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Many people dream of starting their own businesses and becoming financially independent, but while the idea of organising and operating your own business venture may be thrilling, there’s a good chance that your fledgling company won’t survive unless you identify potential pitfalls and plan to circumnavigate them.
Here are 10 ways that you could fail as an entrepreneur:
1. Poor market research
Make sure there’s a need for your product or service. Ideally, your offering should be unique and fill a gap in the market, but if there’s already competition in your intended sector, research ways to position yourself uniquely to improve your chances of success.
2. Inadequate planning
Every new business needs a roadmap to follow, a solid business plan. Unless you’re looking for outside funding, this doesn’t have to be a long, formal document, but it must at least outline the operational and financial directions that your business will take. On the flip-side, be flexible. Don’t allow a business plan to stifle your business if circumstances change.
3. Lack of experience
Not everyone is cut out to be an entrepreneur. If you aren’t a proven self-starter with a good track record in planning, organising and making decisions that can benefit your business in the long term, seek out experienced mentors and hire people who can compensate for your lack of expertise in certain areas.
4. Insufficient capital
It’s very common for entrepreneurs to misjudge how much they need for start-up capital, and how long it will take before their new business becomes profitable. This is usually because of inadequate planning and research. If you’re going to look for outside funding, choose investors who are familiar with both your industry sector and the challenges facing new business owners.
5. Over projecting sales volumes
Unless sufficient research is undertaken, you may very well miscalculate the size of your market. This will result in you over-projecting your portion of it and make meeting your subsequent sales objectives an impossible task. Furthermore, your cost projections will be too low and your end margins won’t be what you anticipated.
6. Feeble financial systems
Make sure you implement solid financial systems that will scale with your business, right from the start. There are many first-rate software packages you can make use of to keep your finances running smoothly. If you’re unfamiliar with good accounting practices then consider enlisting the services of a bookkeeper to help you on a regular basis.
7. Mismanaging cash-flow
Lack of financial discipline is a common cause for start-ups to fail. Cash is the life-blood of any business and learning to manage cash-flow correctly is critical. Keep a close eye on your debtors’ list and spend your income wisely. It may be very tempting to splash out on expensive resources, but before doing so, take an inventory of what you already have and be realistic about whether or not your new purchases are essential to the success of your business.
8. Unexpected growth
Planning for the potential growth of your business is just as important as planning for a shortfall in expectations. Failure to do this could be extremely damaging as growth periods are often unstable and confusing. Whether you’re increasing your market share or diversifying, you need a strategy to cope with expansion whilst still fulfilling your existing customers’ requirements.
9. Hiring the wrong people
At some stage in the development cycle of your business you’re probably going to have to employ people. Choose wisely and never hire for the sake of convenience as hiring the wrong people can seriously undermine the success of your business. You need to select people who, at the very least, meet your skill and behavioural trait requirements. Hiring experienced staff that you can trust will provide you with valuable support.
10. Fear of failure
To be a successful entrepreneur, you must be willing to accept failure. Unfortunately, fear of failure keeps many people from taking the necessary risks required to start and grow a successful business venture. To work through your fear, take a realistic look at your business, correct any problems that you’ve identified and then take action and move on.
Failure may be painful, but it can also be your best teacher if you are willing to spend time analysing your mistakes and applying what you learn from them.
Starting and running your own business means that you are in control of the process. While there are no guarantees, if you plan carefully, work hard, remain flexible and avoid the pitfalls mentioned above, you have a very good chance of becoming a successful entrepreneur and fulfilling your dreams of financial independence.
Have fun out there.