If you plan to start a company from scratch (regardless of where you are now – maybe you are still refining your idea, you have just applied for all the required business licenses and permits, or you have already launched your new business) it is highly likely that you have several questions crossing your mind that are concerning the best way you should manage and run your company and the mistakes you must avoid in order to build a company that lasts the test of time.
Hopefully, this post will help you see your path to success from an optimistic and positive perspective, even if it will teach you about the biggest mistakes that other new entrepreneurs and business owners made when starting their business. Despite the topic, I do not plan to talk to you about business failure. Why? Well, you must not run your company with fear about the future, always have a positive outlook that it will be successful. What I am trying to do is increase your awareness of good and bad business choices so that you can make smart decisions for your company and achieve all of your business goals you hope to achieve.
In other words, you should not fear this post, because the start-up journey is not as tough and daunting as some people around you may say (one small piece of advice – do not trust the stories of instant wealth and overnight success that you may hear from other people. Just stay positive, work hard, and have patience because most of the time it took them 10+ years to become an overnight success).
Table of contents:
- The 9 biggest mistakes to avoid when starting a business
- A few considerations concerning this article
Below you will find the 9 most common mistakes that some new business owners and entrepreneurs make in their first year and the alternatives you have in order to avoid them. There is a solution to every problem (I know this sounds like a cliche but it’s real).
1. Taking on too much debt
You can expect to get into debt when you are starting a business. This is not a mistake as long as you obtain “good debt”. According to All Business, some debt is good because they can be considered as an investment. But if you take on more debt than you need and spend more money than is necessary (for example, you waste money on unnecessary employees or fancy laptops or too many nice dinners with people who won’t buy from you) you will end up being buried in debt. Take no more and no less debt than you need and only spend money on what you need – Unless you have enough money to bootstrap your business via your life savings, but this is not usually the scenario. Learn to make the difference between what you want and what you need (for example, imagine a bottle of expensive red wine. Do you want it? I can bet that you do. But ask yourself: “Do I actually need it?”).
2. Taking on too many expenses too quickly
I recommend you have a systematic approach to business expenses. Do not spend too much money at the beginning of your business’ life, just because you are impatient. There is no need to rent and design an expensive office because you believe that your team will be working harder in an office than in a garage, from home or a room in your house – it is not the case.
Remember the suggestion that I gave you previously: learn to make the difference between what you want (or what you think your employees might want) and what you need (primarily, what your business needs). Do you actually need a physical office? Or can you and your team work remotely and maximise business profits just as you would do if you were to work all together, in a physical space? If the answer is yes, consider the amount of money you would save by renting a virtual office that can give your business a professional appearance and provide you with the same benefits as a brick and mortar office but without you having high overhead expenses (click here if you want to learn more about virtual offices). For example, with a virtual office, you can work from home or from anywhere and have a professional virtual address that will make everyone think that you operate from a specific location.
This same example can be applied to hiring a local Australian employee to help with administration tasks versus hiring someone off-shore who might be just as capable and more affordable. So, just apply the logic to every expense you obtain from cars, to employees, to offices, to equipment, to branding, etc.
3. Not having separate business and personal accounts
I advise you to create separate savings, checking, and credit card accounts for your business before you begin collecting revenue from your customers. Separating your business and personal accounts will make it easier to do the accounting and plan both your personal and business budgets. Moreover, it will help you to prevent overlap between your personal expenses and your business expenses (or between your earnings and the revenue that your business is generating). You should learn that the money your business earns should not go directly into your bank account (meaning that you should not rush out and buy that 1,973 HP car that you always yearned for after collecting revenue from your first customers). Consider investing this money in your business so you can build a strong and lasting company. This also helps avoid any tax implications where the Australian Tax office deems all of your personal income as business income and attempts to tax you for it.
Organisation and management mistakes
1. Doing everything by yourself
In the beginning, it might be tempting to try to cut costs by doing as much as you can in your business by yourself. But do you really have all of the necessary skills to take on all the functions of your business, without any help? Or, do you have enough time to do everything? Are you sure that you won’t become exhausted and burnt out? Saving money is extremely important, but skimping on can actually make you lose money. For example, if you choose to answer phone calls by yourself instead of using a virtual receptionist (that is the most suitable answering service for start-ups and is less expensive than you think) you might end up spending most of your time on the phone answer off-shore spam/cold callers and not being able to focus on the most important activities in your business that will actually make you money (which would reduce your business productivity and make you lose money or struggle to get all of your work done).
2. Outsourcing the tasks that you or your employees can do
This is the opposite of the “doing everything by yourself” mistake. I agree outsourcing can add value to your growing company. According to Equities, outsourcing can bring you significant advantages, such as saving money and having access to specialised resources that ensure faster and better services. Important tasks can definitely be outsourced (for example, legal services, bookkeeping/financial management, marketing/lead generation, IT services, etc.). But paying an outsourcing provider for services that can be done in-house and must be done with the highest level of attention, such as sales presentations, customer account calls, strategic planning, etc wouldn’t bring you any benefit in the long term. Spend some time, analyse your business model and goals, and decide whether you should outsource or not some business functions.
