Any small business owner or entrepreneur will tell you: starting a business takes guts, and keeping it going takes resolve. The Bureau of Labor Statistics' Small Business Statistics 2024 report states that there are about 33.2 million small businesses in the United States, and for most of them their number one concern is inflation. Their expenses have gone up, hourly minimum wage has increased, and they struggle to find skilled talent. This all impacts the ability to grow.
Despite challenges, few professional experiences offer the financial upside and sense of fulfillment that come with owning a business. No job fully prepares you for all the ups and downs of running your own company, and big or small, oversights and gaffes come with the territory — it's just a matter of how big or costly your small business mistake is.
While some business mistakes are unavoidable, the common ones are easier to avoid if you recognize them in advance. These stories from real start-ups and small businesses recount the common mistakes owners made along the way. (While the names are anonymous, the stories remain true.)
The 5 Common Small Business Mistakes to Avoid
Starting a small business can be a thrill ride filled with the expectation of success, prosperity, and pride. Amid the excitement, however, it's crucial to dodge common pitfalls that could derail your entrepreneurial dreams. Here are five mistakes to steer clear of:
1. Skipping the Business Plan
You wouldn't get into your car without directions to where you're going, and you shouldn't start a company without writing a detailed business plan. A business plan serves as a roadmap to guide your decisions and provides clarity for your business objectives, including your target market, financial projections, and marketing strategies.
- Help avoid this mistake. Take the time to craft a comprehensive business plan that outlines your target market analysis, competitive landscape, marketing plan, operational strategy, and financial projections. There are online resources that can help or consider speaking with a consultant with experience. Examples can be found at:
2. Trying to Do Everything Yourself
Entrepreneurs often fall into the trap of trying to wear every hat and handle every aspect of their businesses. While it's natural to want to maintain control, it's also easy to spread yourself too thin, which can lead to inefficiency, burnout, and stunting the growth of your business.
- Help avoid this mistake. Recognize your strengths and weaknesses, and delegate tasks outside your expertise to professionals or team members. This will be key to scaling your business and maximizing productivity. It also allows you to remain focused on the big picture.
3. Overspending
It's easy to get carried away in the early stages of business development when there's a sense of urgency to establish a presence and attract customers. However, reckless spending without careful budgeting and financial planning can quickly deplete your resources and jeopardize the sustainability of your business.
- Help avoid this mistake. Create a budget that accounts for all your expenses, including overhead costs, marketing expenditures, inventory management, and contingency funds for unforeseen circumstances.
4. Ignoring the Competition
In the pursuit of building their businesses, many entrepreneurs make the mistake of disregarding competitors, assuming that their product or service is unique enough to stand out on its own. Failing to understand and monitor the competition leaves you vulnerable to being outmaneuvered in the market.
- Help avoid this mistake. Conduct thorough market research, analyze competitor strengths and weaknesses, study their marketing tactics and customer feedback, and identify areas where you can offer superior value or innovation. This competitive analysis could provide valuable insights into customer preferences, pricing strategies, and potential gaps in the market that help you differentiate your business.
5. Lack of Market Interest
No matter how brilliant your business idea may seem, it's crucial to ensure there’s sufficient market demand before investing significant time and resources into its development. Ignoring market feedback or launching a product or service without gauging consumer interest can result in underwhelming sales and wasted efforts.
- Help avoid this mistake. Conduct market research to assess demand for your products or services; gather feedback from potential customers through surveys, focus groups, or audience testing; and be willing to change your products or services based on that feedback. The goal is to understand your target audience’s needs, preferences, and pain points so you can connect with them and drive sales.
5 Real Mistakes Small Business Owners & Consultants Regret
A business doesn’t land on success in a single leap; missteps and miscalculations along the way provide valuable lessons for growth. The following real stories of mistakes from entrepreneurs and consultants serve as cautionary tales that can help prevent you from making them yourself — and perhaps find success sooner.
