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5 Common Mistakes When Starting a Business

Starting a business comes with a learning curve – often a steep one. There’s a lot to consider, research, and execute. It’s not surprising that new entrepreneurs make mistakes along the way.

According to Alan Shaver, a SCORE Portland Maine mentor for the past 15 years, there are five key mistakes many new startup business owners make.

If you or someone you know is starting a small business, knowing what missteps to watch for can help you avoid getting your business off on the wrong foot.

Top 5 Mistakes New Business Owners Make

 1.   Underestimate the time, effort, and energy required to start and run their businesses.

“They don’t realize it will be as all-consuming as it is,” explains Shaver. “They underestimate the demands it places on them, particularly how it will impact their family relationships and their financial resources.”

He says a lot of people going into business fail to estimate that accurately, so he encourages new entrepreneurs to connect with existing business owners in similar types of businesses who have gone through the process. That can serve as a helpful reality check.

  1.  Fail to conduct sufficient research about the industry and their type of business.

Without researching the business arenas they’re entering, new entrepreneurs often don’t have an adequate understanding of what they can expect.

Shaver explains, “A lot of people don’t want to do that kind of work, but it’s necessary to understand their business and the industry in which they’ll operate.”

“SCORE counselors direct them to various resources to enable them to learn a great deal about their proposed business and its industry.”

One that Shaver regularly shares is an online resource available at the Portland Public Library, Reference USA. It offers a wealth of information to help new business owners understand the metrics, price points, margins, and more that are usual for their types of business. Reference librarians can also assist new entrepreneurs in researching their industries.

  1. Understand the potential limitations of their business.

Will your business be able to sell enough to meet your income needs? Does your location provide an opportunity for growth? What qualifications do your employees need?

The above are tough questions to begin to answer unless a new business owner does financial projections and talks to others in the industry to learn from their experience.

“I had worked with a client who had a successful restaurant with a strong clientele, but his location wasn’t large enough,” shares Shaver. “As a result, he couldn’t turn tables fast enough and couldn’t achieve the revenue goals he wanted to. Sadly, he closed his business. If he had done more homework about the efficiency of a venue his size, he might have chosen a different location and remained in business.”

Similarly, but fortunately with a more successful outcome, Shaver also worked with a thriving coffee shop client who decided not to open another restaurant because he did his due diligence and projected he wouldn’t turn a profit until after three years.

According to Shaver, SCORE mentors help new entrepreneurs tackle challenges like those. They can facilitate connecting new business owners with existing business owners, and they also point entrepreneurs to the Financial Projections template on the SCORE website. By taking advantage of those resources, startups can make better decisions.

  1.  Fail to develop an adequate business plan, specifically the financial projections. 

“A lot of people allow themselves to be overwhelmed about creating a business plan,” says Shaver. “At SCORE, we encourage them to do it in small steps – to tackle it in reasonable workable bites.”

According to Shaver, seriously thinking about your business finances is crucial.

Will you make the money you intend to – or need to – make? Will you be able to pay back your investors and lenders?

Only by preparing realistic financial projections can you determine the appropriate capitalization and most efficient operation of your business.

“Business plans help you measure your own progress against your goals. It’s important to remember a business plan is not cast in concrete. You can change it as you learn more, but it’s essential so you can track if you’re achieving what you set out to do. And if it isn’t working, you need to explore why isn’t it working.”

SCORE provides tools to help entrepreneurs development business plans (such as templates for the narrative portion and financial projections) and offers workshops to guide them as well.

  1. Neglect to review and understand the financial performance of their businesses.

When new business owners don’t obtain financial reports and pay attention to them from the outset, there can be disastrous results.

Shaver warns, “If you don’t look at financial results regularly or faithfully. You don’t really know the score. You’ll have no idea if you’re winning or losing.”

“When small businesses are not winning, they need to figure out why – before they run out of money.”

Shaver encourages new entrepreneurs to reach out for assistance from SCORE counselors to understand what their financial statements reveal about the performance of their businesses.

Bonus Tip:

This doesn’t apply to all entrepreneurs, but if you’re going to have a partner in your business, Shaver recommends getting a written agreement in place from the beginning.

“It’s absolutely essential to have a written agreement that defines ownership and responsibilities. Do it upfront because waiting until there are disagreements or problems in the business relationship is too late

About Alan Shaver

  • Shaver has been a SCORE Mentor for 15 years. He leads several workshops at the SCORE Maine Chapter in Portland.
  • Now retired, he was a corporate lawyer with a large law firm in New York and had a private law practice that served New York and Connecticut. For ten years, he was also a partner in a franchise auto service business in Maine.
  • His areas of expertise include business planning, financial projections, and business funding.
  • One of Shaver’s SCORE clients, Garbage to Garden, was nationally recognized by the SCORE organization as “2014 Outstanding Green Small Business.”

