Avoid these common small business mistakes

Business owners of small and medium sized enterprises (SMEs) have a lot to do to run their business successfully. It is impossible to get everything right all the time and there are some pitfalls that seem to be fairly common. This article explores 10 common small business mistakes – and how to avoid them.

Of course it’s impossible not to make mistakes – it’s called learning – but if you can avoid some of the major and predictable errors, then at least your business should survive the mistakes that it does make.

Depending upon which country you look at and which statistics, only about half of small businesses are still operating after 5 years. No matter the exact numbers, the message is clear – most new businesses are gone within 5 years.

More people are starting a business than ever. Whilst failing at one business could be good experience to help succeed at the next one, many of the common small business mistakes can be readily avoided – so let’s examine a few.

Business Mistake No 1:Not really understanding the customer

“The purpose of a business is to create a customer.” Peter Drucker

If you don’t have sufficient understanding of your customer, then you will go to great lengths and cost to produce the perfect product or service, only to discover that they don’t want it, don’t need it, don’t like it or won’t pay for it.

If the business owner staked everything on this one idea, used all their time and money to develop it, only to find that it failed the acid test – customers not buying in enough numbers – then there is no time or money left for a second attempt.

What you think your customer wants and what they actually want are probably two different things. What your customer needs and what they want are probably also different. What they are actually willing to pay for is another thing entirely!

Putting something out to the marketplace is essentially an experiment – testing out a hunch that this product or service will be valued by enough customers at the price charged for the business to succeed. That experiment helps to find out what they really want and what they will really pay for.

Understanding your target customer is key to understanding their wants and needs and how your business could meet them at a price they are willing to pay. The simplest way to do this is to ask them for feedback.

From their point of view the value that you deliver needs to equal or exceed the price that you are asking them to pay. The more you understand your target customers, the more you can develop and refine your value proposition – and this is the key to unlocking a more profitable business.

Business Mistake No 2:Marketing the business the wrong way

“Clarity trumps persuasion.” Dr. Flint McGlaughlin

Quite often the urge to make a sale overrules the reality of a potential customer’s thinking. To start with they don’t know anything about you, let alone your product or service. They’ll not understand why you are different and/or better than your competitors.

Trying to sell to them at the first interaction will rarely work.

The quote from Dr. Flint McGlaughlin “clarity trumps persuasion” suggests that you should firstly be clear about what you offer so that the potential customer is clear about how it could be relevant to them and their situation.

The mistake is to start selling when you should really be educating.

Educating can be done in a number of ways, from your website, to email marketing, to phone calls and coffee meetings.

Marketing is basically just starting conversations with potential customers about their situation and what you do. So when planning your marketing you could think about ways in which you’d like to start those conversations. Don’t overcomplicate it. In starting those conversations you also get further insights into what they actually want and don’t want.

Marketing the right way, with a clear value proposition, makes it easy for customers to buy.

Business Mistake No 3:Competing on price

“That which we obtain too easily, we esteem too lightly.” Thomas Paine

One of the good things about a small business is that it has low overheads to start with.

One of the bad things about a small business is that it has low overheads to start with.

Low overheads can mean that it is fairly easy to compete on price with more established players who have higher costs to cover, such as premises and staff. To begin with a small business owner may not need to draw a large salary for themselves or pay for premises. It can be tempting to take the path of least resistance and compete on price to win customers.

Competing on price becomes then part of the mentality – you do it because you can and it’s an obvious way to attract customers.

This is a problem because it’s unsustainable – it can’t go on forever as you will need to increase your cost base. It is also an unnecessary problem to have as there are better alternatives.

Competing on price also doesn’t really tell you much. If you’re delivering the same thing as your competitor, but cheaper, then you are just a commodity. It doesn’t tell you what your customers are really willing to pay or what they are willing to pay for your particular approach. In fact you haven’t really launched your business yet!

