Entrepreneurism is booming since the pandemic. In fact, according to the U.S. Census Bureau reported that an astounding 5.4 million new business applications were filed in 2021. This number smashed the previous record of 4.4 million set in 2020, when the COVID pandemic began.
The reasons for this trend are numerous. Many of the people deciding to start businesses of their own were those who had lost their jobs due to COVID crackdowns. Many Americans began to reflect on their lives philosophically and decided to leave their current careers and find a new path. They decided there might not ever be a better time to change course and pursue their dreams of business ownership. Some of them used government stimulus checks to launch their new ventures.
While entrepreneurial optimism abounds, the reality is that about 20% of small businesses fail within the first two years, and about half fail within five years. The unfortunate thing about this reality is that many struggling small business owners make the same common mistakes.
Not Doing Enough Research. Some people think they’ve got a great business idea, but they may be acting more on an impulse than a reasoned argument for success. For instance, choosing a less desirable location because the rent was cheaper could have a devastating effect on revenues.
“Understand your industry,” says Mari Tautimes, a prosperous business owner and author of #KeepGoing: From 15-Year-Old Mom To Successful CEO And Entrepreneur. “Go the extra miles to analyze the market and what you’re up against. If you begin your startup without knowing your competitors’ history and mission, it could result in your failure.”
Before launching any venture, it is imperative to prepare a well-researched, professional business plan that provides a 3-5 year roadmap for the company. It should include an executive summary, and a full explanation of what the business is, who is running it, who the target audience is, how to reach that audience, competition in the marketplace, financial data, and other information.
Lack of Capital. Before launching a business, estimate the amount of money you will need to get the business off the ground… and then double it! Even the most experienced business people will encounter costly delays that could mean another month’s rent paid without generating revenue. We’ve seen in the last few months how quickly and unexpectedly the costs of things like gasoline, utilities, materials, and labor can skyrocket. Make sure you keep enough reserve cash to carry you through tough times and/or seasonal downturns.
Seed capital can dry up quickly, and you certainly don’t want to have to go back to the bank or other lender for a second small business loan in a relatively short period of time. Returning and asking for more money after already securing a loan likely will raise flags that the owner didn’t plan well enough or that the business simply isn’t viable. Be sure to borrow enough money to launch the business and sustain it through the often rocky first months.
There are several types of lenders to choose from. Big banks are often the first lenders that budding entrepreneurs will approach. After all they have best known brand names and more often than not have a far-reaching branch network. However, big banks having $10 billion in assets, are currently approving about 15% of the loan requests they receive, according to the latest Biz2Credit Small Business Lending Index (April 2022 figures).
Smaller banks are granting about 20% of their funding requests. Regional and community banks are often able to provide SBA loans, which are backed by the federal agency. These loans are attractive, but because a government entity is involved, there is more paperwork involved, which can be time-consuming.
Non-bank lenders, including factors and merchant cash advance companies, can be a viable funding source and frequently are more willing to grant loans than banks are. It is important, however, to keep in mind that they charge significantly higher interest rates.
Trying to Do Everything Yourself. Entrepreneurs often take matters into their own hands when launching their companies and tend to refrain from hiring (in an effort to keep costs down). After all, U.S. labor costs reached their highest levels in 20 years in 2021 and show no signs of slowing.
However, as tempting as it is to delay hiring in the early stages, trying to do everything yourself can quickly lead to burnout. Focus on the things at which you excel, and hire competent people to handle other aspects of running the business.
Not Sticking to a Budget. The “business of running a business” can often be viewed as the less glamorous part of starting a company. For instance, creative types (artists, florists, chefs, etc.) may not be good at monitoring their costs as an entrepreneur who has a degree in accounting. Not setting and keeping a budget can result in a company’s starting to lose money and, ultimately can lead to feelings of being overwhelmed.
Establish a budget and adhere to it. Use Excel or Quickbooks to track revenue and expenses. If you cannot afford to hire a CPA, perhaps you can add a less expensive bookkeeper who can prepare monthly financial reports that monitor profitability.
Poor Marketing Strategy. Know your target market and how to reach them. It sounds easy, but it can be difficult. A professional looking, mobile friendly website is vital to have in the 21st century. Take advantage of social media to create buzz about your firm. Understand which audiences are on the different media channels. Want to reach teenagers, Facebook is the wrong vehicle. It’s demographic is older. You’re more likely to find teens on Instagram or TikTok. Increasingly, companies are discovering the effectiveness of sponsored content, which can be found by search engines like Google, rather than more traditional forms of advertising. Print newspapers and magazines are waning. Nowadays, digital news sites are growing by leaps and bounds and deliver attractive audiences at cost-effective pricing.
“Your startup won’t take off if you don’t know how to market it properly, especially in the digital age. “Poor marketing keeps good products and services from being successful,” Tautimes says. “Tell the relevant audience about your new product by using social media marketing, which is free and can help you reach a wide audience. Learn how to write compelling content, feature your products in videos, and how to generate leads through various forms of communication.”
“Mistakes are inevitable for the new entrepreneur,” says Mari Tautimes, a prosperous business owner and author of #KeepGoing: From 15-Year-Old Mom To Successful CEO And Entrepreneur. “The most successful ones learn from them and improve their practices. Test new ideas, acquire feedback and pivot as necessary.”
20 Low Cost Businesses to Start for Less Than $100 in 2023
Ten New Year’s Resolutions For Small Business Owners In 2023
The Top 5 Passive Income Ideas of 2023