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10 Small Business Mistakes New Entrepreneurs Make

This year, entrepreneurs will open 406,000 new small businesses, according to data from the U.S. Small Business Association (SBA). The SBA has defined a small business as one that maintains fewer than 500 employees, and there are a little over 30 million of these enterprises in the U.S. They account for 99.9 percent of all businesses and 47.5 percent of all employees. 

American entrepreneurs are bursting with enthusiasm to launch new products and services into the market, and yet, the SBA warns that only two-thirds of small businesses will survive for two years and just half will reach the five-year mark. Unfortunately, the problem is not environmental. Negative economic periods have little effect of the small business sector, and survival rates remain constant across industries.

Ingenuity, passion, and a viable product alone are not enough to guarantee success in the marketplace. Entrepreneurs also have to recognize and avoid the top small business mistakes.

The Top 10 Small Business Mistakes New Entrepreneurs Make

1. Starting a business in a trendy industry they’re not familiar with

The industrial internet of things (IIoT), for example, is hot right now. The IIoT consists of smart devices that communicate with one another without human interference such as fullness sensors on industrial rubbish bins. It’s generating huge venture capital investments for entrepreneurs who sell smart products that can track assets, eliminate manufacturing mistakes and improve regulatory compliance. Does that mean launching an IIoT enterprise is a good small business idea? All things being equal, yes! But all things are not equal.

An entrepreneur who has not heard of the IIoT will not run an effective business in that industry. It sounds obvious, but thousands of starry-eyed businesspeople lose their shirts each year because they chased trends. Nicolas Cole put it best when he wrote in Inc. that, “As an entrepreneur, your question should never be, ‘What do people want?’ Your question should be, ‘What do I know better than anyone else, and what is my market missing that people would want?” 

2. Launching a business without a plan

It’s tempting to skip the planning step. Writing a plan is hard, it’s boring and it’s frustrating to strategize how to overcome all those pesky problems that rise off the paper. So, the excuses begin. “Plans never work out anyway,” people say. Or, “The five-year plan is so old fashioned.” Entrepreneurs who succeed, however, never fail to plan. Of course, most plans undergo dramatic changes, and no plan must cover a full five years. But the very act of writing out a plan makes the entrepreneur almost 2.5 times more likely to launch the business, according to entrepreneurship professor and author William B. Gartner. Creating a plan solidifies the business idea in the entrepreneur’s own imagination.

3. Not establishing SMART goals

A solid business plan should include Specific, Measurable, Achievable, Relevant and Time-bound goals. 

  • Specific refers to the classic 5 W’s (who, what, where, when and why)
  • Measurable means it answers the “how” questions (How many resources will I need? How will I know I succeeded?) 
  • Achievable simply refers to attainability. The goal must be possible. 
  • Relevant means it matters to the goal-setter and is relevant to other business goals. 
  • Time-bound puts a deadline on the goal’s outcomes. 

Without these SMART parameters, a plan’s goals often form little more than foggy hallucinations. 

4. Failing to snag necessary financial backing

Starting a business is not usually a cheap proposition. Even a one-person shop has start-up costs associated with it. Depending on what product the new company sells and how it is organized, costs can vary widely, but successful entrepreneurs need to know the money is behind them. By including a clear approach to securing financial backing in the original plan, entrepreneurs can launch their new business on solid footing. Waiting until the business is on the rocks financially before securing an outside source of income is one sure way to founder a good idea.

5. Hiring the wrong team

“Be slow to hire and quick to fire,” or so the conventional wisdom in business says. In general, it’s true. Hiring the wrong team is about the surest way to go under. Still, no one really bootstraps a business all alone. Even a one-person operation gets help from subcontractors, tax preparers, accountants, or outsourced assistants. Bringing on board all these people and other employees at the right time is critical to business continuity. Some quick tips for hiring an A-team: 

  • Cast a wide net
  • Hire for both attitude and skill
  • Don’t oversell your business
  • Use caution when bringing on family or friends 

6. Neglecting to invest in marketing

Marketing can feel scary or even confusing at first. Some entrepreneurs fall prey to the temptation to hope that business will just come to them without any need to market themselves. This approach is dubious at best. Successful business people conduct market research before launching their product. Then, they set aside a marketing budget, and they keep track of the results it brings in. When possible, entrepreneurs should hire a vetted agency with industry experience to create and execute the marketing plan. While these agencies can cost more than the DIY approach, they typically bring in far more impressive results.

7. Forgetting about inbound marketing

Traditionally, marketing and advertising meant talking to — or worse, at — the customer. Inbound marketing is “a strategy that utilizes many forms of pull marketing (content marketing, blogs, events, SEO, social media and more) to create brand awareness and attract new business,” according to Marketo. In today’s digital world inbound marketing is generating three times as many leads as traditional outbound marketing, and it’s doing so at 61 percent less cost. Inbound marketing is an effective, affordable and interesting way to attract potential customers.

8. Underpricing the product or service

This mistake is one that new entrepreneurs make all the time. They want to attract a high volume of customers, so they drop the price as low as possible. This strategy can put even the most intrepid entrepreneur out of business quickly, though. Pricing a product below its fair market price for a sustained period of time devalues the consumer’s perception of that product. Furthermore, low-dollar customers tend to be more difficult, and paradoxically, demand more customer service resources. Besides, any product that does not produce a profit will ultimately fail on the market. Dmitry Dragilev, founder at JustReachOut.io, told readers in Forbes how to solve this problem: “Use an A/B split testing tool like Optimizely or VWO to safely try out different pricing and conversion rates.”

9. Failing to commit

Starting a business is hard. After the dreaming, planning and talking wind up, new entrepreneurs have to dig in and work like their lives depended on the business succeeding. Without an iron-clad commitment to that business, it’s easy for a frustrated business person to give up and start fondly imagining life in a corporate cubicle. Entrepreneurial success requires time, sacrifice, diligence and a sincere interest in the enterprise. Those factors make up the components of a resilient business person.

10. Underestimating the importance of formal education

By now, everyone has heard the stories of Bill Gates and Mark Zuckerberg who both dropped out of Harvard to found Microsoft and Facebook respectively. Some would-be entrepreneurs use these men to justify their own desire to drop out of school. The truth, however, is that Gates and Zuckerberg are outliers. According to a study by the Ewing Marion Kauffman Foundation, 92 percent of U.S.-born tech founders hold a bachelor’s degree and 31 percent hold master’s degrees. Dustin McKissen, a contributor to CNBC and a leading voice on entrepreneurship in middle America, wrote, “The odds of success are far higher if you have an education, a network, experience, and maturity.”

Those looking to build on their experience and maturity should consider an online MBA from Virginia Wesleyan University. Our online format emphasizes flexibility so that you can fit education into your already busy life. In fact, our 30-credit program students can be completed in as little as one year.