Not even experienced entrepreneurs who have launched successful businesses in the past are immune to making mistakes. This is because small businesses face countless challenges — and there’s always the risk you may overlook something or face unexpected circumstances.
Just consider these small business failure statistics: more than a fifth of small businesses fail in their first year, half survive beyond five years, just a third reach 10 years, and only a quarter is still around after 15 years.
But why are small businesses failing? Rather than one single reason, there are 13 common causes. The good news is you can avoid making many small business mistakes by learning about them and knowing how to fix them.
1. Lack of a Business Plan
One of the most common mistakes small business owners make is neglecting to write a business plan. No one particularly enjoys this planning stage — it’s much more exciting to get stuck in and start building your business.
However, without a business plan, you lack a roadmap to guide you from where you are now to where you want to be. It will also be unclear whether your idea is a good one, how to finance your startup, who you’re selling to, and why your small business should exist at all. Making a business plan will help you think about all these questions and more.
How to Fix It
Even if you’ve already started your business and you feel like you’re on track, take the time to write a business plan. Follow a checklist to make sure you include all the necessary information about how you want to operate, your goals, and what kinds of opportunities you want to take advantage of.
2. Expecting Immediate Results
It’s great to have confidence that your small business will be the next big thing — provided you’re willing to work hard and wait for those results. However, it’s important to accept that it takes many years (or even decades) to become a true success. Too many small businesses fail simply because entrepreneurs expect immediate results, and their plans fall apart when that doesn’t happen.
How to Fix It
Rein in your expectations. No matter how great your idea is, your business needs time to find its footing and grow. If you anticipate overnight success, you’re in for some disappointment, which could cause you to lose the motivation that’s keeping your business alive.
3. Neglecting a Marketing Strategy
Another of the most damaging small businesses mistakes to avoid is forgoing a marketing strategy. It’s easy to become so wrapped up in your operations and product development that you neglect marketing — especially if you’re under the misguided belief that plenty of customers will just find you through word-of-mouth recommendations.
How to Fix It
Assign a marketing budget from the beginning — and figure out how to use it effectively. In particular, creating a balance of short-term and long-term marketing will maximize results for a limited budget.
This is because many long-term marketing tactics (such as organic social media campaigns and content you create yourself) are free, but it takes longer to see results. Short-term marketing tactics like PPC ads can support your business until this point.
4. Spending Too Much on Marketing
It’s equally important to avoid overspending on marketing, especially near the beginning. Your marketing budget needs to last — after all, we’ve already seen that it could take a while to see returns. Spending a large amount on marketing doesn’t guarantee you’ll reach your target customers: you need to be strategic.
How to Fix It
When you’re starting out, it’s best to stick to just a few marketing channels. This will make tracking conversions much easier and you’ll be able to see if it’s worth continuing with a tactic (perhaps even increasing its share of the budget) or if you’d be better off changing to another.
5. Making Misassumptions About Your Target Audience
Whereas you should start your business with an idea of your target audience in mind, once you’ve actually made some sales, you may discover that some of your assumptions were wrong. Continuing to focus on users just because you originally identified them as potential customers is a waste of resources and will likely lead to lower returns.
How to Fix It
Once you’ve made some sales, adjust your buyer personas according to the data. Even more importantly, figure out what kinds of customers are most valuable to your business by considering your return on investment. If you’re a service-based business and interact closely with your clients, it’s also worth bearing in mind who you enjoy working with.
6. Doing Everything Yourself
Launching a small business allows you to live out your dream. It makes sense that you would want to retain as much control as possible, but this can easily backfire. For instance, you may try to do everything yourself. The problem with this is it’s impossible for one person to know everything about starting and running a business. It’s true that there are many successful one-person startups, but even these receive support from others, such as in the form of outsourced services and mentors.
How to Fix It
Be objective when considering your skills and abilities and think about where you are currently falling short. For instance, if you have groundbreaking ideas for services but no idea how to reach customers, work with a digital marketer. Alternatively, you may be doing a great job engaging your audience on social media but struggling to manage your finances — in this case, contracting a bookkeeper could help. Whatever your strengths and weaknesses, there should be a solution.
7. Possessing Poor Leadership Skills
To manage your team — whether it’s made up of employees or contractors — you need to be a leader. Ineffective leaders range from authoritarians who micromanage every move their team members make to weak leaders who are afraid to assert any control. Good leaders find a middle ground between these two extremes.
How to Fix It
Invest some time learning leadership skills and reflecting on how you could do better. Gain respect from your team by leading (rather than trying to be everyone’s friend) and by being reasonable in your demands. Finally, motivate your team by sharing your passion for the work and making sure everyone knows why your small business matters.
