By Nancy J. Wolf
Today’s ever-changing business environment is rife with pitfalls, and as markets get increasingly crowded, recovering from even the most common mistakes can be difficult.
The lack of distinguishable borders has turned the modern marketplace into a Wild West-style frontier. Digital mobility has changed the way businesses manage time and people. Competition, always fierce in certain sectors, has bled over into virtually every industry, making innovations in technology and methodology more important than ever.
These new challenges put tremendous pressure on emerging businesses and puts the onus on startups to watch every step they take with a paranoid eye. Here are the worst start-up mistakes you can make when first getting your business off the ground.
1. Treating your business like an ATM machine.
There’s a reason this mistake is the first on the list: it’s one of the most common. When a business first starts seeing returns, cash can be a beautiful thing. The natural tendency is to tap into the flow and justify the withdrawals as “profit.” While it does take money to make money, allocating funds properly requires discipline and self-restraint. Take what’s necessary to pay the bills, but save the rest. Office rental, new equipment, and office furnishings are typically the first areas where startups overspend.
2. Underpricing your products or services.
Most business advisors will tell you this is the biggest mistake new businesses can make. Often, startups don’t understand the value of their goods or services and price low to attract customers. The problems come later when the workload doesn’t justify the income and prices either have to go up or the business has to fold.
3. Allowing scope creep.
No business owner likes to turn down a new customer, and it’s natural to do everything you can to keep an existing one. Sometimes, however, the scope of a project or agreement can exceed the parameters of what your business does well. Retainer-based businesses struggle with this all the time: projects get bigger, but paychecks stay the same. In many ways this gets back to underpricing, but sometimes it simply comes down to having a frank conversation with your customer or client about added costs. You may be surprised to learn your customers appreciate your work and don’t mind paying more for added value.
4. Choosing the wrong corporate structure.
One of the biggest decisions a young company can make is determining what type of business structure to choose. Structure is profoundly important to the operation of a business, and choosing unwisely can have a detrimental effect not only on organizational relationships and work functions, but on tax burdens and asset liabilities. Each corporate structure — LLC, LLP, S-Corp, C-Corp, Close Corp, Public Benefit Corp, etc. — has distinct advantages and drawbacks. Contact a professional business entity consultant to learn how to navigate the corporate classifications and find the right one for your business type.
5. Not refining your business model or workflow.
The ability to adapt is a highly underrated skill for entrepreneurs, yet it is one of the most important. Accommodating changes in market forces, understanding and reacting to the behavioral trends of consumers, and tirelessly working to make internal processes more efficient can have the collateral effect of turning a profitable business into an industry titan. Don’t be defensive when customers or colleagues criticize your methods or business practices. Instead, use that feedback to refine your business model and develop a stronger workflow.
Building a business takes discipline, diligence, and constant self-assessment. No business does everything right, but learning from your mistakes — or better yet avoiding them as much as possible — can secure your personal success and the long-term health of your burgeoning business.