 

Respect Your Competition

You launch your business in a growing niche market. Out of the blue, a friend tells you about a new similar product or service. After your initial shock, do you obsess about losing your edge or embrace the opportunity? At SCORE, we say “FEAR not your competition!” The right move is to transition into discovery mode. Knowledge about similar businesses may add a creative spark to your thinking or confirm that you’re bringing an authentic solution to a customer want or need at precisely the right time.  Read more

Home Business or a Hobby: Is it Time to Take the Leap?

Maine is a place that seems to bring out creativity in people. It’s brimming with artisans, inventors and culinary creators who dabble in ventures at all levels. For many, it’s the genesis of a burgeoning small business; for others, it’s destined to remain a hobby. How to you know when it’s time to make the leap from an enjoyable pastime to a professional pursuit? Taking a close look at the key drivers for long-term success and asking yourself the difficult questions are the first steps in making a rational, objective decision.

1. Nail your idea      

Does your hobby involve a brand or service that someone would pay for?  Crafting a product or service that is enjoyable for you does not guarantee you will be paid for your efforts. In the business world, it’s called a value proposition: defining the problem your business is solving. Engage family, friends and potential customers to provide critical feedback on your product. Ask what they like most about your product, how it helps them solve a problem and what they might pay for this product. Ask no fewer than 25 people and jot down their response. 

Read more

Evaluate Your Competition

You are ready to launch your business in a growing niche market. Out of the blue a friend sends you a link to a similar new product or service.  After your initial shock, head over and evaluate the competition. Move into discovery mode and look under the hood of the competitor’s engine.  That knowledge may add a creative spark to your thinking.  Or it serves to confirm that you’re bringing an authentic solution for a customer want or need at precisely the right time.

Take a short drive  and see what makes them tick.  Scope out their website and metatags.  Appraise how they tell their story. Are they solving the pain point in a novel way?  If you compete in a new market segment with low barriers to entry, understand the incremental features and benefits promised.  How does that compare to the “must have” features you learned in your customer discovery?  Tap into their social networks and get a feel for their buzz.

Read more

Invest in Your Career in 5 Steps

If you have a job, you might not be thinking about your career. Having a good job today doesn’t guarantee you will have one tomorrow. You might  transition to a new role or jump into a new field or  industry. Perhaps you are moving on to unfamiliar territory. Whatever your current path, consider these steps to invest in your career:

Learn  how to be indispensable to your employer. An intrapreneur figures out how to turn an idea into a profitable product or service   When there is no rule book,  can you figure out the problem and suggest a constructive solution?  Become the solution provider.  You add value to your team and co-workers when you are seen as a problem solver.  Common sense is not negotiable. Be uncommon.

Read more

Build Brand Evangelists

You launched your business and sales are starting to ignite.  It’s time to discover your brand evangelists.  These are your customer champions!  Motivated users who are passionate about your product or service.  Initiate these 5 steps to capture their memorable user experience:

Reach out to 2 new customers each day. Pick up the phone and make that call. Start by thanking them for their business. Show some love, because customer shelled out hard earned money to buy your product.  Ask what they liked best about your product.  Before customers buy from you they have to KNOW you.  Followed by LIKE and finally TRUST.  If you have fostered trust,  you have made a sale. Discover what led them to your product.

Gather meaningful feedback.  Identify precisely how your product has improved their life in big or small ways. Did you save them time, money, or provide a new experience that was a WOW? Tease those pearls of information from their lips to your ears.  How did they find you?  That is a critical insight to understand. If someone else spread the word you now have another person to call and thank.

Ask for any improvements.  This may seem like a risk, but maybe there is a tweak or two or three that you may have not considered important when you launched.  That  feedback is critical as you improve your product or service further down the line.  Passionate customers usually have a lot to share.  Start by asking what would make it better.  Listen, learn and adapt.

Ask for a testimonial.  When a customer is genuinely excited about your product, it is time to spread the word.  A word of mouth recommendation is the single best marketing gift you can receive.  Recommendations lead to customer engagement, which reinforces the positive image of your business.  More new leads, more new customers, and more referrals.  All because you published trusted testimonials on your website, and/or on your blog.  Social proof delivers the credibility,  and starts the KNOW, LIKE, TRUST cycle all over again.

Offer a small token of appreciation.  Thank your customer for their time and their endorsement. Offer up a small measure of happiness, a coupon towards a discount on a future purchase for example.  It’s not the monetary value, it’s the thought that counts.

Continue to engage with your evangelists.  That’s a how small business wins in a socially connected universe.