Entrepreneurs are, by necessity, an optimistic bunch. Their attitude and drive is an essential factor of their success. But too often, when they start a business, they focus solely on what they should do and forget that there’s another very important list: what they shouldn’t do.
So before you become a victim of one of these 5 classic small business killers, check out this list and what you can do to avoid them.
Pitfall #1: The Market Simply Isn't There
In an ideal world, startups and small businesses can come into being with a product so revolutionary that it creates its own market. But that’s a truly rare occurrence (think personal computer). The best thing to do, especially if you’re not well established in the entrepreneurial world with significant financing, is to try your hand at something more direct. Finding a product which fills a clear and provable market need is a great first step to a successful business. Otherwise you risk becoming another company selling something no one wants. And no one wants that.
Pitfall #2: You Started Without Enough Capital
True, the mantra of startups these days is to do everything as fast as possible: start fast, fail fast, and learn fast. But too often this rush leads people to jump into a business venture without the resources to see it through, even when the core idea is met with success. Frankly, there are few things more tragic than seeing an otherwise successful startup fail because of simple cash-flow problems. In fact, 29% of founders list this as the main reason for failure.
Related: Business Loan
So, start with a rainy day fund and make sure you’ve got some great alternative financing options to fall back on. One type of funding to consider is invoice discounting. It’s a kind of short term credit that allows companies to borrow money based on their existing invoices. This is a great way to avoid the classic problem of having a large accounts payable balance but no cash on hand, which often runs successful businesses into the ground. Invoice discounting can also massively increase your flexibility by giving you access to financial resources whenever you need them, meaning you can reinvest in your business faster than ever before.
Pitfall #3: You've Got an Unrealistic Pricing Structure
Pricing is one of the trickiest things for any company to decide on. A few dollars difference here or there can have a huge effect on sales, totally aside from the quality of the product. You can’t simply take potential customers at their word when they tell you what they want, either. Somebody may say they’re willing to pay $8.99 for something, but that doesn’t in any way mean that they actually will in the end. Thus, try testing pricing and really get into the head of your target customer. If you can understand how they’ll react to your product on a subconscious level, you’re already way ahead of the game.
Pitfall #4: You're Entering a Highly Competitive Market
Do you have a game-changing idea for a smartphone? Maybe you’ve just come up with the greatest soft-drink ever. These may be fantastic ideas but you should always be wary of entering a market as cut-throat as the smart phone or soft-drink industries. Starting a business is difficult enough without dozens of competitors with deep pockets looking for ways to crush you. In essence, if you want to try taking on big competitors, you’d better make sure you’re knowledgeable and well financed. This is another place where invoice discounting can make a big difference.
Pitfall #5: You Simply Began with the Wrong Team
Anyone who’s ever worked on a group project in school should know how important group and team dynamics are for success. Unfortunately, when it comes to putting together a team for a startup, too many companies settle for whoever is there and willing. But not being discerning about who you bring on can lead to disastrous results later on. Just think back to how many of those group projects turned out: either one person stepped up and did most of the work leading to resentment or nobody stepped up and it all went down in flames. Don’t let that happen to your business!
Rules: Heed, Bend, or Break Them
Of course, all of these rules can be bent or broken in the right circumstances. But in general, they should be guiding principles, reminders of the land mines waiting for you. Luckily for you, though, as small businesses and startups assert themselves more and more in today’s business world, the tools to help them survive should improve.