3. 50/50 partnerships
I am not telling you that 50/50 business partnerships are wrong because you will have to share the profits and you will create confusion among employees and vendors about who is in charge. From this perspective, a 50/50 business partnership is rather a choice than a mistake. But who makes a decision if the partners disagree? In this case, there are legal ways to address this issue, but a 51/49 business partnership can help you avoid deadlock. A 50/50 business partnership is like marriage (even if I should discuss with my wife about relationship fairness when she asks me to walk the dog at 6 AM): one partner can’t do something without the consent of the other.
Allow me to add one more piece of advice: I recommend that you work with business partners and not with friends. Or, if you work with friends, try to see them as business partners and not people with whom you have a bond of mutual affection. Business partners must not be afraid of hurting each other’s feelings in order to achieve their goals. The final thought I will leave you with is this: some of the most successful businesses are built on complimentary partnerships, this means that one person is accountable for sales and marketing, while the other is accountable for service delivery and finances. This means that there is a clear separation of accountability and can also help avoid unnecessary conflict.
1. Thinking like an employee
Mindset can be the major determinant of success in all areas of your life. For example, when I walk the dog at 6 AM, I have two choices: 1. Feeling stuck in this daily morning drama because I hate waking up early or 2. Feeling lucky that I can get some fresh air and enjoy the silence, (presuming that my dog won’t start barking and lunging at other dogs, which is most probably his daily morning routine that makes him happy). No matter what attitude I have, the situation won’t change: I still have to walk the dog every morning. But my attitude makes a difference.
To run a successful business, you must stop thinking like an employee. Typically, employees are not responsible for all decisions, do not hold both short and long-term visions, and feel unsafe when they get out of their comfort zone. You must switch your mindset from “employee” to “entrepreneur” (meaning that you must learn to take decisions and feel responsible for them, build both short and long-term visions, and feel comfortable when you’re out of your comfort zone). And last but not least, you must learn to see the glass half full. I was always taught that if I am uncomfortable with what I am doing or there is a task I continuously avoid, it is the probably the most important action for me to take right this second.
2. Starting a business for money
I agree we all work for money and to generate profit. I work for money too, except when I am forced to walk the dog at 6 AM and I feel like its pure slave labor. But if you’re in business only to make money, you’re doing it all wrong because it won’t motivate you in the long term. Create a mission for your business. Think about how your work could help people and how to start a company to improve the lives of others. Or, at least, you could consider a private or personal mission. For example, to pay off your parents’ debt, or ensure a safe future for your children (or just to hire someone to walk the dog daily). It doesn’t matter what your mission is as long as you believe in it and makes you stop thinking of money as your final business purpose.
3. Thinking that people work for you and not with you
This mistake can be called a “leadership mistake” as well. You must learn how to treat people so you can build a thriving, happy, and lasting team. According to The Huffington Post, “the average economic cost to a company of turning over a highly skilled job is 213% of the cost of one year’s compensation for that role.” Provide your employees with opportunities to grow and learn and treat them as people who are working with you and not for you (meaning that you must not have the attitude and mindset of the boss who measures hours and not results).
One last piece of advice – apply this rule even if you run your business remotely. It doesn’t matter if you never meet your employees face to face. Find time to talk with them, share ideas, and build a powerful relationship (you can click here if you are interested to learn more about the essential communication tools that you can use to set up virtual meetings with your employees).
You may ask yourself why I choose to share only 9 mistakes that you must avoid when starting a business as many articles available on the Internet share to you up to 50 mistakes. There are two reasons why I made this choice.
First, I only wanted to share valuable information. I do not want you to read another article that lists obvious mistakes that you should avoid when starting a new business. Hackneyed ideas won’t bring to you any benefit. For example, I won’t tell you that some of the mistakes to avoid when starting a business are “not being unique enough”, “giving up before you start”, or “not having a clear vision”. Of course, these are all mistakes that you should avoid making but they are quite obvious and I bet that you are smart enough to be aware of them. Also, they are a little bit too generic and I guess you are looking for some concrete advice on how to avoid mistakes when starting a business.
Secondly, I do not want your business journey to seem more complicated than it actually is. I can make you a list containing hundreds of generic mistakes that you should avoid when starting a business (just like the ones mentioned above). But a list containing hundreds of business errors (even if they are so obvious that for sure you can avoid them) may seem discouraging. Therefore, I want my article to be only about those less predictable mistakes that a new entrepreneur or business owner can actually make. Avoiding them can significantly smoothen out your path to success.
To sum up, there are 3 categories of mistakes that you should avoid making when starting a business: financial mistakes (taking on too much debt, spending money too quickly, and not having separate business and personal accounts), organisation and management mistakes (doing everything by yourself, outsourcing business functions that you can do in-house, and choosing a 50/50 partnership), and mindset mistakes (thinking like an employee, running a business for money, and not knowing how to treat your employees). Avoiding them will not guarantee you overnight success but for sure it will increase your chances of building a strong and lasting company.
Remember that perfection does not exist. Expect that you will make mistakes at the beginning – it’s all part of the journey of mastery. As I told you before, much of your business success is driven by your mindset and approach to challenges. As long as you learn how to turn mistakes into business opportunities, your company will have the chance to grow and expand. In other words, even if you make a few mistakes at the beginning, you should make them with enthusiasm.
And last but not least, if you are planning to run your start-up remotely and you are trying to find a flexible and affordable alternative to a physical office so you can save money, feel free to have a look at a virtual office provided by B2B HQ. It could be an affordable solution to a problem that you are facing.