So you’ve got a great idea for a local business, developed a comprehensive business plan, and now you’re ready to make the leap from employee to employer, entrepreneur, and business owner. This is an exciting and terrifying change for most people, and with good reason. According to Bloomberg, 8 out of 10 entrepreneurs who start businesses fail within the first 18 months. That’s one of the more dire metrics out there, but at best, starting up a new business can be a risky proposition. What are some of the pitfalls, and how can you avoid them?
A Fluctuating Market
There’s not much a local business owner can do about the ups and downs of the U.S. economy, but you can analyze your own local market very carefully. Is there a demand for your product or service? What will happen to that demand as the economy gets better or worse? Who is your closest competition and how have they fared as the economy has waxed and waned? It’s important to do your due diligence and perform careful research before investing your hard-earned capital.
Picking the Wrong Location
Selecting a location goes hand in hand with analyzing your market. Who is your target demographic, and how convenient will this location be for them? Is there sufficient parking? Is it easy to find and accessible from main roads? Observe the location during different times of day and night, to determine traffic patterns, foot traffic, and possible crime potential. Never select a location based on seeing it only at one particular time of day. How many businesses have failed at this location? What type of business were they and why did they fail? If 20 businesses have failed in the same location before you, maybe there simply isn’t enough of a market in that area.
Not Enough Capital or Funding
New business owners commonly underestimate how much operating funds they will require, causing them to close before the business has even really gotten started. It’s important to ascertain not only startup costs, but continuing operating costs with little to no revenue coming in. Overly optimistic expectations of revenue are a common pitfall. Consider opening a line of credit to help cover operating costs while your business is gearing up.
Taking on a Business Partner
Even the best of friendships can be seriously strained when entering into a business partnership. Before signing any contracts, take off the rose colored glasses and take a long hard look at your prospective business partner. Does he or she share the same work ethic, ideals and vision for your new business? You’ll need to have some serious heart to heart discussions and ensure that each of your roles are thoroughly defined on paper before making such a serious, long-term commitment. Consider finding other sources of funding, and/or hiring professional help before taking on a business partner.
Starting a Business from Scratch
Starting out fresh gives you free rein to make all of the business decisions, and build your business exactly as you envision it, but it will take a lot of time an effort. Consider the benefits of buying an existing undervalued company and building it up instead. You’ll save a lot of time and you’ll still be plenty busy making all the changes and improvements.
Hiring the Wrong Employees
Finding and keeping the right employees can make or break your business. Your employees are the face of your business. They greet your customers, sell your products and services, and represent you to the public at large. Many business owners rush through the hiring process, settling for the prospective employee who will accept the lowest wage. This is a big mistake. An employee who is skilled, competent, hard-working and invested in your business’ success or failure is worth ten lazy, uncaring, incompetent ones. Take the time to thoroughly interview your employees and then trust your instincts. Pay them what they’re worth and provide them a pleasant and motivational work environment.
Failing to Provide Competent Leadership
Even the best employees won’t flourish under incompetent leadership. Business owners who fail to delegate end up overworked and overstressed while marketing and promotion efforts get neglected. Communication is key. Educate, delegate, and monitor from a distance. Hire good employees and let them do their job so you can do yours, which is to work on the business, not in the business.
You may be a great employer and leader, but there are other management skills to consider, such as bookkeeping, warehouse management, marketing, purchasing, scheduling, and more. Be cognizant of the areas where you are weakest, and consider outsourcing some of the work to a private contractor or consultant. It’s worth investing in a little expertise in order to help your new business flourish rather than fail.
Remember, starting a new business is a tremendous personal growth opportunity, and the learning curve is high. With extensive research, careful analysis, hard work, and a lot of help from friends and associates, it’s possible to wind up on the positive side of the statistics. Just remember to keep the lines of communication open and if you don’t know, ask!