1. R, restaurateur, New York
After running a bar and restaurant in New York City for a few years, R has plenty of regrets: joining with partners of similar skill sets, not getting everything in writing and having it reviewed by a lawyer, and trying to keep the business afloat when it was barely breaking even. The biggest one, though, was not identifying what drove the most business and pivoting toward it instead of being distracted by demanding, costly, and unproductive areas of the business.
"Some of these mistakes showed that we undervalued important clients — everyday business from the neighborhood, rather than special occasions and promotions," R reflects. "We didn't gather feedback and respond effectively to review our highlighted deficiencies and wasted time and resources promoting aspects of the business that were unsustainable."
2. J, financial advisor, New Jersey
J spent hours and hours poring over administrative minutiae and paperwork before launching his financial planning firm. In part, he was procrastinating out of fear. That's when he realized he needed help.
"I imagined I could and should get it all done myself. I've since learned that, when faced with barriers to real progress, I have to do something much harder than working long hours: I have to ask for help," he shares. "Once I admitted to myself that fear was my blocker, I knew I couldn't solve the problem with time and effort alone. I finally hired a business coach, which made all the difference."
3. C, weddings & events planner, Colorado
When C launched her events business, she had to figure out plenty, including what tools she'd need to run the company. She purchased expensive coordination software, thinking it would save her time, only to learn that her customers preferred to work with her directly instead of through the software.
"I spent way too much money in my first year of business that had zero return," she says. "Investing in software that my customers never used cost me nearly all of my potential profits in my first season of business, plus the lost time I spent learning it and trying to set it all up. What an expensive lesson!"
4. S, tech marketing consultant, New York
For S, working with tech firms has shed light on the importance of hiring well. She explains that early-stage companies often hire a mid-level marketer to help with brand and messaging, but those hires rarely have the experience or expertise the company needs.
"I tell my clients to never hire an in-house marketing person until you're ready to hire a CMO. Don't bring someone on to finish baking your half-baked cake," she advises. "Not only does it muddy the waters of brand identity/integrity, but also strategy…. It immediately instills failure into the culture of the company. This could have been prevented with a consultant or agency contract."
5. W, leadership coach, Washington
W has been running her business as a leadership coach for a decade — a testament to her resilience. If she could do it over, though, she'd spend far more time establishing her brand through online marketing.
"I blogged back in 2013, but I wish I spent more time trying to get more eyes on my blog to build a community earlier on," W shares. "I believe I could have grown my business faster, since the market wasn't as saturated with voices as it is in today's social media world."
Why Small Business Insurance Is Important for Independent Contractors, LLCs, & Small Businesses
Business mistakes are bound to happen. But some will cost more than others. If C in Colorado books a wedding band for the wrong date, the couple may feel she ruined their wedding. As a financial advisor, any miscalculation J makes could have disastrous results for his clients. And for S, hiring someone without enough experience could lead to costly tech errors. All these scenarios could end up in a lawsuit. But professional liability insurance or Business Liability Insurance would protect business owners from facing the brunt of the defense costs themselves.
According to a report by the Small Business Association Office of Advocacy, legal costs for actual litigation against small and medium-sized businesses can range anywhere from $3,000 to $150,000 — and that doesn't even include the cost of settlements or lost wages. This is where errors and omissions (E&O) insurance comes into play.
E&O helps protect you if a lawsuit is filed by a client over an alleged or actual mistake. These policies cover mistakes like bad advice, unfulfilled promises, negligence, errors, and copyright infringement, to name a few.
More important, E&O covers costs of:
- Attorney's fees
- Arbitration
- Expert testimony fees
- Court fees
- Cost of attending trials
- Settlement and judgment costs
- License protection
- Lost wages for the time you spend assisting counsel in your defense
A professional liability policy for a few hundred dollars a year might be the difference between a lawsuit being a detour on your path to success and derailing your dreams altogether.
Like C, the Colorado wedding planner, says, "Owning a business is a never-ending series of mistakes and learnings." What matters is that there's help in all sorts of forms — and protection for when you need it.
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