Most start-ups – maybe as many as 90% – fail. That’s a daunting statistic! However, most of these failures weren’t inevitable. With more knowledge comes a far better chance of turning a start-up into a solid, established business. We’ve put together the top ten mistakes that start-ups make – and how you can avoid making those mistakes.
1. Losing the why
It’s important to know why your business exists, and why it’s valuable to your customers – both current and potential. Without a clear purpose, it’s easy to spread your time too thinly between lots of different endeavours, and that way lies failure.
2. Mixing business and private expenditure
Always, always have a bank account dedicated to your business income and expenditure. Too many startups mix up their business and private finances, causing headaches and lots of time/money spent clarifying the business position.
3. Incorrect business structure
Ensure that you have the right structure for your business, or you risk losing other assets like your house and car if things go wrong. Ensuring that your business is structured in the most tax-effective method can save you from paying unnecessary taxes.
4. Unwise partnerships
Lots of highly successful businesses began with a couple of mates who came up with an idea and decided to partner with each other to make it real. But lots of unsuccessful ones started this way, too. It’s important to ensure that both partners agree on direction, roles, responsibilities, and how the profits will be shared. It’s also essential to ensure that an exit strategy is agreed upon and made available from the start – partnerships do break up, sometimes amicably, sometimes not. Planning for the possibility can make a breakup much easier on everyone and the business.
5. No vision, no goal
It’s important to have targets, and to measure the business’s current status in relation to its targets. Are you on track? Are you nowhere near meeting your targets? Why not? The sooner you identify problems, the sooner you can create solutions.
6. Diving in before checking for ‘No Diving’ signs
Do your research into the feasibility of a proposed business before setting it up. In particular, ensure that legislation in your state and council area actually permit the activity – and that licensing costs, if any, won’t eat up most of your profit.
7. Disorganised books
A lot of start-ups begin with paperwork everywhere… perhaps some business receipts clipped together in a drawer somewhere. This can escalate very fast into total chaos. Get bookkeeping software, learn it, and use it. You might regret the time spent getting up to speed, but you won’t regret the hundreds of hours that it will save you over paper-based bookkeeping over the years. Good bookkeeping allows you to quickly provide financial information about your business whenever it’s needed.
8. No rainy day fund
Every business needs some capital to fall back on if income suddenly drops or large, unexpected bills come in. The amount will depend on the volatility of your business’s income and the risk of unplanned expenses, but most businesses need an absolute minimum of one month’s income available.
Having the right insurance can be the difference between losing your business and keeping it running. Is your business insured against potential lawsuits? How about interruptions like a fire or even extended loss of electricity?
10. No marketing direction
It’s very important for you to know why your business exists, but it’s also important for your customers to know why it exists. Without a marketing plan and sales strategy, you risk sending mixed messages to consumers and losing their sense of who and why you are. If marketing isn’t your strong point, consider getting advice from a marketing professional.