5 Mistakes to Avoid When Starting Your Own Business
Thinking about becoming a midlife entrepreneur? Read this first.
Launching a business in midlife can be fulfilling and lucrative, but too many first-time entrepreneurs make big mistakes in the process. It’s no wonder that 80 percent of new companies fail in the first three years.
After studying successful businesses and ones that have flopped, I’ve discovered there are five common errors made by startup founders; I call them rabbit holes. If you’re thinking about launching a company, you’ll want to avoid them:
Mistake No. 1: Not having a why that’s bigger than your but.
You must have personal clarity around the why of your business before starting it — the reason for pursuing this dream. Otherwise, you’ll likely be stymied by excuses for not forging ahead – the “yeah, buts” (such as yeah, but I’m not sure how to do this) and will find yourself giving up before achieving success.
Your vision for your enterprise needs to burn brightly in your mind and tug at your gut. If it does, you’ll then be able to view pesky startup problems as minor irritations.
Gene Kranz, NASA’s flight director for the harrowing Apollo 13 flight, told Mission Control and the world “failure is not an option.” That must be your motto, too.
Mistake No. 2: Assuming banks will lend you money.
Since the success rate for new businesses is low, many banks are reluctant to back new ventures. They’ve become especially restrictive on lending since the financial meltdown.
Some community banks, however, specialize in making loans to self-employed professionals, like lawyers, doctors and dentists.
Typically, the only way you’ll be able to get a loan for your enterprise is by pledging as collateral the equity in your house or your investments or other assets. If your business fails, however, the bank will own the collateral.
You should expect to finance your business through personal savings, using your credit card, opening a home equity loan or selling some assets.
Estimate how much you’ll need to support the business and still cover your personal expenses for up to three years. (It can easily take that long before turning a profit.) Then, add an additional 50 percent to that figure, because things rarely go as planned for launches.
For example, the opening of one client’s urgent-care medical clinic was delayed two months because of government inspection holdups. But the clinic’s employees had already quit their old jobs and needed to be paid during those two months, even though no money was coming in.
For advice on financing your new business, you might want to work with a free expert consultant from SCORE, the nonprofit resource partner of the Small Business Administration that’s dedicated to educating entrepreneurs and helping them succeed.
Mistake No. 3: Assuming customers will automatically find you — and buy.
For some reason, many first-time entrepreneurs forget this key fact: To succeed, you must be able to sell what you’re offering, whether it's products or services.
Potential clients have already established their buying habits and chosen their service providers. You have to woo them away from their comfort zones, offer compelling reasons to make a switch then exceed their expectations so they’ll keep coming back.
People buy for two reasons: to avoid pain or to gain pleasure. If you find their pain and can fix it, you’ll earn their business.
If you plan to enter the skin care business, “anyone with skin” is not your client. You’re actually looking for people over 45, who are concerned about wrinkles and feel a need to look younger and fresher. Go after them to fix their (figurative) pain.
Mistake No. 4: Starting a business without a clear exit strategy.
Figuring out how you’ll eventually unload your company when you haven’t even opened it may sound odd. But it’s important to begin with the end in mind. This way, the decisions you make about growing the business will be more likely to attract investors who share your exit strategy.
Many new entrepreneurs don’t think about how they’ll recover the time and money they’ll put in. They just figure everything will work out in the end. But if you assume you’ll easily be able to sell your business whenever you’re ready to move on, you’re wrong. Only about 10 percent of businesses that are put up for sale actually get sold.
The rest go begging because they’re either not profitable enough to attract a buyer or their owners don’t have financial documentation to establish what they’re worth. (The Next Avenue article “3 Mistakes to Avoid When Selling Your Business” can help you develop a smart exit strategy.)
Mistake No. 5: Not getting buy-in up front from your family, spouse or partner.
Your loved ones will be affected in a variety of ways when you start a business, so you’ll want and need their initial and continued support.
After all, there could be stress regarding the money you’ll be pouring into the business. Vacations may not be possible for a while. And you probably won’t be able to stop working at 5 p.m. each day or have every weekend free.
Starting a business requires an all-the-time mindset and lifestyle, at least in the beginning. The more everyone you care about understands this, the more likely your business will succeed and your relationships will remain intact.