Starting a business can be an incredibly daunting task with many pitfalls for the novice entrepreneur, especially when it comes to avoiding the financial missteps that are common among this demographic. Within 20 years of their founding, more than 79% of companies fail. Don’t let your business idea fall flat before it can reach the world by avoiding these common mistakes.

Inadequate Research

Before a business idea can come into fruition, it is important for young entrepreneurs to do their due diligence by ensuring their ideas are practicable. Thorough research is necessary in understanding startup costs and the viability of the market. A common reason new businesses fail is a lack of sufficient demand for their product. According to the Commerce Institute, this is the number one reason small businesses fail. The article points out the danger of fads, defined as trends that experience brief popularity before quickly disappearing. Entering and exiting a market at exactly the right time can let you capitalize on a fad, but it rarely leads to long-term success and timing it correctly is very challenging. Instead, entrepreneurs likely want to try their bet on a business model or product with sustainable demand and growth potential, rather than chasing short-lived trends.

Starting a business can be an incredibly daunting task with many pitfalls for the novice entrepreneur, especially when it comes to avoiding the financial missteps that are common among this demographic. Within 20 years of their founding, more than 79% of companies fail. Don’t let your business idea fall flat before it can reach the world by avoiding these common mistakes.

Inadequate Research

Before a business idea can come into fruition, it is important for young entrepreneurs to do their due diligence by ensuring their ideas are practicable. Thorough research is necessary in understanding startup costs and the viability of the market. A common reason new businesses fail is a lack of sufficient demand for their product. According to the Commerce Institute, this is the number one reason small businesses fail. The article points out the danger of fads, defined as trends that experience brief popularity before quickly disappearing. Entering and exiting a market at exactly the right time can let you capitalize on a fad, but it rarely leads to long-term success and timing it correctly is very challenging. Instead, entrepreneurs likely want to try their bet on a business model or product with sustainable demand and growth potential, rather than chasing short-lived trends. 

Insufficient Funds

Another common reason new businesses fail is a lack of sufficient capital to keep operations running. Closely tied to the previous issue, many entrepreneurs underestimate startup and operating costs because they don’t do enough research, and as a result, they often lack the funds needed to stay afloat. According to Forbes, understanding failure rates across an entrepreneur’s industry and region, along with the costs of starting their  business, allows future entrepreneurs to make more viable decisions.

Ineffective Marketing

Another reason businesses fail is a failure to effectively reach their target audience/demographic. Even if a product or service has strong market potential, new entrepreneurs may struggle to connect with the right customers, which can hurt cash flow. In some cases, businesses may reach the market but fail to engage it meaningfully. Poor marketing strategies often reflect a limited understanding of the target audience and can drive potential customers away instead of attracting them.

Incompetent Hiring

Even with a strong idea and a viable market, new entrepreneurs still need an effective team to bring their vision to life. Business owners should invest not only time and resources in the hiring process, but also in crafting clear and comprehensive job descriptions that reach a wide pool of candidates and accurately outline the expectations for the ideal hire.

According to the Oregon Small Business Development Center an ideal job description should have a clear and concise job title, as many job hunters apply based off of job title alone. The Oregon Small Business Development Center also recommends that the job description should help a candidate visualize a day at work so that there are no misconceptions on what a job may entail.

In short, ensuring that you have a comprehensive yet concise job description will greatly enhance the hiring process. In turn, this can help reduce costs by finding the right fit.

Starting a business can be difficult work with many potential mistakes leading to a short lived venture for new entrepreneurs. Thorough preparation and planning is a necessity for novice business owners. Join AFE to stay up to date on the best business practices and more.