Competing on price is one of the classic small business mistakes – it is a downward spiral and when larger longer-established businesses realise they are losing customers, then they will match you on price. They may have higher costs, but they also have economies of scale, other income streams, a bigger team, a bigger balance sheet and can generally can withstand price drops more than you. Ultimately it’s a fight you can’t win. You’ll go bust before they will.

Fortunately there is an answer. Take a lesson from the old story of David and Goliath. David was a shepherd boy with a slingshot sent in to battle against a giant warrior with sword. David won by using his slingshot with speed and accuracy from a distance. Goliath however was expecting close hand to hand combat with a sword. The lesson: don’t play the same game they are playing. Play by different rules. Play your own game. Compete on anything other than price. Being different gives customers a choice and gives you new angles for your marketing messages.

Supermarkets and retailers know this very well. If they sell branded jeans then they are competing with every other retailer that carries the same brand name – so they’re mainly competing on price. If they create their own label then there is no direct comparison and they can market them differently.

Don’t undervalue your product or service – think of a customer who really values it – what is it specifically that they value?

Business Mistake No 4:Doing the work not running the business

“So often people are working hard at the wrong thing. Working on the right thing is probably more important than working hard.” Caterina Fake

As a business owner you need to pay attention to all areas of the business, not just the aspects that you feel comfortable with. Many people starting a business focus on delivering a good product or service at the expense of other aspects of the business.

You may have been a specialist in your field and be comfortable in that role. Of course you need that expertise to ensure a quality product or service is delivered, but you also need to be a generalist, covering all areas of business. You are now what used to be called a “general manager”. Titles such as CEO, managing director and senior partner are all basically general managers – they have responsibility for everything and as such are generalists with oversight across all business areas. Or to put it another way they are specialists at running businesses.

It’s a bit like being the conductor of an orchestra – all the elements have their part to play, they need to come in on time and be in tune with each other. Your job is to make sure that music is produced and not just noise. Noise is easy, music is hard and concert-level music is very hard!

Make sure that you are working on all the things needed to make your business work and that all those parts come together and work together as an effective whole. Otherwise you’ll have a stop-start business, random fluctuations in profit and loss, wasted time and effort and a feast and famine rollercoaster of a ride.

It’s really the stuff of leadership and management – taking the bigger picture view, making sure all the elements are there and working well and seeing which pieces need to change, adapt or improve.

Just like you, a business coach is a generalist, looking across all areas of a business, seeing the potential and noticing what could be improved. Each business coach is different with their own specialist backgrounds, but it is the bigger picture view, how the parts fit together, which are missing and which are underperforming that really enables them to add value to a business owner.

Working hard in your specialist area is not the recipe for business success. The right thing to work on is how your business works as a whole. It involves a shift in mindset from specialist technician to generalist business owner.

Business Mistake No 5:Not knowing the numbers

“Management by objective works – if you know the objectives. Ninety percent of the time you don’t.” Peter Drucker

Driving a car without looking at the dashboard is perfectly possible, but you will not know how fast you are going or see the warning signs that you are low on fuel or that there may be a problem with the engine. The result can leave you stranded or stopped for speeding.

Not knowing your business’s numbers also means you will not know how fast you are progressing and won’t see any warning signs. This can work for a while, but ultimately if you are not looking at the numbers then you are not in control of your business. If you are not in control of your business, it is only a matter of time before something goes seriously wrong.

Not everyone is comfortable with numbers, but it is one thing that business owners need to get a handle on somehow. There can be several problems:

  • not having any numbers
  • not having reliable numbers
  • not understanding the numbers
  • not measuring the right things

The numbers need to measure how you are progressing towards your objectives. Defining your objectives is hard and achieving them without any measures is harder still! To start with the numbers must measure the finances, but they should cover much more than this and be tailored to your business. These could be conversion rates, retention rates, occupancy rates and gross profit percentages, the list goes on…

There’s also the tendency to see the best in the numbers, or hope they will come good. Ignoring the story behind the numbers won’t change the outcome – understand the message, as unpalatable as it might be and take corrective action promptly. Don’t ignore the data – it is a valuable asset. The more you can interrogate it and learn the lessons, the more intelligent action you can take to avoid disaster, identify opportunities, improve efficiency, cut costs and grow faster.

