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Starting a Business? Don't Do This. (Part 1)
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Starting a Business? Don’t Do This. (Part 1)
Andrea Coombes
Getting a small business off the ground isn’t easy. But more businesses would succeed if entrepreneurs avoided some common pitfalls.
“Most start-ups make a ton of mistakes,” says Stephen Spinelli Jr., vice provost for entrepreneurship and global management at Babson College in Wellesley, Mass. “If you’re in a really rich market, there’s greater forgiveness” for those mistakes. In a narrow market, “you could fail very quickly.”
Just 44% of small businesses with one or more employees – in addition to the founder – survive after four years, according to the Small Business Administration’s Office of Advocacy.
Here are six mistakes to avoid to better your chances.
1. Lacking a detailed plan. “People don’t begin to do enough research on the size of the market, how can it be priced, how can they get their products made, will there be demand,” says Carl Schramm, president of Ewing Marion Kauffman Foundation, which promotes programs to foster entrepreneurship.
A detailed business plan forces you to clarify how much money you’re willing to invest in the venture. It should spell out some time frames, objectives, costs and expenses, says Todd McCracken, president of the National Small Business Association, as Washington, D.C.-based advocacy group with about 65,000 small-business members nationwide.
“Entrepreneurs are always very optimistic,” he says. “But they don’t look closely enough at what they’re willing to lose.”
For help creating a business plan, look for a small-business development center in your area at www.sba.gov/aboutsba/sbaprograms/sbdc/intex.html. Also, Score, a group of retired executives, offers free small-business advice at www.score.org.
2. Failing to talk to experts. Seasoned experts can vet your idea and help you avoid some land mines. Plus, these experts can become part of your network.
Often, entrepreneurs worry that others will steal their idea. “That’s a huge mistake,” says Mr. Spinelli. It’s very hard “for them to steal an idea. It almost never happens.”
Don’t assume hiring a consultant will get you the same result as talking to business owners, says Bruce Phillips, a senior economist with the National Federation of Independent Business Research Foundation, a nonprofit research group in Washington, D.C. “You don’t get the same feel that you do when you talk to real business owners who have to struggle with these decisions.”
3. Assuming control over prices. “Most small firms think they can manipulate prices in a market,” says Mr. Phillips. “Frequently, you can’t.”
Do your due diligence on the industry to gauge average prices. “Small-business owners should talk to other people in the field, join an industry trade association,” to get a sense of what prices the market will bear, says Mr. Phillips. “Talk to people who own a similar type of business, preferably in a similar type of location.”
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