Starting a new business is a difficult task as evidence by the high failure rate, 50%-70% of newly formed small businesses fail within the first 18 months. Below are several of the more common mistakes made by entrepreneurs:
1. Not Understanding the Competition
Many businesses fail simply because their competition was more successful in bringing products to the marketplace that customers wanted. Understanding the strengths and weaknesses of your competition can provide valuable information that can help to properly position your companies products in the market.
Every business plan should include a market and competitor analysis and it is a good idea to update this on a yearly basis.
There is a wealth of information available for publicly traded companies and a quick internet search is a good place to start. Hoover's database can provide a detailed profile of your competition and keep you informed of their every move. Trade journals and trade shows are also excellent investments that can help keep your leadership informed as to new methods and technologies and can provide insight into what competitors are doing.
2. Mismanaging Cash flow
One of the top mistakes made by entrepreneurs is not managing cash flow properly. Cash flow is literally the lifeblood of any business.
If you don't have a handle on your cash flow, you risk damaging your credit rating, straining relationships with vendors, upsetting employees depending on a regular payroll cycle, and impacting your ability to deliver products or services in a timely manner.
A good cash management system allows management to ensure cash will be available when it is needed as well as giving leadership the ability to plan for future growth.
3. Mismanaging Human Capital
Having the right people in key positions is critical for the success of a business. Not providing your employees the proper tools and training is another common mistake and sets employees, managers, and ultimately the business up for frustration and failure.
In addition, having clearly defined strategic business and product development plans will provide important direction for your recruiting efforts. You'll either need to hire employees with the skills necessary for open positions or provide training to current employees so they can be moved to fill those spots.
It's often a matter of bringing in a business consultant to offer specific training to staff in areas that have been identified as needs.
Compensation is obviously critical in attracting and retaining a quality staff. A good HR Manager will be able to craft a comprehensive compensation plan that provides the right mix of options to provide incentives for executives, managers, salary, and hourly employees. Making sure that employees are provided the right incentives at current market rates will help keep employees motivated and reduce turnover.
4. Not Having a Clear Shared Vision
Developing a vision statement is one of the first tasks for a newly formed business and when properly managed, will guide every decision going forward.
One of the most important responsibilities of leadership is to clearly communicate the vision of the company to employees and holding them accountable for making decisions that align with that vision. This can be very difficult to do, especially when leadership struggles with delivering that message and employees are not provided timely feedback.
It's not good enough to simply have a few posters on the wall, the company's vision needs to be clearly defined in ways the employee understands and can integrate within their particular scope of work. In other words, a salesperson must be able to articulate the company's vision in how he or she interacts with an external customer whereas a production line worker may need to implement the company's vision in a completely different way.
Involving employees further in the business and its culture can make a huge difference in order to align “the vision” with people that work there and can improve both staff morale and performances in the workplace.
Luckily, there are plenty of resources available to businesses in order to tackle this hurdle both off and on-line. These can include anything from motivational courses, team activities and meeting with employees on a regular basis. For other ideas E-learning sites can be useful or even starting a book discussion group can be a powerful addition to your employee development programs. Some excellent choices according to a recent article by Fortune includes: Principles by Ray Dalio, Tools of Titans by Timothy Ferriss, Good to Great by Jim Collins, and Grit by Angela Duckworth.
It is up to the employee's supervisor to provide the employee support and timely feedback with regard to how they are implementing the company vision.
An efficient organization depends on everyone being on the same page and working together and that will ultimately benefit the bottom line.