There is a litany of reasons small businesses fail.
One could be the desire to try something new, says Marko Njavro, co-founder of jobs website FlexCareers. This could take a person into an area in which they lack domain expertise, he says.
He points out inadequate market research prior to launching the venture and being too set in one’s ways as other entrepreneurial errors.
Njavro lists seven cardinal mistakes you can make and how to avoid them in the year ahead:
Don’t just “drink your own kool-aid”
“Doing something you enjoy is fine as it aligns your personal values with your business pursuits,” he says. “However, this should not come at the expense of considering these two questions before you get started: What problems are you really solving for your future customers? Is their ‘pain’ acute or a very slight inconvenience?”
Njavro cites the example of FlexCareers. “We are a two-sided platform. We have corporates on one side and job-seeking candidates on the other. We had to work out what the pain was for each of those two parties.”
Be realistic about B2B sales
“You need to be extremely conservative in your sales forecasts in terms of timing,” says Njavro.
“When we have an SME come to us, they just want to bang out a job ad very quickly. They are the sole decision maker. For large organisations, it’s an incredibly long lead cycle.”
Embrace the ‘lean startup’ philosophy, which favours experimentation over elaborate planning and customer feedback over intuition.
New businesses can get bogged down in elaborate planning
“This leads to an ever-growing list of required features and a tendency to want to achieve perfection on day one. This delays the product release and first revenues,” he says.
“Instead, embrace the ‘lean startup’ philosophy, which favours experimentation over elaborate planning and customer feedback over intuition. Design a ‘minimum viable product’, and be prepared to pivot quickly in response to customer feedback.”
But, he says, it does not mean one should forget planning. “You need to have some kind of a structure in place; you need to especially focus on your finances.” He says don’t spend a ridiculous amount of time by yourself developing something without getting a lot of user testing along the way.
He also says that if you are looking for funding, your investors will require to see some kind of business plan.
Failure to consider your competitive advantage
“Before getting started, ask yourself: What’s the one thing that you’re going to do better than anyone else?
“What is your ‘secret sauce’? What exactly makes you different from the existing options?”
Incorrect customer acquisition strategy
“Prior to launch, ideally, you would have had at least 20 potential customer meetings with at least several expressing an interest in purchasing your product or service.”
Njavro lists some key questions: “If you’ve spoken to potential customers, what did they say and what do they want you to do for them?
“What is your best and most effective channel for customer acquisition going to be?
“What is your customer acquisition cost (how much in advertising dollars and labour hours is it going to get a new customer)? What is the customer’s lifetime value (how much gross profit will you generate over the next 3-5 years)? Is the customer’s lifetime value greater than the acquisition cost (assuming a 10-20 per cent annual churn)?
Not taking your online presence seriously
“Even for traditional ‘bricks and mortar’ businesses, their website and/or social media is likely to be their customer’s first exposure to the brand. An outdated, badly designed page may drive business elsewhere, regardless of the quality of your product or service.” With access to affordable designers and free tools, one should be able to have a professional, vibrant online presence, he says.
Raising capital takes much longer than expected
“If you’re looking for professional investors to participate in an equity-funding round, you can expect up to three months from the first contact to deal conclusion and receipt of funds,” Njavro says.
“The pitching process, legal documentation, negotiations on the valuation and amendments to the company constitution all take a long time and cost money in legal, adviser and accounting fees.”
Christine D'Mello is a freelance journalist who writes for The Sydney Morning Herald and The Age.