Some people are motivated to become business owners because they want to be their own bosses and choose when and where they work. As glamorous as running a business may appear, there is a lot that goes into its management and operations.
In this article, we will be discussing the five most common mistakes that new business owners make. By avoiding these blunders, you’ll be well on your way to building a successful business.
1. Starting Without a Business Plan or Strategy
A business plan and strategy is essential, even if it’s only a one-page document. Without a plan, it’s easy to get off track and fail to meet your objectives.
According to the US Bureau of Labour Statistics (BLS), approximately 20% of new businesses without a plan fail within the first two years of operation, 45% fail within the first five years, and 65% fail within the first ten years. Only about a quarter of new businesses survive for 15 years or more, and this is simply because they have included some form of strategy over the years.
A business plan is a document that outlines the company’s objectives, mission statement and goals, with a clearly stated plan on how the company plans to achieve it all. It serves as a roadmap to ensure that the company’s management achieves its goals, grows, and continually improves as a profitable venture.
A traditional Business Plan consists of certain core components:
- An Executive Summary
- Company Description
- Market Analysis
- Financial and Operational plan
- Products and Services
- Organisation and Management Team.
These components may differ depending on the type of business, the sector in which the business operates, the size of the business and the services rendered.
Why is a Business Plan Important?
- It provides a guide to the key decision makers, top management, investors and service providers, defining their role in ensuring the business is profitable
- It clearly communicates the business goals and objectives
- It will help to avoid making mistakes when determining critical aspects of the business, such as market analysis, marketing, sales, service and product line
- It ensures the continued success of the business by making sure that all requirements by relevant stakeholders are met
An effective business plan not only assists you in defining or clarifying your goals, but it also assists you in strategizing and prioritising tasks. It can also serve as a road map for achieving your business goals
2. Improperly Defining your Market and Target Audience
A target audience refers to the category of customers that the marketing message targets, they may or may not be the final end users of the product or service, but they have the most potential to respond positively.
Many first-time business owners that do not carry out proper research about their target market and audience might be at risk of incurring heavy marketing and sales losses.
Imagine trying to sell a newly introduced car racing game to an audience of over 70-year-olds, or marketing a Scotch whisky to underage students. That would be a downright disaster because the business will not be as profitable by selling to the inappropriate market, compared to a market that actually needs the product.
To define your target audience and market, first identify your customers’ specific expectations. Highlight their needs and the various ways you can satisfy these needs. Identify specific characteristics of your target demographic and how this influences the marketing process.
How to identify your target market:
- Clearly define your business features, objectives and goals
- Understand your niche market
- Conduct market research
- Evaluate your competition
- Create market segments based on your ideal customer’s demographics and psychographics
- Identify specific pricing and marketing strategies for your products or services
How to Sell to the Appropriate Target Audience
In order to sell to the appropriate target audience, you must first understand who that audience is. Understanding their likes, dislikes and, more importantly, products that speak directly to their needs.
This can be accomplished by identifying the characteristics that your ideal customers share.
It’s critical to remember that your target audience isn’t everyone. When it comes to marketing and sales, be specific in order to avoid wasting time and resources on people who aren’t interested in your product or service.
By taking the time to understand your target audience, you can be sure that you are selling to the right people and maximising your chances of success.
3. Avoiding Using New Technology
As a business owner, you can leverage the right technology to facilitate your operations such as in communication, marketing, business insight and project management, to mention a few.
According to a recent survey conducted by Finances Online, firms that use emerging technologies have increased their annual revenue by 58%.
Companies that use emerging innovations grow their annual net income by 80% more than those that don’t, and organisations are twice as likely to use prebuilt emerging technologies as they are to build them from scratch.
How does the right technology impact a business positively? It can:
- Increase efficiency of systems, operations, and research capacity
- Improve the security of confidential information and protection of financial data
- Improve swift communication with customers
- Increase employee engagement
- Increase the capacity of businesses to perform efficiently
4. Not Seeking Expert Advice
Thinking you can handle everything on your own while establishing a business is one of the biggest blunders you can make. In the beginning, you might be able to get away with it, but as your company expands, you’ll need assistance. For this reason, it’s essential to obtain professional guidance, whether it comes from a business coach, mentor, or even just a friend who has already gone through the process.
If you don’t get professional counsel, you could waste time and money. Even if you are successful, you might not be doing as well as you could be than if you had expert assistance. Starting a business involves many considerations, from the business model to the marketing plan, and it can be challenging to know where to begin. However, you will ultimately benefit much if you take the time to seek out professional advice.
Therefore, don’t be embarrassed to ask for assistance or to think that you must do everything on your own. Many people are available to assist you in achieving your business goals.
5. Ignoring Cash Flow Management
Cash flow is the entire amount of money flowing in and out of a business at any given time.
Cash flow management is the process of monitoring, analysing, and managing a business’s cash flow in order to optimise its financial health and performance. Cash flow is the lifeblood of any business, so keeping a good handle on it is critical.
There are several aspects to cash flow management, including:
- Forecasting: projecting future cash flow based on past performance and current trends
- Monitoring: observing real-time cash flow data to identify any issues or red flags
- Optimising: taking steps to improve cash flow, such as streamlining receivables and payables
It is essential to understand how money is flowing in and out of the business at any point in time. Cash flow strategies should always be prioritised in your business planning. Positive cash flow statements mean that you are earning more than you are spending, and, in return, you have more money to cover key business expenses.
With a negative cash flow, you may find yourself unable to pay for operational costs. The goal of cash flow management is to make sure that the inflow of money exceeds the outflow so that the business can have extra funds to cover its expenses, and make a profit.
One of the benefits of cash flow management is that you are able to make forecasts on future flows of cash monthly, quarterly or yearly. Businesses can ensure they have the resources they need to grow and thrive by effectively managing their cash flow.
How Can You Avoid These Mistakes?
To avoid making the aforementioned mistakes, business owners must be aware of potential pitfalls and take precautions to avoid them. They should also seek advice from experienced professionals who can guide them through the often complicated world of business ownership.
By taking these precautions, business owners can avoid making common errors that can jeopardise their company’s success.
Here are helpful tips to help avoid the mistakes mentioned above:
- Hire trustworthy professionals who are great at what they do, to add value in the sectors where they have gained expertise
- Have a detailed business plan that covers key aspects of the business
- Map out your target audience and market accurately
- Apply the appropriate use of technology to facilitate efficient business operations
- Proper cash flow management should be carried out routinely to ensure that you have a clear forecast of your account payables and improve financial planning
The goal of every business is to make a profit, render quality services, ensure customer satisfaction, and stand out from the pool of competitors. So much goes into planning and managing a business, you should therefore leave no stones unturned, dot every i and cross every t.
Finally, do not be afraid to fail. Failure is an aspect of life that we can not eliminate, it serves as an avenue to learn from our mistakes, which is a key component of success. Make that move, take that step, and be ready to learn from the outcome.
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