Business Mistake No 6:Not watching the cash

“Number one, cash is king” Jack Welch

Many business fail because they run out of cash – even if they are profitable. If you don’t actively manage your cash position then it’s easy to get caught out.

The bank account can look fine, but if you’ve forgotten a significant expense that hasn’t yet gone out, then you could have a problem.

The cash might look fine for the next week, provided that the customer pays their invoice on time – but if they don’t you have a crisis.

You probably have fixed costs going out like rent and salaries. These go out at the same time every month or every quarter, regular as clockwork, but your customers pay at varying times.

Timing can catch you out.

Customers might have their own cash problems. Or a dispute may arise and they withhold payment. Or they just forget and you can’t get in touch with the decision-maker. Or they say they’ll pay, so you mentally stop worrying about it and stop chasing them.

Late payers or customers not paying can close your business very quickly. Credit needs to be earned – it is after all about faith and trust (credo = I believe – i.e. I believe you will pay – but trust takes time to build).

Balancing when you have to pay suppliers with when customers pay you often creates a gap and that gap needs to be met with working capital. If you need to give credit, then credit check them. Better still ask for payment upfront or at least secure some money upfront (e.g. 50% on order and 50% on completion).

It is also worth having some reserves in your personal finances. The business may not generate an income for you for longer than you expect or it might suddenly need an extra injection of finances.

Have a good cashflow forecast for about the next 3 months, split it down by week at least and update it regularly. If cash is tight you should be looking at it and your bank account daily.

If you understand and manage your cash position and where it’s heading over the next few days and weeks then you can sleep at night confident that you have the breathing space needed to take any corrective action if there is a looming problem.

Business Mistake No 7:Unclear direction

“Clarity of vision is the key to achieving your objectives.” Tom Steyer

Business owners need a clear vision, a clarity of purpose, so that they can have a focus on the right tasks. Without a vision a business lacks a clear direction. Without a clear direction it is impossible to measure progress. It is also very difficult to communicate priorities to the team.

A clear vision and direction becomes the bedrock of the business. It’s the filter for all decisions. It’s the key component which configures the decision-making software in your business brain, it’s the “config” file for the business’s operating system!

Lack of clarity in direction leads to lack of clarity in decision-making. Without a clear framework, decision-making becomes erratic.

Spending time thinking about, developing and articulating your vision enables you to nail down what your business’s core values are, what your priorities are and gives you a clear direction.

Making it up as you go along isn’t a strategy!

Business Mistake No 8:No plan

“A goal without a plan is just a wish.” Antoine de Saint-Exupéry

Not having a plan makes it very difficult to organise resources, use time and money efficiently and to measure progress. Starting on a course of action without planning will almost certainly lead to unnecessary waste and needless changes in direction.

The main benefit of having a plan is the planning that has taken place – it’s the thinking that is of primary benefit. It makes sure you know how you are going to move from A to B.

Writing down your plan can be as simple as you like (eg using bullet points) and as short as you like (e.g. on one side of paper). Your plan then acts as an aide memoire, keeping you on track when life gets busy and making sure that attention is paid to all the key things needed to achieve your objectives.

If a vision gives clarity, then a plan gives focus. Set out the basic objectives for the next 12 months and some metrics to measure success by. This makes you crystallize your thinking and focus your attention – after all they say that “what gets measured gets done.”

Business Mistake No 9:Going down with the ship

“It is not necessary to change. Survival is not mandatory.” W. Edwards Deming

There is no point in sticking with an idea or a plan that simply isn’t working. A dogged determination to make something succeed is a problem when it’s taken too far. A business idea that feels part of you is great because you have a strong commitment to it, but blind devotion to the idea will cause problems when it’s validity is not sustained by the evidence.

It can be hard to admit what feels like failure or defeat. But it’s necessary for survival and it’s not final.

