Almost all businesses that start up will fail within the first five years. Most of them fail within the first two years. Why do new businesses fail? There are some very clever entrepreneurs out there, but most of them are going to fail miserably. The truth is that the only successful entrepreneurs are the ones who have failed the most.
Starting a business is more about learning from your mistakes than it is about learning how to succeed. All of the worlds successful entrepreneurs have a few failures hidden away in their past. Their ability to learn from their mistakes is what has allowed them to achieve their current success.
If you are currently an entrepreneur that has never had a failure then give yourself a big hug, because you are in the process of making your first. If you come through the next few years and your business survives, your failures then make sure you learn from them. Here are eight mistakes that most new entrepreneurs make.
1. Underestimating How Much They Are Going to Struggle
Many people are aware of how fun and liberating, starting a new business is, but few people are prepared for how much work it involves. Few people are unaware of the sheer amount of billable hours they are going to have to work, and just how little money they are going to make in return for their efforts.
The worst thing is that the first few months are often blessed with a little bit of beginners luck. This is before the bills have begun to pile up and before any significant problems have taken hold. Nevertheless, too many people underestimate just how much they are going to struggle within the first five years, and therefore will not plan accordingly. A wise entrepreneur would use their few moments of spare time each week to make contingency plans, and start contingency funds (and self-insure). Sadly, few people ever do this and therefore set themselves up for failure.
2. Improper and Incomplete Market Research
Market research, its analysis and its evaluation are all very important components of having a smooth and well-purposed business plan. Any entrepreneur who does not do full, and comprehensive, market research is going to fail. Failure may come from advertising to a restricted number of consumers; it may come from poor product placement, poor product distribution, or many other means--all which could have been avoided if the entrepreneur’s market research had been completed properly.
3. A Panache for Expecting Bigger Returns than They Actually Get
New business people will often pull numbers out of thin air, and justify them with logical sounding explanations. Even established brands such as Kellogg’s make this mistake--it is not just new entrepreneurs. Kellogg’s made this mistake when they tried to introduce eating cereal in the morning into India. Their researchers justified the move by saying that if only 2-3% of the Indian people decided to buy their cereal--that they would make a profit because India has 1.1 billion inhabitants. Kellogg’s took massive losses in trying to introduce morning cereal into India, because nobody wanted to eat cold cereal in place of their usual boiled vegetable breakfast cuisine. This was a silly mistake that was made by an established firm, but a new entrepreneur cannot afford such a mistake.
4. Assuming That They Know What Their Customers Will Want
It is the job of the seller to listen, not to talk. The entrepreneurs who do not do market research are the ones who fail first.
5. Assuming That They Will Not Struggle to Give Their Products Away for Free
Many people are so confident about their own products and services that they are blind to just how hard it is to market your products. If you are one of those people then you should load your car with samples and visit ten establishments.
Try to sell them the idea of selling your products on sale or return. That means that they do not have to pay for your product unless it sells. They have no obligation to purchase otherwise. Tell them that if they do not sell the stock within six months that you will collect the stock and there will be no charge at all. Once you have given this offer to ten establishments, come back and continue reading this article. Unless you are the world’s best sales person, your trip to ten establishments will have given you a rude awakening. All ten will have shown you resistance to selling your items, even when they have to pay no money in order to make a profit on them.
You are going to struggle to market and sell your products until people are coming to you. If you have to go to the customer (visits, phone calls, emails) then you are going to struggle. When the day comes that people are seeking you out, your job will get easier. Until that time you will meet with nothing but stubborn resistance whilst trying to sell your products.
6. Improper Planning Which Leads to Unexpected Events and Occurrences
Without a suitable amount of planning, you are going to fall flat on your face. This is because planning is the only tool that is going to prepare you for the future. If you do not plan--then every eventuality is going to be a surprise. The only problem is that some surprises can be very unpleasant and will probably put a new company out of business. Only through proper planning can a company truly survive the unexpected. This is because proper planning involves contingency plans. Every item on their plan will have a subsection that says, “If this does not work, we must do this.”
7. Trying to Damage or Fight with Their Competition
Attempting to take on your competition is not going to work. Your competition is more established, with better contacts, expertise, business contacts and more money. They will ruin your company before you even begin to make a dent in their profits. Books such as the “Art of war” have a nasty side effect of making new business starters take terrible risks and attempt to fight with (and ruin) their competitors. This strategy will never work. You need so sneak under the radar of your more powerful competitors, and begin your business by picking up the scraps they leave behind. You should target the customers that they are failing to get and build up your business before you try to start taking their customers.
8. Poor Accounting and Overspending during the First Two Years
The first two years are always filled with promise and wonder. They are often when the entrepreneur has the most money and their overdrafts are still full. This happy state of affairs does not last. A tiny minority will learn from their poor spending and accounting and will learn to function as a good business. Most however, will try to spend their way out of their troubles, and subsequently land themselves in more debt. All failed entrepreneurs wish that they had been more frugal during the first few years of their company starting up. If you keep a close eye on your money and only spend when you absolutely cannot continue trading without doing so, you will be far better off in future years.