Starting a small business? You’re in good company. Two hundred thousand small businesses start in the UK every year. But don’t get too comfortable. 60% of these businesses will have failed within three years.

Are we saying you’re going to be amongst them? No, we’re not, because you’ve found this blog.

Did you know the majority of businesses all fail for the same reasons? It’s true! There are a few common pitfalls that trip up thousands of startup companies every single year.

These business-killers aren’t going to be revelations; they aren’t hidden dangers lurking in the shadows waiting to pounce. No, they’re obvious threats. But too many wide-eyed entrepreneurs are often so blinded by excitement for their new idea, looking up to the sky for bigger and better opportunities, that they fail to see the gaping-maw opening up beneath them, threatening to swallow them whole.

This is not going to be your story because awareness is power. Mint Formations is going to open your mind and prepare you for a bright future.

Together, we can learn from the mistakes of the past. We can use what we know about the failures of those who went before you to build sustainable and reliable businesses that stand the test of time.

Today we look at major small business mistakes, and how to dodge these bullets.

Small Business Mistake #1: Underestimating the Power of Experience

Age is a killer, but not in the way you might think.

It’s a simple fact that failure rates of businesses owned by those under 30 are higher than those of later years.

In a study reported on by Inc, it seems people in their 50s establish most major successful businesses. An individual in their 50s starting a new company is 2.8 times more likely to succeed in business than a 25-year old.

This isn’t ageism — it’s purely down to experience.

It’s not because the individual is older and therefore somehow intrinsically wiser, but simply because they’ve had more years on this planet to experience things, to see how their chosen industry works, and to build networks they can leverage for business opportunities. They’ve got a better sense of balance and perspective drawn from decades of extra time.

The study points to ideas vs execution. While both individuals might have the same idea, experience wins out in the execution and keeps the new business afloat.

Does this mean if you’re young, you can’t succeed in business?

No, absolutely not! However, you should be willing to consider consulting with industry experts and those who’ve been around longer to experience more. Take onboard advice and listen to the wise counsel of those with experience. This is particularly prudent for leadership decisions, such as hiring and firing and building your team.

Never discredit your ideas because of your age. But don’t assume just because you’ve got a good idea and five years of industry experience under your belt that you can do it better than somebody with 30 more.

One of the most damaging small business mistakes people make is not asking for help and getting support from experienced members of their industry. From advice on business plans and products to marketing and consumer acquisition, there is immeasurable value in learning from others.

Small Business Mistake #2: Developing a Passion Project Nobody Wants

There is no data available on the percentage of businesses started not as profit builders but as passion projects. Yet from our industry experience as UK limited company formation specialists — and purely from an anecdotal perspective — the figure is quite high.
Passion project businesses are great for two reasons:

  • They fulfil life ambitions and make people happy
  • Because you love them, you’re driven to make them succeed, which increases longevity.

However, there is a potentially big problem here, and a classic small business mistake that thousands make — which means the small business is a dead duck before it even hits the water.

The most common reason small businesses fail is that business owners invest in a product or service the market just does not want.

  • There are so many factors involved in this failure:
  • The product is too expensive for the market.
  • The business niche is already oversaturated.
  • The product is just a bad concept.
  • There are better alternatives to your offering available already.

According to CB Insights, 42% of failed businesses listed a lack of consumer interest as their primary reason for closure. Before you start up any business, be it a passion project or a profit-building machine, you need to know the market exists for whatever you want to sell.

There are plenty of ways to find out if starting your business is going to result in a product or service people want to consume. You can do customer research, you can look at consumer demand of competitors, and you can talk to those already working in the niche.

This big small business mistake arises because you assume that because you love your small business concept, customers will love it, too. You need to find out whether or not people will buy before you invest in a company — because if you don’t do your research, you may find your money is completely wasted.

And on the subject of watching money…

Small Business Mistake #3: Blowing the Budget

According to the same CB Insights data, nearly 30% of small business closures are due to a failure in budgeting. In simple terms, the money runs out.

Why is this small business mistake such a problem? Well, it all comes down to the adage “you have to spend money to make money.” While it’s certainly true in part, for small businesses “you have to spend some money to make money, but not all the money” would be more appropriate.

As noted by accounting tool Freshbooks — who ought to know a thing or two about business finance — it takes two to three years before the average business becomes profitable.

Now we start to see why so many businesses fail before their third birthday.

The problem here is over-excitement and severe miscalculations. New business owners often acquire investment for their business and immediately set about developing a first-class organisation. They develop an amazing product, an amazing business structure and start their amazing marketing program. But before all this can actually lead to profitable sales, the money dries up and the business flops.

It’s a story that has played out time and time again, and we’re ready to see that stop.

It might be a tired old cliche but, this is a marathon, not a sprint.

The simple fact is, budgets get misconstrued. In fast-failing businesses, they’re typically invested in the company with the idea of making it great. But your small business startup budget really has two distinct roles: growth and sustainability.

First, you must outline how much money you’ll need to sustain your operating costs for the proposed three-year window to profitability. Then, following that, you can start to look at spending what’s left to develop your current operations.

Remember, though, if your development increases operating costs, you need to readjust your sustainability budget, too! This is a step that trips up many businesses. They think they’ve figured out their budgets, only to find they’ve fired up their expenses without banking enough cash to get them through the early years on their increased operational costs.

To quote Falon Fatemi from Node “startups that succeed run lean.”

Small Business Mistake #4: Your Team Is Weak

Poor team dynamics create skills shortages and toxic environments that serve to suffocate businesses and smother any chance of success. Consider your business a smouldering ember that needs to be nurtured into a powerful flame. Your team must be capable of doing whatever it takes to fuel the fire.

The first common small business mistake here is working with friends and family.

Experts who’ve been where you are, have some vital things to say on the subject of working with friends and family. The consensus is to do it — but only if you’re doing it because you each bring something important to the table. Friends and family can be great business partners, as you already have strong relationships. However, friendship is not a good foundation for a good business relationship; it’s only an added advantage. What you need in a partner is intelligence, business aptitude, ideas, industry experience, drive and essential skills. If your friends and/or family have all these, then you’ve found the perfect partner. If they don’t, and you simply go into business because they’re interested in the idea and can help you with investment, you’re in for a rough ride — professionally and personally.

The next small business mistake in team-building comes from bad hires.

It’s a well-known fact that unfilled job roles cost businesses money. We’re talking thousands, easy. But bad hires are even worse. Recruiter Jörgen Sundberg of Link Humans suggests the cost of a bad hire is going to be about 30% extra on their salary, which includes the cost of mistakes and slowdowns. If you then have to replace them, you’re also footing the bill for hiring again. All these disadvantages can sink a business.

It’s tempting when starting a new company to quickly fill positions out to build your team and get moving, but developing a weak team is going to fast-track you to an early business grave.

If you don’t want to be the business that goes under, you need to pick your team carefully. Take your time, make the right investments in staff, and don’t just work with anyone because they have an interest in your idea — no matter who they are.

 

Register your company with Mint Formations today and access a load of business-boosting benefits, like access to leading accountants and business bank accounts, to help you improve your odds of success.

Want to register your UK limited company today?


Raj co-founded Mint Formations with business partner Andy Tree in 2017. Mint formations is established to nurture small UK businesses and enable exciting new opportunities for quick growth. As a successful entrepreneur, Raj knows how to start and run a business. He currently resides as a board member of seven successful companies across the world. He is best known for founding Integra Global Solutions, specialists in robotics, automation, and business process optimisation.

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