Starting a business without the right foundation can lead to failure and quick. Avoid these 3 things and you’ll be on the path to greatness.
The best-laid plans amount to nothing when poorly implemented. Terrific business ideas often result in failure due to major mistakes made early in the process of setting up a business. Some of the most common mistakes include lack of a detailed plan, failure to address financial figures, and employee problems stemming from unfamiliarity with the proper hiring process.
Below are the top three mistakes small business owners make when they’re starting their company, and how to best avoid them.
1. Not Putting Plans on Paper
Starting a business without a good business plan is akin to driving cross-country without a GPS (or at least a map). Plenty of high-tech and low-tech methods for creating a business plan exist. Without one, important matters fall by the wayside, many turnarounds and lane changes occur, and angry people surround you.
People commonly feel totally lost as to how to go about transforming a business concept into a tangible written business plan. The worst approach to this situation is “winging” it. As you’re in the process of putting your business plan on paper, be sure to:
- Ask for help from a trusted peer or colleague. They may end up mentoring you and ultimately become a colleague, or may even invest in your venture. SCORE is also a great national resource for mentoring.
- Use every available resource. A variety of reputable resources exist to help with business planning, like the U.S. Small Business Administration. The IRS also provides insightful guidance on business planning.
- Take it to the bank. Talk to a local banker about financing the business. Figuring out your finances along the way is a bad idea.
2. Failing to File Legal Papers
Improvising along the way may occasionally work for some lucky souls, but most start-ups must jump through some legal and regulatory hoops. Not addressing legalities at the outset and later retrofitting your business to comply at some point in the future may cost enough to put you out of business. Consider retaining an attorney to ensure proper compliance and filing.
Determine the best business structure for your situation:
- LLC (Limited Liability Company)
- Sole proprietorship
- S Corporation
A being said in an article dedicated to taxes here you should obtain your tax ID number, also called an employer ID number, from the IRS.
Choose a tax year, or annual accounting period, for income records and filing taxes, either:
- The calendar year (January 1 through December 31)
- A fiscal year encompassing 12 consecutive months ending on the last day of any month except December
Register the name of your business with the state.
File state required documents regarding employment, social security and workers’ compensation.
Determine any and all types of licenses and permits your business requires.
3. Ignoring the Importance of Being a Good Employer
Being the boss involves more than just having someone working for you, and goes far beyond an application and quick interview to see if you a job candidate. Part of being a good employer stems from filing the right forms and documents. You must take care of the outset of the hiring process.
Learn which questions are, and are not appropriate to ask during a job interview. Educate yourself about how to avoid discrimination and harassment suits. Know how to guide employees through what tax forms they must file, such as an I-9 (employment eligibility) and W-4 (withholding exemption).
In order to set your business up for success, it’s vital that you avoid these common yet fatal mistakes. There are plenty of resources and organizations that are dedicated to helping small businesses get off the ground, so make sure to take the time to seek them out. Join your town’s Chamber of Commerce, or go to your local SBA office for classes and business counseling.
4 of the Worst Startup Failures of All Time; Are You Following in Their Footsteps?
Over the past 15 years, there have been many significant failures in the startup world. While these companies fail in an epic fashion…
It’s a simple fact in the world of startups: Failure is all too common. Most startup fails in one way or another but it’s also the key to learning quickly and making a successful business.
The level of failure is the element that often differs and can mean the difference between a learning lesson and seeing it crumble to the ground.
Over the past 15 years, there have been many significant failures in the startup world, especially those that were in the .com industry in the late ’90s and earlier 2000s. While these companies fail in an epic fashion they offer startups and small business owners a valuable lesson.
Fail #4: Wesabe
Wesabe was a web-based personal money management tool founded in 2005 and launched publicly in November 2006. The tool was fairly intuitive and took a web 2.0 approach to personal finance, relying on community and tags much like Flickr and del.iciou.us.
Though Wesabe arrived on the scene first, they were blown out of the water when Mint launched and won the first TechCrunch 40 conference in 2007. Mint was later acquired by Intuit for $170 Million in 2009 and within a year Wesabe shut down.
Although Wesabe had the advantage of being first, they made 2 key errors:
- They decided not to work with Yodlee, an automatic financial data aggregation service (Mint did end up using Yodlee)
- They had an inability to streamline the data entry process. Mint focused on the user experience much more than Wesabe.
Startup Tip: Fully understand exactly what end users want, need and are looking for – then be great at it.
Fail #3: Pay By Touch
Pay By Touch seemed to have a great future when it launched in 2002 but the ending was far from it. The company, which enabled payments for goods and services with a swipe of a finger on a biometric sensor, quickly acquired a large amount of funding, approaching close to $350 Million.
CEO, John P. Rogers ultimately lead to the company’s downfall; he was accused of drug possession, spending company funds on personal items and even domestic abuse. The company quickly ran through its investment fund and within 5 years was having trouble making payroll.
Startup Tip: Personal accountability is paramount, without which, the chances for failure dramatically increase. This does not apply only to executives or management but every position in your company. Every employee needs to understand that there is a level of personal accountability, especially as a startup.
Fail #2: Boo.com
Boo.com was an online retailer based in England which sold branded fashion merchandise. The company was the epitome of the .com crash; they went bankrupt in 18 months after getting $135 Million in funding. The company simply tried to do too much at one time sending them in too many directions. They launched in multiple currencies, languages and utilized too many fulfillment partners.
Startup Tip: Be precise with strategic decisions and be sure you can fulfill on the decision you make. While it would be nice to offer more than anyone else if you can’t fulfill properly, you can easily become overextended. Try to make decision-based on ROI as often as possible.
Fail #1: Friendster
Friendster was one of the first social networks. Launched in 2002, it is arguably the start of the modern social networking era. Founded by computer programmer Jonathon Abrams, Friendster went after and obtained some of the best and brightest in Silicon Valley yet ended up being the butt of many jokes. While Friendster looked to have everything in place, it was quickly surpassed by MySpace, and eventually Facebook.
Friendster’s key flaw was that it truly lacked in its ability to provide a substantial user experience – after filling out your profile and sprucing it up, there wasn’t much else to do in terms of actual interaction with others, which is the key to all social media platforms.
Startup Tip: While having a beautiful design is important, the experience is critical. Startup and small business owners alike should always consider user experience as a key to their business success.