For millions of people around the world, there has never been a more tempting time to launch a start-up company. Much of the nine-to-five career world has been plunged into uncertainty while vast amounts of shiny venture capital sits on the table to tantalize entrepreneurs who think they may have the “next big thing.” However, each year more start-ups crash and burn than take flight.
Listen to enough tales of woe from the eight out of 10 entrepreneurs still reeling from the failure of their first start-up, and you will quickly recognize recurring themes. These four common pitfalls should serve as cautionary tales to help those just starting out on their entrepreneurial journey.
1. Learn When to Say No.
Most start-ups begin with a single spark of creativity—which morphs itself into one great idea, product or service. Maintaining this simplicity gives you focus and allows potential investors to quickly grasp the inherent foundation of your business. It also keeps a business lean, and ensures that all resources are dedicated to developing that single idea into something exceptional.
However, when that initial spark begins to gain momentum and grow into new ideas, it can be easy to lose focus and start expanding your business model before your flagship product has even gotten off the ground. This dispersion is one of the first dangers a start-up will face. Doing too much too soon will spread your resources thin and can confuse your audience and investors.
Keep a note of possible areas to diversify, product ideas and ways to branch out in the future. You can always tackle these in a planned, strategic way further down the line when you’re in a stronger position.
2. Your Budget Is as Strong as Your Contingency.
Underestimating your costs is a sure fire way to sabotage your chances of success. The goal of a start-up should be to thrive; it’s not enough to plan for a shoestring budget that allows you to survive. With no money available for growth or breaking into a market, this initial capital will quickly dry up before your revenue has a chance to reach the black.
Too many entrepreneurs focus on the cost and profit of their actual product, without considering other expenses such as legal fees, market research or additional staff that might need to be brought on to cope with growth.
Always include a realistic salary for yourself in your cost projections. While you may be willing to work for less now in anticipation of higher rewards further down the line, your landlord, energy provider and phone company, are unlikely to be so flexible in payment arrangements.
3. Build a Strong Team.
Friends and family members make up an important support network for a business owner, and it is important to surround yourself with people you can turn to for honest advice. However, the key is to make a clear distinction between personal and professional help. Hire people who can get things done, not just people whom you get along with.
Do not fall into the trap of thinking you can do it all. Running a business requires a variety of skills and experience, and a savvy entrepreneur will build their team to balance their own weaknesses. Make sure your core team includes people who bring something to the table other than a personal relationship with you.
4. Know When to Hold ’em and When to Fold ’em.
No business owner wants to close the doors on a project that they have poured their cash, hopes and hard work into. Yet, knowing when to accept failure is crucial if you are to survive to try again. As Henry Ford said, “Failure is only the opportunity to begin again more intelligently.”
Know when enough is enough and accept your losses before they grow into something too big to recover from. It’s much easier to admit defeat than unwind any serious financial or professional damage.
Launching a successful start-up and turning it into a profitable business is a huge undertaking. It requires patience, skill, perseverance and an ability to grasp opportunities. You might not get it right the first time, but learning from the mistakes of others could fast track you to your next success.