However it isn’t necessarily a failure. If you have discovered some things that work and some things that don’t, then you have a basis for trying a new way of doing it.

You can change direction. You are a small business and you have the power to pivot. A change in direction based on evidence and a better plan will get you moving in a better direction. Learn from your experience and try a new tack.

Go back to the assumptions in your business plan. This is where you discover that the real value of your plan was in the planning. The document is important but the clarity of thinking behind the plan is the really valuable work. When things aren’t going according to plan you will have a good understanding of what you could do differently. If Plan A doesn’t work, you could have a bank of alternatives – Plans B to Z.

A plan is only a recipe for HOW to do something. And there are more HOWs than you can ever use.

There’s no need to be like the captain and go down with the ship, clinging on to Plan A. Abandon ship before it’s too late – pivot, don’t perish.

Business Mistake No 10:Reaching an early plateau

“A success that has outlived its usefulness may, in the end, be more damaging than failure.” Peter Drucker

Early successes can be a bit too comfortable and can the sow the seed of future failure.

Many business owners start their business as they leave employment and carry a network of contacts with them. There is already a relationship there and work initially comes from them. It’s comfortable and the business reaches an early plateau – the plateau of complacency.

However one day that work dries up. The problem is that no marketing has been done to replace it. Instead of using that time and income to invest in marketing they’ve spent it delivering the service and replacing their salary.

Or alternatively the initial flurry of excitement generates a buzz and some initial customers and a steady stream of work. The business reaches an early plateau – the plateau of complacency – and the initial energy dissipates. There’s no problem until what was once new and interesting to customers becomes old and stale. As Peter Drucker pointed out, a success can outlive its usefulness and quite quickly the business can run out of steam. If you only had one idea, which worked for a while and then customers got bored – what next?

Charles Handy pointed this out in his book The Age of Paradox, that every product, service and business has a life cycle, it grows, slows and then declines and dies. At its peak of success everyone relaxes because things are going so well. There is a mental shift into maintenance mode. Paradoxically, all these green lights are actually a red light! It is a sign that something else needs to be done. Inspiration is needed to kick-start something new when there are the time and resources necessary to get it going.

Staying inspired is essential – you need to be self-motivated and generate some energy to innovate regularly.

If you find yourself on the plateau of complacency then use that vantage point to your advantage – look outside your business for what you need to develop next.

Simple steps to avoid these common small business mistakes

“No business plan survives first contact with a customer.” Steve Blank

The first thing – the most important thing – is to be here next year. So manage your cash closely.

If you are building a long term business then take your time to get the basics in place. Do the planning and try to be objective.

Put your business owner hat on and look at what your customers actually want, what they will pay for and then work out how to deliver that.

Have a vision that inspires you. Create a plan.

Look at the numbers and interrogate the data. Then act accordingly.

Realise that your first idea is unlikely to work as you imagine it will and be ready to change how you do what you do and be prepared to pivot.

Don’t get complacent – keep looking out for the next innovation and how to keep your business fresh in the eyes of your customers.

Getting Support

Avoid the common small business mistakes

“Everyone needs a coach. It doesn’t matter whether you’re a basketball player, a tennis player, a gymnast or a bridge player.” Bill Gates

So could a business coach like me help you avoid these common small business mistakes – or help you address them if you’ve already made them? Yes of course!

The sorts of things we can work on together are:

  • clarifying your overall business vision and objectives, creating a simple workable business plan to focus your efforts in the right place
  • identifying the key numbers and performance indicators that you need to collect and monitor, what they mean and what action to take
  • looking at cash flow, how to forecast it and some ways to improve it
  • defining and refining the value proposition – working out what you offer and how to maximise its chances of success and profitability
  • creating a marketing plan that will enable potential customers to see the relevance of your value proposition
  • looking at each aspect of the business to see what’s working well and what needs attention – and creating an action plan to improve it so that all the component parts work together as a coherent whole.

These 10 small business mistakes may be common – but you don’t have to make them if you don’t want to!