According to the U.S. Bureau of Labor Statistics (BLS) and the U.S. Small Business Administration (SBA), 20% of new businesses fail in their first two years. Moreover, the BLS reports that about 45% fail during their first five years and 65% during the first 10 years. Unfortunately, COVID-19 has made the situation worse. A January 2022 survey by Statista showed that COVID-19 had negatively affected 22.1% of surveyed small businesses in the U.S.
So, why do small businesses fail? Specifically, what is a common mistakes that small-business owners make when their businesses begin growing? There is more than one mistake, such as wrong planning and inappropriate marketing strategy, but let’s unveil more mistakes.
Dreaming About Overnight Success
Wishing for overnight success or having it all at once is one of the most common mistakes business owners make when their businesses begin growing. In reality, small business growth requires you to work hard, be courageous, collaborative, humble, patient, resilient, talented, focused on your goals, and be able to learn from your mistakes. Success comes after failures and setbacks.
Not Being a Good Leader
A failed small business may lack a strong and effective leader. But, of course, being a strong leader doesn’t mean being an authoritarian. Instead, it means being able to set the course for your company. Also, you need to constantly communicate with your team and inspire them to take the business to new heights.
As American business executive Jack Welch said, “Before you are a leader, success is all about growing yourself. When you become a leader, success is all about growing others.”
Underestimating The Competition
Assuming you have no competition is a mistake. Theoretically, all companies have competitors in their fields. So, have a healthy respect for your rivals. Also, conduct competitive analysis by taking specific steps such as determining who your competitors are and what they offer.
Importantly, competition is more than just the apparent competitors you can see. A common mistake that starters make is ignoring substitutes when doing competitor research. What are substitutes? N. Gregory Mankiw, an economist from Harvard University, defines substitutes as pairs of goods that can be used in place of each other, such as hot dogs and hamburgers. By researching the substitutes, you can get a clearer image of what your customers may choose instead of your product or service. As a result, you can improve your goods and services to better address consumer needs and wants, as well as decrease the likelihood that they choose a competitor’s product.
Skipping the Planning Phase
Effective business planning is about defining the company’s objectives and how you can achieve these goals. To succeed, you need to be flexible and have good planning and organizational skills to help you move forward and make money in your business.
To build a proper business plan, you should:
- Clearly describe your business
- Define your current and future employee and management needs
- Reveal the opportunities and threats within the market
- Consider capital needs, such as projected cash flow and various budgets
- Build a strong marketing strategy
- Conduct competitor analysis
Not Setting Goals
Proper goal setting gives you direction and helps you stay on track while carrying out your day-to-day operations. Make sure to set SMART goals: Specific, Measurable, Attainable, Relevant, and Time-Based goals. SMART goals help you outline the steps you’ll take to reach a specific point while growing. An example of a Specific goal can be choosing Etsy as the platform to sell a handmade product.
Wrong Marketing Strategy
Marketing helps you raise your brand awareness and create a pipeline of qualified leads to grow your sales. So, build a proper marketing strategy to scale your small business’s marketing efforts.
For instance, you can apply recession marketing tactics to help your business stay afloat during an economic crisis. These may include steps like looking at previous recession cases, not cutting your marketing budget, and adapting to change quickly.
For example, a professor of economics and marketing tracked 200 companies during the recession of 1923. He found that companies that kept advertising during the crisis experienced a 20% increase in revenue. Unlike these companies, those that had cut their marketing were still in the recession and experienced a 7% loss.
Cutting Prices
Any marketing campaign views pricing as one of its pillars. By cutting prices and increasing customer satisfaction, you can often grow sales and heighten profitability. However, with improper and chronic cost-cutting, you can’t create new opportunities for growth and raise revenue.
Not Using New Technology
Refusing to innovate won’t allow you to evolve with the market. As a result, you can face devastating outcomes. Even huge companies can fail due to a lack of innovation in their business.
For instance, new technology in content delivery can help you attract consumers and boost your traffic. Then, you can use lead distribution software to optimize your data flow and make sure it’s going to the highest-paying sources.
Make sure not to ignore your customer’s needs and keep up with the market trends. Otherwise, you’ll fall behind your competitors who are already using new technology solutions. So, work on improving and trying out different types of innovation strategies.
Underspending or Overspending
Overspending is about undisciplined or unfocused budgeting. More specifically, it’s about spending on the wrong things at the wrong time. Inappropriate expenditure may include:
- Incurring too much debt upfront
- Investing in unprofitable advertising
- Purchasing products or services you don’t need
On the other hand, cutting the wrong corners will also hurt your business in the long run. Therefore, you should create a working budget by having a solid understanding of your business costs and ongoing expenses and having a realistic view of profit potential.
Doing It All Alone
Another mistake is believing you can do it all by yourself. Entrepreneurs who do everything by themselves do almost everything poorly. Typically, these individuals can have one or two natural talents. The important thing is identifying those talents and focusing on them to the fullest.
That’s why smart business owners keep a strong management team and outsource the activities they don’t perform well or don’t have enough time to carry through successfully.
As oDesk CEO Gary Swart said, you’re either a “hill taker” or a “hill figure outer.” Know your strengths and weaknesses. If you’re a “hill figure outer,” you should surround yourself with people who can “take the right hills” exceptionally well.
The Bottom Line
What is a common mistakes that small-business owners make when their businesses begin growing? There are many reasons why businesses fail, such as implementing the wrong pricing strategy, poor leadership, lack of innovation, economic hardships, and weak marketing tactics. “Rome wasn’t built in a day.” Similarly, with proper steps and being aware of common mistakes, you can make strides.
