According to the U.S. Bureau of Labor Statistics, 2 out of 10 businesses fail in their first year. While that statistic is not encouraging, entrepreneurs can find success with their venture if they avoid common startup mistakes. Here are six common mistakes new business owners make and how to avoid making them in your venture.
Not doing enough market research
Thorough market research is the best way to learn about who your potential customers are, what they need and want, and how to best sell to them. While this may seem like a foundational step when starting a business, not every startup team spends enough time understanding their target market before launching, said Ryan Carrigan, CEO and Founder of moveBuddha.
"Many new business owners underestimate how competitive their market can be, and they don't do the proper research," Carrigan said. "Therefore, their sales suffer and they often close their doors within the first year."
[Read more: Starting a Small Business? How To Find Your First Customers]
Investing in too many software products
There are countless options for business software to help you run your day-to-day operations more efficiently, but startups shouldn't invest a lot of funds into a complex tech stack at the onset.
According to Aaron Goldsmid, Head of Product at Deel, small businesses would do well to streamline their technologies to save money, especially in the beginning.
"The average company uses 16 HR and payroll tools, which is a big burden. Consolidating your tech stack onto one platform — or as few as possible — will go a long way in the cost-savings and employee experience departments," Goldsmid told CO–.
Industries evolve rapidly, and business needs change almost daily, so you must be willing to realign your goals to keep up with the fast-paced business world.
Sofia Perez, Owner and Content Manager at Character Counter
Ignoring cybersecurity
Too many startups believe they have to choose between investing in their company or investing in cybersecurity, said Jason Manar, a former FBI agent and Chief Information Security Officer at Kaseya.
When businesses ignore cybersecurity in favor of other startup expenses, they place themselves at risk for costly cyberattacks that could potentially shut them down before they have a chance to get off the ground. The average cost per data breach for U.S. businesses was nearly $9.5 million in 2023.
Manar recommends establishing a robust cybersecurity strategy that includes educating your team on best practices and security awareness.
"Always prepare for the worst. It's imperative that a new company develops an incident response plan and also understands where their data is and prioritizes data protection," Manar said.
Failing to adapt to industry changes
Sofia Perez, Owner and Content Manager at Character Counter, said startups, especially those in the technology space, often fail to adapt to changes in their market or industry. This mistake is particularly prevalent when the changes don't align with the business owner's vision.
"Industries evolve rapidly, and business needs change almost daily, so you must be willing to realign your goals to keep up with the fast-paced business world," Perez said.
[Read more: How Startups Contribute to Innovation in Emerging Industries]
Operating without a business plan
Whether it's a one-page overview or a comprehensive document, a formal business plan is a key component of startup success. While its contents aren't set in stone, it can be a helpful tool that helps guide your business so it aligns with your vision and keeps you on track by meeting certain key milestones.
Without a business plan, it's much harder to identify the correct next steps to take toward your short- and long-term goals. A business plan is also required if you seek financing, such as help from investor capital and grant programs. Therefore, you'll need a written record of your business's market, finances, goals, and the specificities of your products or services if you want to apply for funding.
Not keeping organized financial records
Accurate financial records are necessary for tracking your profit and growth. Startups without a proper bookkeeping process risk a poor understanding of their cash flow, making unwise financial decisions, and running into tax compliance issues.
If you're unfamiliar with the basics of accounting, it's best to outsource this function to an experienced professional. If you can't afford a bookkeeper when you're first starting out, consider investing in accounting software that is designed to streamline everything from syncing transactions and reconciling your books to generating invoices and receiving payments.
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
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