Small business pitfalls and how to avoid them
Written by Lance Swansbra
Have you ever been paragliding? I went up for a tandem paraglide a few years ago. The feeling of running off a cliff with nothing attached to you but a small colourful parachute and then relying on the wind to help you move around and stay afloat was both exhilarating and somewhat terrifying. I was reflecting on this recently and it got me thinking that starting a small business is a lot like paragliding.
Starting and running a small business can be both exciting and challenging. You’re bound to encounter hurdles along the way. However, being aware of common pitfalls can help you navigate the small business landscape more effectively. In this article, we’ll explore ten slip-ups frequently made by small business owners and provide actionable tips to avoid them.
1. Not writing a business plan
Mistake: Many small business owners dive into their ventures without a well-thought-out business plan. This oversight can lead to confusion, financial instability, and missed opportunities.
Solution: You wouldn’t go on an overseas holiday without having a plan in place, so why would you start a business without a plan? Create a strategic business plan that outlines your goals, target market, financial projections, and operational strategies. A solid plan will guide your decisions and keep you on track. Once you’ve written the plan, don’t just keep it in your top draw, put a regular event in your calendar and review your progress on a monthly or quarterly basis.
2. Skipping the Research
Mistake: You’ve just come up with a cracking idea for a new business. It’s an exciting time and you want to get stuck into it before someone else does. However, assuming your business idea is foolproof without validating it can lead to disappointment and can be very expensive. Market research and feedback are crucial.
Solution: Start small and test your concept with a Minimum Viable Product (MVP). Just in case you’re wondering, MVP is a version of a new product that includes only the essential features necessary to satisfy early adopters and validate a business idea. Gather customer feedback (friends and family members can be invaluable here) and adjust accordingly. Be open to pivoting if necessary.
3. Overextending Product Offerings
Mistake: Have you ever been to an ice cream shop and had that feeling of not being able to choose a flavour? It could be because there’s too many flavours to choose from and you suffer from choice overload? The same thing can happen in your business, offering too many products or services can dilute your focus and strain resources. It’s better to excel in a niche than be mediocre in many areas.
Solution: Concentrate on a core set of offerings that align with your brand and customer needs. Remember, quality over quantity.
4. Neglecting Organic Marketing
Mistake: Relying solely on paid advertising can limit your reach and long-term growth, it can also be expensive. Not advertising at all can also be costly.
Solution: Invest time in building an online presence, creating valuable content, and engaging with your audience organically. Perhaps you want to establish a blog and then use that to create short videos on your socials, that’s what we’re doing right now! Also look to engage in networking opportunities, such as industry events, local business associations, and online communities. Building a strong network can provide valuable support and open up new avenues for growth. Last but not least, don’t be afraid to ask your clients or customers if they know people you might be able to help.
5. Ignoring insurance
Mistake: In the exciting journey of launching and growing a business, insurance often takes a backseat. Entrepreneurs can forget that every business, regardless of size or industry, faces risks. These risks, left unaddressed, can be financially devastating.
Solution: Think about your business’s specific risks and consider insurance options like cyber, public liability, professional indemnity, or others relevant to your field to protect your business.
6. Ignoring Cash Flow and Profits
Mistake: Focusing solely on revenue without considering cash flow and profitability can lead to big problems. Cash flow issues can cripple even a successful business. Think about the plumber who has to spend big money on purchasing expensive equipment for jobs and is then slow to send out invoices.
Solution: Regularly monitor your cash flow, manage expenses, and prioritise profitability. Understand your financial statements and seek professional advice if needed. Here’s a great article from MYOB about how to understand financial statements.
7. Under pricing
Mistake: Many budding entrepreneurs stumble into the same pitfall: undervaluing their services or products. Whist all businesses want to provide value, the misguided belief that prices can be adjusted later often leads to setting them too low. In turn, low prices can chip away at the perceived value of your offerings. Think about a new high-quality restaurant that sets prices in line with fast food restaurants, some potential customers may be turned off by the low prices, as they perceive the low prices as a sign of low quality. If prices are too low, it will also make it difficult for your business to generate a profit.
Solution: There’s lots of different ways you can set your prices. In most cases, you’re going to want to understand your costs, including production, labour, and overheads. Secondly, know your market, research competitors and understand what customers are willing to pay (this could involve some detective work!). Thirdly, consider your business goals, maybe you’re wanting to maximise profit, increase market share, or just survive. Fourthly, value-based pricing can be effective, this means pricing based on the value you provide to the customer. Finally, flexibility is key, be ready to adjust prices in response to market changes, customer feedback, and business performance. Remember, effective pricing is both an art and a science and should be reviewed regularly.
8. Avoiding Hiring or Delegating
Mistake: Starting a business is tough and let’s face it, in the beginning you often must try and do everything yourself and to keep costs down. Over the long term, trying to do everything yourself can lead to burnout and inefficiency. For example, think about a chef who needs to turn away customers from her new restaurant because she’s too busy doing the dishes.
Solution: Hire skilled professionals or outsource tasks that aren’t your expertise. Focus on what you do best and what’s going to be most valuable for your business. To help get started on this, write a list of all the things you do in your business and then categorise them as either keep, stop or delegate. ‘Keep’ means the job stays with you, ‘stop’ means the job is actually no longer required and ‘delegate’ means the job needs to go to someone else. For the delegate list nominate who the job will go to, when and what’s going to slow you down from handing the job over, maybe training will be required, or you’ll need more revenue to afford outsourcing?
9. Ignoring Your Superannuation
Mistake: Unfortunately, we come across lots of business owners that ‘never get around’ to putting money into their super, the years fly by and if the business hasn’t been as successful as originally planned, retirement can quickly go from being a dream to becoming a nightmare.
Solution: Treat yourself like any normal employee, try to pay yourself a market wage (or at least work towards that) and fund your superannuation contributions. Your future self will thank you for it!
10. Overlooking the Importance of Work-Life Balance
Mistake: Running a small business often involves long hours and significant stress. Many business owners neglect their own well-being, which can lead to burnout and decreased productivity.
Solution: It may sound counterintuitive, but sometimes you’ll get more done by spending less time at work. Prioritise your work-life balance by setting boundaries and managing your time effectively. Delegate tasks when possible and take regular breaks to maintain your health and well-being. If you have quiet times during the year, this could be the ideal time to recharge your batteries.
Remember, mistakes are part of the business journey. Learn from them, adapt, and keep moving forward. By avoiding these common pitfalls, you’ll increase your chances of building a successful small business.
If you need some help with your business plan, just let us know, we’d love to help out.
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The information in this article is general information and does not take into account any person’s individual situation. You should always do your own research, or seek professional advice to assist you in making an informed decision about what suits your needs.