Statistics show that 95% of all businesses fail within the first five years. This is because entrepreneurs make the same mistakes over and over again. While entrepreneurs aren't expected to know everything going into a business, some mistakes can easily be avoided with a little bit of planning.
Here are five of the biggest mistakes that you absolutely must avoid if you are trying to start a business.
Make sure that you incorporate taxes into all calculations
Whether you are making money or losing money, Uncle Sam is going to want his cut. There is no way to get around paying the government its due, so incorporate a worst-case tax scenario into every expense and revenue stream that you have. It is always better to over pay taxes and get a refund rather than underpay (or not pay at all) and get hit with a time-consuming, expensive audit and penalties that may drive you into bankruptcy even if your product launch is successful.
Think about the customer first and last
No matter how smart you think you are for coming up with the business idea, the customer is always right. When you do your initial focus groups and tests, you may feel the temptation to filter out any opinion that you do not like. You may take the Steve Jobs philosophy of, "People do not know what they want until I give it to them." This may be true in the case of Steve Jobs; however, remember that he was actually fired from a top technology job before he invented the iPhone. If you do not have the previous experience of a Jobs before you make this declaration of yourself, it is best to trust the customers' opinion rather than your own.
Do not underfund your business
Many entrepreneurs believe that taking less money than they need from a bank or from investors will ensure their success. This is actually the complete opposite of what an entrepreneur should do. If a product launch takes $50,000, the loan should be for $100,000, not $40,000. There should be a cushion for discrepancies and emergencies that no amount of research or preparation will be able to counter. If a company does not have a cash reserve for these contingencies, it will go into debt the second that something goes wrong, which it will.
Create a solution for a problem
Just because it is a good idea in your mind does not mean that enough people in society need it in order to make it profitable. Unless you have the numbers to back up your thoughts of the problems that your product will solve, you should not move forward with it as a full launch. Feel free to test it on different demographics; you may have a niche oriented product that can serve as a loss leader or an off brand. However, under no circumstances should you put all of your thunder behind one product until you have determined that it is actually the product that society wants on that scale.
You do not have to be price oriented
Many entrepreneurs believe that they have to beat the competition in price or else there is no room in the marketplace. There are incredible amounts of people who see price as a secondary or tertiary concern. You do not have to drag around the bottom of the barrel just because you are new - if your product is of a higher quality than the product of the competition, it should be advertised and priced as such. Keep in mind that if you price your product too low, you may actually scare away quality oriented customers who would gladly pay more for superior product.
About the author: Cameron Johnson is a business consultant and entrepreneur. Over the course of his career he has conducted case studies on both social media optimization and non-profit marketing. Cameron has also had the opportunity to speak at international business conferences and was recently recognized as one of the world's top 100 advertising experts to follow on social media.The following two tabs change content below.
