5 Common Pitfalls to Avoid as a Start Up or Small Business
There are many considerations when starting a business and many are unique to specific industries or sectors, it may feel a bit overwhelming. When you are excited about a business or product idea, it is easy to get a little ahead of yourself and overlook some vital areas of your business, plan, or project. Once you have a concept or idea, be sure to take a step back and be sure to avoid these very common business plan mistakes:
1. Not having a Business Plan or a Project Execution Plan
It sounds basic, but this is one of the most fundamental and often overlooked (or incomplete) aspects of any business or project. If it is a business you are starting or planning, this is arguably the most important step in the process. So many of us have an amazing concept or product idea in mind, but not only is it helpful to write it down, it is necessary. Fully planning your business will help avoid cost overruns or overlooking key details/items in the start-up process. Or worse, finding out your venture is not as profitable or sustainable as you thought it would be after you have already invested a sizeable amount of time, money, or committed to a long term agreement.
This exercise is just as important when planning a new product launch, event, or really anything else involving your business that takes more planning or resources than normal day to day operation. It is easy to get excited about an idea, but that is only the first step. Taking some time to verify it is viable and that you have the resources to accomplish it is not only necessary for success but for peace of mind as well. Getting into the fine details of a business or project plan isn’t always the most fun exercise, but it will greatly increase your chance of success, profitability, and customer satisfaction in the long term. A well-planned business tends to be a successful one.
2. Poor Inventory/Cost Management/Giving products away
Another thing that may sound like it goes without saying: Inventory and Cost Management. If you are a retail business, restaurant, or manufacturing business of any kind these two things are paramount. Your margins are where your business thrives or dies, and the way you protect them is by cost management. It starts with your inventory. You obviously want to keep an appropriate amount to sell in your store or manufacture your goods, but keeping too much on hand or not knowing how much you have can tie up much needed cash that can be used on other important day to day business needs (eg: marketing, payroll, cash on hand).
In addition to your inventory levels, managing your costs to produce or sell is the highest priority item to keep an eye on. If you manufacture your goods, you should know exactly how much all of your costs are to produce each item you make. This not only helps you review potential ingredient, part, or process adjustments but ensure you are operating within your desired margin range. This is especially important if you run a company that does wholesale business to business sales of any kind, where margins are usually razor thin and a function of scale. Retail businesses typically have higher margins to play with (especially if you are making and selling the product yourself), but it is still important to know the cost of production to ensure profitability. This goes hand in hand with business or project planning. A business that is not tracking their full cost of producing, selling, or delivering their products can easily find themselves selling a product or service at a loss without even knowing it.
Last but not least: giving products away. This may be a necessary evil to do from time to time for marketing or start up purposes. However, it is important to know a few things if you plan to use this as a marketing or promotional plan. Firstly, keep track of what you are giving away and their associated costs!! This is extremely important for inventory and loss tracking and setting the tone for the process by which items are taken for this purpose. If you aren’t tracking this, it will not take long for people or employees to take advantage of your lack of control. Second, know why you are giving things away and follow up on the effectiveness of promotions or items given for marketing purposes. Routinely evaluate if it is worth doing so, and if it is not, stop. Everyone loves to get free stuff, so it is rare you will have someone reject a gift or promotional item give away. You need to be sure you are getting a return for the business if you plan to do this. It may not always be fun, but keeping track of your costs, inventory, and giveaways it extremely important to running your business efficiently and profitably.
3. Planning or making business decisions based on anecdotal/subjective evidence over empirical data and trends
As a business owner, you will inevitably begin to hear more and more direct feedback of your products or services every day. Especially if you manage a public facing establishment like a bar or restaurant. While it is very important to both hear and listen to this direct feedback from your customers, it is equally important to filter out the noise, avoid recency bias, and singular subjective opinions. Speaking directly with your consumers can provide valuable insight into how your products and services are being received, but this is only one part of the bigger picture you must take into consideration. Often times this is a jumping off point of where to direct attention for a change or continuation of a service/product. It is important to be sure to follow up on any customer comment (positive or negative) by looking at other data sets (sales, other reviews, etc.) as well. Failing to to do so does not provide a full picture and can lead to simply following anecdotal, subjective opinions. Making business decisions of any kind based on a single (or very few) customer opinions can lead down a path of ill informed decision making, especially when other hard evidence does not support it. It is important to remember that as a business owner, part of your job is identifying what information is valuable and what is simply noise. Acting on the noise can be detrimental to your business in the long term.
4. Poor Communication - internally and externally
Poor communication can be a weakness of many businesses. This can happen internally by not effectively communicating expectations or information to your staff/management, or externally via marketing communication. In order for any business to run smoothly, communication of events, changes, positive/negative reinforcement, staffing adjustments, etc. should be communicated regularly and clearly. For this reason, meetings should be held regularly, be structured, and used to communicate these items. This responsibility falls on you as the owner to provide this structure, set expectations, and communicate these effectively to your staff and management to carry out their duties so the company runs smoothly and ultimately people can be held accountable for their jobs.
This concept applies equally to external communication in the form of marketing, store policies, details of events/promotions, etc. It is important there are clear channels by which events are planned, marketed, and communicated to the public once plans and decisions have been made internally. It is also important to identify who is responsible for communicating these things and when. Otherwise you can easily find yourself in a constant state of reactionary behavior or fielding questions/confusion from your customers that could be easily avoided with clearer communication. Much like with setting staff expectations, you cannot expect your customers to respond or meet call to action expectations if they are not communicated clearly!
5. Unrealistic Expectations/Growing too fast
You may notice a trend of the word “expectations” throughout this post. Ultimately, as an owner and manager that is largely what you do: set expectations and hold others to account for them. This applies even more so to your own expectations. Whether it is for your employees, customers, or the overall growth trajectory of your business, you must keep your expectations realistic both for yourself and the limits of your human and financial resources. Many owners expect their employees to treat their company as if they are the owners as well, while owning no stake in the company at all. This sets an unrealistic expectation from the start. While it can be stressful as an owner of a small business, you cannot and should not expect the same level of commitment from your employees that you (or other ownership partners) have in your business. After all, at the end of the day, while many are generally excited and passionate to be a part of a small business, they are just employees who are there to do a job for fair compensation. To expect employees to work longer hours or come in at times they were not previously scheduled is disrespectful to them as human beings and their personal lives. Not to mention, if you do this and don’t expect to pay them for their time/overtime, it is just plain illegal. Many owners believe this type of attitude or practice is necessary for a small business to be successful. It is not. It may be helpful in the short term, but long term it harbors resentment and discontent among employees, if not actual legal repercussions. Ultimately this kills the internal culture of a business and will likely lead to a spillover publicly or privately.
To this point, when planning company growth, expectations of growth timelines must be managed based on the resources you are providing your team. You can not expect parabolic (2 or more times current production rates or sales) growth from a team of the same people while providing no additional resources. Again, this is simply an unrealistic expectation and as an owner, it is important to understand this. That said, there are times where you can expect a little more or have seasonal pushes of production or sales, but bear in mind everyone has their breaking point. Having a company full of stressed out, overworked, resentful employees because you would rather not affect your bottom line will catch up to you.
There is plenty to consider when starting a business and writing your plan. Be sure to take a beat, think things through, write a plan, or make a list. A small amount of planning or simply fully thinking through an idea before putting it into action will pay serious dividends in the future. Both for your bottom line and your companies culture and work environment.
