Starting a small business can be a highly rewarding, yet highly challenging undertaking. Nearly half of all new businesses don’t make it past the five-year mark, according to the US Small Business Administration (US SBA). If you have aspirations to start your own small business, learn from some of the most common mistakes small business owners make to give yourself the best shot at success.
1. Lack of capital
One of the biggest reasons many small businesses fail is due to insufficient capital, according to Experian. New business owners often place other business goals ahead of cash flow. Without enough cash after expenses, businesses just cannot survive. So many small businesses fail so quickly because owners have a difficult time projecting how much cash will come in every month. Consequently, many owners do not have a firm grasp of how much money can realistically go out every month.
Solution: If you are an aspiring entrepreneur, it’s in your best interest to learn basic accounting principles so you can make accurate cash flow projections. You should understand from the start how much your business can afford to spend every month.
2. No product differentiation strategy in place
Why should a potential customer buy a product from your business? A small business can increase its chance of succeeding in the short and long term if it has a strong product differentiation strategy in place. Product differentiation means that your products and/or services have at least one distinct characteristic that separates it from competitors. Without any differentiation, it’s unlikely that your small business will gain much traction in the market.
Solution: Consider several factors when implementing a differentiation strategy that can help you sell your products and/or services. You may be able to differentiate and gain a competitive advantage based on:
- Unique product features
- Manufacturing process in place
- Strength of product performance
- Quality of product design
3. Poor management
The success of any business—small or large—depends largely on the quality and effectiveness of its managers. Great managers will act in the best interest of your business, and they will take advantage of potential opportunities for growing and expanding your operations. Poor managers, on the other hand, are likely to create a poor business culture, and they are unlikely to take responsibility or adjust to rapidly changing circumstances.
Solution: If you don’t consider yourself to be an effective manager, do some serious vetting and recruiting to find a partner or established professional who is. The individual should have a proven track record of making wise hiring decisions and successfully training and motivating a team. Hiring a strong manager can offer you a great return on investment and allow your business to operate smoothly.
4. Poor location selection
As a consumer, is location important to you when you go out shopping? Do you prefer to shop in safe interesting and easily-accessible areas? Experian also reports that many small businesses fail because of poor location selection. If you intend to start a brick and mortar business, selecting a poor location will mean lost sales and revenue.
Solution: There are several factors you should consider when assessing potential locations for your small business, including:
- How close target customers live or work in proximity to the location
- The overall traffic conditions in the area
- Parking accessibility in the location
- How close competitors are to the location
- The aesthetic value of the location
- The condition of the building
If you’ve already invested your time, money and heart into a small business venture, we can help you select a suitable insurance policy for any type of small business. Our policies will help protect your business and your future.