The U.S. Bureau of Labor Statistics collects data on the success rate of new businesses and this sobering record reveals that between 1995 and 2015, a little under half of all new enterprises fail in the first five years. The stats are even worse for tech startups, with 90% eventually failing.
So, how can you avoid becoming another statistic? In truth, business failure is a complex phenomenon and a number of factors can come into play. But here are eight of the most common mistakes worth avoiding in order to give your business the best chance of success:
1. Working with the wrong people
Studies show that venture capitalists attribute a large percentage of company failures to problems within the startup’s management team. It’s vital to bring together the right team when you set up your business.
One or more good co-founders can bring a better balance and more robust skill set to your fledgling business. However, if your partner with the wrong person, it could kill off your business before it’s had the chance to get off the ground.
2. Neglecting the paperwork
Before starting a business, it’s important to secure the relevant business license and permission to operate.
Business registration is the act of incorporating a company under a particular jurisdiction. A limited liability corporation (LCC) is a popular business structure in the U.S., but other options are also available. Not registering as a corporation could leave you and your partners liable for company debts and even civil lawsuits.
The necessary paperwork will depend on your exact circumstances – but here’s a quick checklist.
3. Not doing market research
Market research can help determine whether your product or service will satisfy the needs of your target audience and can also help an entrepreneur develop insight into competition and customers. Such research can enable you to better understand economic factors, current market trends and will help you identify potential problems early on, thus minimize losses at launch.
There are many different ways to conduct market research, but it is a necessity. Fortune reported the top reason that startups fail is that they sell products or services that few people want to buy. So, make sure you clarify whether there’s actually a significant market likely to buy your product or service.
4. Forgetting the business plan
Now you’ve completed your market research, it seems sensible to present that information in a business plan.
However, there are some perceived pros and cons to a business plan. While one study of more than 100 new businesses revealed the presence of a business plan made no difference in terms of ultimate success – assuming they were not seeking outside funding – another study revealed that companies with business plans were 16% more likely to achieve viability compared to firms with no business plan.
However, the real bonus of a watertight business plan comes when it’s time to raise funds either from a potential partner or investor or as debt from the bank. Laying out the hard numbers and the roadmap to profitability for the benefit of third parties is best done with a well-conceived business plan.
What’s more, a business plan can be a useful tool to assess your company going forward and may help to identify areas of improvement and growth.
5. Not having enough capital
Working capital is an important metric for all businesses, particularly new ones. Without enough working capital, it is not possible to pay all short-term expenses and liabilities.
Research from U.S. Bank reveals that 82% of small businesses fail because of cash flow mismanagement and 29% simply run out of cash. So, it’s important to balance the books and have enough put aside for those rainy days.
6. Not outsourcing outsource
Starting a business is a hugely stressful and busy time – so make sure you delegate as much as possible. Furthermore, if you fail to outsource your more specialist or menial business tasks, then you will not be focused on the strategic objectives and growth plans of your business, which could cause it to flounder.
There are a number of tasks you can be outsourced, including administrative work, sales and marketing, payroll and HR services, professional services and the cost of sales.
7. You forget your IP
If you don’t secure the intellectual property, or IP, of your business then others can copy it, which could cause it to collapse or lose a significant amount in value. For example, Motorola was acquired by Google for $12.5 billion and Google took over its valuable IP in smartphone technology. Motorola was subsequently sold for just $2.91 billion to Lenovo.
Furthermore, not paying attention to the IP of others can get a person sued for infringing on their protected property.
8. You don’t bother with marketing
A good idea sells itself, right? Wrong. Developing and implementing a robust sales and marketing strategy can keep you ahead of the competition, build your brand and reputation, and boost sales.
Understanding how to connect with the target audience and to optimize conversions can increase revenue for your business. You could also build a sales funnel, which is an automated selling machine to help reduce friction when trying to make a sale.
To conclude, starting and running a business is a continual learning curve. It’s normal for entrepreneurs to make mistakes as businesses grow – but being armed with the best team, product and strategies can help your business fly.