to consider as a startup company. If your expenses exceed your cash, then you will inevitably have a cash flow problem. A recent statistic by Matt Mansfield shows that 82 percent of businesses that fail do so because of some sort of issue with cash flow. And almost 77 percent of startups rely on personal savings for their initial funds.
It’s important to remember that your company will only be successful if you're bringing in more than you spend. However, this may not be possible if you start your company with little capital and you’re struggling to balance the financial aspect of running your business; no doubt, there is high probability of failure due a lack of funds to manage your organisation in a properly.
It’s advisable that you kickstart your business with enough money that’ll last you to the point where the cash is flowing in and you don't need to worry anymore.
Starting up a business is not an easy task, but being aware of the pitfalls and mistakes that lie ahead could prevent you from becoming a negative business statistic.