As an entrepreneur, you are filled with passion for your small business. You’re a go-getta. Yet, success in business requires reining in some of that passion. It requires acting with caution. It requires not simply looking toward what you can achieve, but at what you can avoid doing. Charlie Munger, vice chairman of Berkshire Hathaway, has spoken about the long-term advantage of avoiding stupidity, rather than trying to be intelligent. In this article, we will look at how to avoid common business pitfalls.
Planning to Fail
We have all heard that saying, “Not having a plan is planning to fail”. Somehow, many entrepreneurs dive into business without a moment’s thought to develop a business plan. All the enthusiasm in the world cannot make up for a lack of a plan.
You need to develop a business plan so that you can anticipate how you will meet the challenges ahead. A business plan will help you clarify things which, without you thinking of them, you would not even know you are foggy about. It will help you understand the competitive landscape, the regulatory environment, the economics of the industry, and many other factors. You cannot afford not to have a business plan.
A business plan is not a rigid document. Life does not work according to plan. This is not an excuse to not have a plan. If your plan is flexible and acknowledges the uncertainty of many decisions, it will be invaluable in preparing you to meet the challenges ahead.
Not Having Enough Capital
Estimates suggest that it takes two to three years for a business to attain profitability. That’s a long time to go without making a profit. But that’s the reality of business. Yet many entrepreneurs go into business without the necessary capital to survive these two years.
This is reflected in the failure rate of businesses: in the first year, just 20% of businesses fail. Over 5 years, half of businesses have failed. One of the major reasons for failure is cash flow. Many businesses just don’t have enough capital to survive. One of the reasons this happens is because many entrepreneurs don’t have a business plan. They go with their gut. But their gut isn’t an accountant.
Growing Too Fast
One of the most exciting things about owning a small business, is growing it. But, there’s such a thing as growing too fast. Growing too fast can destroy shareholder value and lead to the business ultimately getting smaller, not bigger. Excessive growth rates can cause so many problems: mistakes in keeping track of finance; cash flow issues; overvaluing the importance of sales; organizational breakdown; building poor teams; not matching growth with a bigger customer service team; not stepping back to look at the big picture; and investing in the wrong technology for your business’ size.
Not Marketing the Product
Many entrepreneurs are so focused on their product or service that they ignore marketing. Even when they think of marketing, they seem to believe that if the product or service is good, the sales will flow in without them having to do any work. Yet, even established brands with trusted brands and services do marketing. This is even more true for a business with a new b brand and whose product or service is largely unknown. You need to market to build your brand and to get more people to trust your product or services.