Mistake #1: Inadequate capitalization
Also known as “money,” capital is what partners, shareholders or business members contribute in exchange for ownership in the business. Some businesses are capital intensive — as in a dental practice — while others are capital efficient — as in a copy editing company — but in every business, lack of money is the number one cause of failure.
Mistake #2: Planning only for success
Every entrepreneur dreams big dreams — and thank goodness — but sometimes things go awry. In order to be successful, a new business needs to remain flexible in its processes and develop easy-to-understand contingency plans in case the idea isn’t as big of a hit as expected. A line of credit from your bank, for example, need never be used but can be critical when you hit a bump in the road.
Mistake #3: Understanding the industry, but not the market
Most entrepreneurs know their industry intimately and have expertise in their product or services. But critical to their success or failure is a simple question: Will others pay for the product or service? This product market fit can sometimes be tested in a small way; somehow you need to test to make sure you’re building a Ford Model T and not an Edsel.
Mistake #4: Doing it all yourself
Having an accountant, banker and attorney with whom you’re on a first-name basis ensures you will build a strong foundation for your business and won’t make mistakes that will cost you more to fix down the line.
Mistake #5: Working with friends instead of business partners
In our example, Tom and Jerry are good friends, but they need to treat the business seriously. Jerry has a day job, so Tom needs to ask some hard questions: Is Jerry going to keep his day job? Does he expect an equal share of equity? To be successful, business partners cannot be afraid of hurt feelings.