8. Being Unorganized
The second set of skills you’ll need to manage a team — and to keep your business on track in general — is organizational skills. Forgetting about a meeting or deadline due to a lack of organization could have dire effects on your business.
How to Fix It
Allocate some time to organize your physical space, ensuring everything has its own place. Next, move on to your digital organization: create a better system for your files and emails, deleting those you no longer need. Finally, make full use of your calendar. Set reminders for appointments and crucial tasks and create a schedule that details what you need to work on each day.
9. Refusing to Be Flexible
You likely started your business with a fixed idea in mind of what you wanted to achieve. To an extent, this is good — lacking direction and clear goals is a recipe for disaster. At the same time, though, you do need to avoid being too rigid, as businesses that fail to adapt often fail to survive.
How to Fix It
Be open to new ideas and ways of doing things once you know what customers want. In addition, pay close attention to the market — your sales will drop considerably if you continue to offer customers something they no longer need. Take the pandemic as an example: those businesses that adapted and found ways to offer their services without putting clients at risk are the ones that have thrived.
10. Believing You Have No Competitors
Finding a gap in the market that you’ve figured out how to fill is a great reason to start a business. However, it’s unlikely that you have no competitors at all. Whereas no one else may be offering exactly the same kinds of solutions as you, the likelihood is customers can still find alternative products or services to fulfill their needs.
How to Fix It
Perform more in-depth market research to uncover who your competitors could be. It’s important to know if another business has a better solution than yours before you invest too much into your idea. Furthermore, if you actually have no competitors, stop and think why this could be — perhaps no companies are offering related products or services because there is simply no demand.
In either case, you may need to rethink your business model. Talk to customers about what they want, including what the solutions currently on the market lack, and figure out how you could be unique to gain a competitive edge.
11. Overlooking the Legal Side
Entrepreneurs often wait until their businesses are well-established to deal with the legal aspects. However, this can be a costly mistake, especially if it means you’ve been paying your taxes incorrectly. Even if you want to form a sole proprietorship (which requires no business registration), you need to pay taxes based on quarterly earnings estimates rather than just once a year — or you’ll face fines.
How to Fix It
Decide what legal structure you want for your business and complete any necessary registration, such as giving your business an official name. Make sure that you have any other documentation you need to keep your business compliant (this includes licenses for some types of businesses) and that you know how to file your taxes.
12. Misunderstanding Your Financials
There are multiple ways in which entrepreneurs tend to misunderstand their financial situation. They may have unrealistic earnings goals, think they can manage with little (or no) working capital, or lack knowledge of bookkeeping. All these can lead to bad decisions, make it more difficult to attract serious investors, and ruin your chances of a loan. Plus, poor financial decision-making can mean you have an insufficient amount to live off, pay employees and contractors, and avoid accumulating unmanageable debt.
How to Fix It
Take a look at your projected profits. If they’re extremely high, either you have an idea that will be the next huge success or — much more likely — you’re vastly overestimating the capabilities of your business. After you’ve set some new financial goals, figure out how much capital you’ll need and strategize as to how you’ll acquire it. Options include asking people you know, taking out a business loan, and seeking outside investment. Finally, learn the basics of bookkeeping to ensure you understand how to produce and read documents like profit and loss statements, balance sheets, and cash flow analyses.
13. Allowing Your Small Business to Become Your Whole Life
You may have heard that you need to give your everything to your small business if it’s to succeed. Many people take this to mean that they need to put family, friends, hobbies, and other commitments to the side. In fact, not only is this unhealthy, it will ultimately only make you unhappy, no matter what happens with your business. Plus, putting yourself under this much stress only makes it more difficult to start a successful business.
How to Fix It
Small business owners are only human. You need to make time to socialize, eat a healthy diet, exercise — and rest. Whereas you may need to dedicate more time to your small business than you did in your previous job, it’s still important to set a limit. Your business will have a much better chance of surviving if you do this.
A common theme underlying many of these small business mistakes and failures is trying to take on more than you can handle, overestimating your own abilities, and neglecting to ask for support. Whereas hiring another employee may be a poor investment decision if you’re strapped for cash, you can save money if you outsource.
A virtual assistant can take over many of the tasks that you lack the time to do yourself or that are outside your area of expertise. For instance, a virtual assistant from MYVA360 can provide you with support for everything from social media strategy and graphic design to inbox management and scheduling. Request a free trial with one of our virtual assistants for small businesses to try the service for yourself.
