The odds are stacked against new businesses. According to recent figures published by the SBA, half of new businesses will be forced to shut their doors within five years, and two-thirds of them will close within a decade.
While there are numerous factors at play that small business owners don’t necessarily have much control over, they do have control of how they manage their operations. There are eight common managerial problems that and most importantly, tips on how to avoid making them:
Mistake #1: Thinking success will come overnight.
Great cities and structures, and even successful companies, were not built overnight; they all required hard work, perseverance, or as Churchill famously said, “blood, sweat and tears.” While an entrepreneur might have a great vision and quality products consumers want, there can’t be an expectation of a huge payday immediately upon launching a business–it is a slow and steady build.
Instead, be realistic and set a timeline that measures small attainable goals and successes. Focus and commitment, executed on an enduring level, will ultimately deliver success.
Mistake #2: Focusing on too many different things at once.
Small business owners obviously have a lot on their plates. Generally speaking, they depend upon themselves—and those they employ—for their living. Consequently, it’s not uncommon for new businesses to overextend themselves in an attempt to get slices from as many markets as possible. More products, more profits, right?
Focusing on too many different products or services can derail a business, draining significant manpower and resources along the way. What’s more, it could result in taking the strongest products for granted, something that can cause regret later on as competitors take note.
To avoid this problem, direct the majority of focus on core competencies—as counterintuitive as it might seem to a business that wishes to grow. Set some time aside to plan for the future, but don’t branch out or diversify too quickly. Maintaining an enduring, laser focus is critical.
Mistake #3: Refusing to delegate tasks.
Similarly, many small business owners feel the need to take care of everything themselves. But just because Elon Musk claims to work 100-hour weeks doesn’t mean all entrepreneurs need to do the same. And know this: he has great teams in place to help advance his vision.
Remember, there’s a reason why companies hire employees: they have a job to do. So don’t be afraid to delegate appropriate tasks to appropriate people. Otherwise, there is a risk of becoming unable to direct the proper level of attention on the task at hand, rendering a business incapable of reaching its full potential.
For those running a one-man operation, remember that it’s okay to say no from time to time. It’s better to do extremely well at a few things, than deliver mediocrity on a lot of things.
Mistake #4: Hiring the wrong kind of people.
It’s nearly impossible to have a flawless track record when it comes to hiring, so it’s inevitable that at least some of the people you hire simply won’t work out. Having the right people in place is critical for the success of any company, and it’s even more critical for small businesses, Conversely, hiring the wrong person for a business can be just as important and can set your company up for failure.
In order to increase the chances of retaining the best talent, be aware of The Halo Effect: a common pitfall wherein a hiring manager lets a few traits he or she likes about a candidate create a false halo that prevents them from assessing if the candidate is best for the job or simply acing the interview process.
Whenever possible, try to involve multiple people during the hiring process in order to gain a variety of perspectives on job candidates. Lastly, don’t be afraid to ask tough questions during interviews. Not only should an entrepreneur have to listen to a recap of a candidate’s recent, hopefully relevant work, but understand how this person works, how he or she may handle adversity, overcome challenges, and add true value to the company.
Mistake #5: Failing to define the market and know the customers.
An entrepreneur might think a particular product or service is the best idea—and maybe it is. But without knowing the target audience and which other companies are also focusing on them, it will be significantly harder to sell the idea. If a business’s market isn’t clearly defined, it is nearly impossible to hone in on how to best position the product or service in a way that is compelling.
Comprehensive market research is imperative in identifying robust customer personas prior to launching a business. By knowing whom to target and how to effectively communicate with them, a business will be strongly poised to successfully thrive and grow.
Mistake #6: Misunderstanding the importance of having cash.
Today’s businesses need access to capital in order to remain nimble and better compete in today’s fast moving markets. Without growth capital, companies are unable to respond to new opportunities, pay their own bills, and otherwise grow their business.
Unfortunately, many new small business owners underestimate the importance of maintaining positive cash flow. This lack of proper planning and forecasting leaves them with their hands tied when they first realize their predicament.
To avoid dealing with cash flow problems, consider starting regular cash flow forecasting and statement preparation—all it requires is a little bit of time. Beyond that, you can make sure to promptly invoice clients and offer them discounts when they pay their bills early, or use an invoice-clearing service that advances payments on outstanding invoices. Additionally, reexamine how much inventory is being held at any given time; and/or minimize capital expenditures, among other things.
Mistake #7: Lacking a clear vision.
How will staff be able to follow its leader if they’re not sure where the executive is trying to go?
With a clear-cut vision for a business, it’s much easier to meet goals. A vision allows all team members to remain on the same page, working together toward the same objectives. When small business owners have an idea of where they want their companies to wind up one year, two years, five years out, it becomes that much easier to end up there.
If you don’t have a crystal clear vision for your business, it might be time to stop thinking so much about strategy (i.e., how to reach your goals) and really pinpoint what the organization will accomplish, and by when. Once the vision is defined, it’ll be easier to rally the team.
Mistake #8: Minimizing the importance of work-life balance.
If staff members are unhealthy, they won’t be able to produce—it’s as simple as that. While small business owners might be tempted to work around the clock and encourage their employees to do the same, studies have repeatedly shown that healthier employees are more productive than their tired, overworked counterparts.
Many of today’s workers want to be able to balance their professional lives with their personal ones. Thanks to the Internet, cloud computing, and mobile devices, work-life balance is easier to achieve than ever before—so long as businesses are on board.
Small business owners need to be cognizant of the fact that today’s top talent is often allured by flexible working arrangements. So long as they do their jobs well, does it really matter where or when they work? By simply offering your employees the ability to work flexibly—i.e., work from home, on the road or in the office, whichever they prefer—you’re likely to see your employee retention statistics improve, making your company that much stronger.
If a business isn’t conducive to flexible working arrangements (e.g., a retail shop), consider giving employees the option to work four 10-hour days instead of five 8-hour days, for example. Better yet, ask employees directly what would help them improve their work-life balance and work with them to make it happen.
Recognizing these common mistakes and understanding how to avoid them is critical for small business owners. It is often hard for entrepreneurs to take a step back and evaluate past decisions that may not be working properly; however, it is crucial for the success of a business to understand that these managerial problems can have an enormous impact on the health of the business.
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