8 Mistakes Start-ups Make

8 Mistakes Start-ups Make
By David R. Butcher

As the global economy expands, there is reason to believe that small businesses may have some competitive advantage. That is, if entrepreneurs don't fall prey to these common start-up pitfalls.

Start Underfunded
Cash flow is critical to a startup business. It is also the most common reason new businesses don't last.

Think about how you're going to finance your startup business initially: bank loans, venture capitalists, angel investors, SBA government grants, your own savings — all are options, so figure out which is best for your situation. About 53 percent of new small businesses begin in the home with less than $10,000, according to the National Federation of Independent Business. Many start with leased or used capital and equipment. About 3 percent are franchises.

Also consider easing into the business by doing it part-time until you know it will make enough money to support you.

For tips and lots of other information related to cash flow, check out the Startup Financing and Guides to Raising Money sections of Entrepreneur.com.

(See today's How to Find Good Money.)

Do It Alone
Small-business employees can make or break the business. Unfortunately, a common problem new business owners have is managing their employees effectively; not only do they make hiring mistakes, but they also struggle to retain good employees.

No one has the skills (never mind the time) to do everything themselves. "You need to understand what it is that you bring to the table and what you need to surround yourself with," Evan Carmichael writes at YoungEntrepreneur.com.

From day one, think hard about the candidates who can be brought on board to help you meet your vision. "By getting people around you who complement your skills, you will be able to achieve your goals and have a lot more fun along the way," Carmichael writes.

And if you want to keep good employees, be sure you have a system in place that rewards their efforts.

(See today's Making the Right Hire.)

Don't Plan/Research Properly
Have a plan of attack, with clear, concise and written goals. If you don't have an idea of the overall picture of the end result, the fruits of your labor shrink significantly.

But don't just understand your own goals — understand your market and competitors. Market research can prove invaluable in both determining your business' potential and improving on your competition's offering. You can gather information from industry associations, Web searches, periodicals, federal and state agencies, and so forth.

Moreover, don't fail to recognize increased competition, especially during a downturn. In a recession, competition increases because more businesses are chasing less total demand. How much are other companies providing the same or similar products/services for? Can you add something to it to make yours different and hence a better price?

The aim here is basically two parts: to gain a general sense of the type of customer your product or service will serve; and to understand what your competition is doing so you can do it better.

That said, be willing to make adjustments. One of the frequent downfalls of startups is that founders are overly focused on their original game plan or otherwise inflexible. "Learn to listen to stuff you don't want to hear," advises one expert (via Information Week).

Undervalue the Customer
"Talk to potential customers, see what they are interested in, identify who has money and what their pains are and then create your product/service around them," Carmichael writes.

Once the product or service is made available — based on customer input — small businesses often fail to take into account the importance of outstanding customer service. Many factors are responsible for success, but perhaps the easiest way to expand your business is to provide customers with customer service that surpasses industry standards.

Failing to work hard at retaining key customers is hazardous to any business, especially to those just starting out.

A Weak Call to Action
A business' first-year goal should be client acquisition, says Inc.com.

Yet while specific marketing problems are unique to each business, common problems facing small businesses are typically a shortage of funds for adequate advertising and promotion, plus a lack of time for developing creative marketing strategies. Today, entrepreneurs simply cannot expect to compete as a small business without choosing from a growing arsenal of online marketing tools, the least of which is creating a simple, effective Web site.

Also, keep in mind that marketing for small businesses is not a one-time event; it is an on-going process. For more on this, check out Microsoft's Small Business Center.

Lose Momentum
About two-thirds of new employer establishments survive the first two years, according to a 2005 study (via the U.S. Small Business Administration's Office of Advocacy).

Building a successful business takes time. Many entrepreneurs struggle to make it to the end of the first year — money is running out, the business is taking up a lot more time than expected, the minimal sales are dispiriting, etc.

For entrepreneurs just starting out with their business, the beginning stages may require doing some work that isn't exactly what they want to do. But it helps pay the bills. Work your way through the negativity, the downturns, the doubt — and keep at it, striving for progress everyday.

Don't Get Involved
Build a relationship — not only with customers but also with mentors and peers in your community. Network like crazy.

Two notable ways to get involved are: 1) finding a mentor, someone who has achieved success in your industry and who is willing to take time to help you out; and 2) getting involved in the small business community. Connecting with other like-minded entrepreneurs and finding out what they're up to opens up new business opportunities, partners, investment, ideas, advice and other resources. There are many events where would-be entrepreneurs can get beyond these basics. For example, Information Week suggests Startup Camp in San Francisco.

Do It Only for the Money
Sure, most companies are for-profit enterprises, but making money may not happen immediately. According to a Kauffman Foundation study last month, more than a third of businesses (37 percent) had no revenue in their first year of operation.

When first starting out, many business owners and self-employed individuals think the more sales they have, the bigger and better their business will be. Running a successful business requires focus on the whole business, not just parts of it.

Earlier: Biz Startup Basics