The 7 Most Common Mistakes First-Time Entrepreneurs Make
Here’s the cold, hard truth for first-time entrepreneurs: Nine out of every 10 startups fail. And this is according to multiple estimates.
You’ll likely make more than a few mistakes as you start out, and for some of you, that will be the death of your initial business venture. But a lack of experience doesn’t have to derail you. Taking advice from people with more experience and know-how is a good place to start to improve your chances of success.
NerdWallet reached out to educators who teach business and entrepreneurship or who lead entrepreneurship centers at universities across the country. Here, seven of these experts talk about some of the most common mistakes they’ve seen made by first-time entrepreneurs—and their advice for avoiding such blunders:
1. They fall too in love.
“The most common mistake is that they fall too in love with their startup idea…. The fledgling entrepreneur lives in the glow of giving birth to a beautiful dream of an innovative product or service, and he or she does not want to hear that the baby is ugly. Carried away with the idea, the new entrepreneur overlooks how and when he or she can actually execute this idea and turn a profit. Unless the idea can make money, you don’t have a business—just a money pit.
“What successful entrepreneurs know is that launching a business is all about execution: figuring out how to get a product or service to market, if there is customer demand for your product, and if you can turn a profit in a reasonable amount of time. Add to that getting your service or product to market as soon as possible and beat the competition.
“Entrepreneurs must also be nimble and flexible and opportunistic and willing to modify or change their business model as they gain more market intelligence.”
The lesson: Be realistic about your business. How? Making connections can help.
“Constantly network with other entrepreneurs and also get out and do an enormous amount of market research. If you’re a student, connect with your university’s entrepreneurship program, which has myriad resources to help you to succeed. If you have already graduated college, connect with your alumni network and find alumni entrepreneurs, who are often very willing to help new entrepreneurs. There are entrepreneur’s meet-up groups of all sorts springing up. Check out the U.S. Small Business Administration, your state’s economic development resources, accelerators, incubators, etc.”
—Susan Scherreik, director of the Center for Entrepreneurial Studies at the Stillman School, Seton Hall University
2. They lack support.
“A very common mistake is not developing a strong support network. This can be avoided with: a partner(s) with complementary strengths and skill sets; an informal set of advisors, both technical and business; and a formal board of directors.”
The lesson: Create your own support group. Also, practice, practice, practice.
“The skills to become a successful entrepreneur can be learned. Think of these skills like the building blocks of a sport. You need to learn them correctly and practice them regularly.”
—Nik Rokop, industry assistant professor of entrepreneurship at the Illinois Institute of Technology
3. They don’t know money.
The most common mistake “is almost always a lack of cash flow management. This could be in terms of operational choices (rent versus purchase, used versus new, etc.) and forecasting (not understanding how to create a reasonable revenue projection).”
The lesson: Don’t get caught in cash flow chaos. What helps? Seeking advice, then taking it.
“Work in the industry first in order to understand typical business operations. Maintain a positive outlook while paying attention and responding to expert feedback, which you should seek and then take seriously, especially when it comes to the relative competitive advantage and value added of your product or service.
“Create a business plan, even if it consists only of a competitor analysis/market niche strategy and your financial forecast, along with assumptions. Remain flexible. Expect to work a lot of hours, especially in the first three to five years. If your business depends on intellectual property, protect it. Read and carefully consider every contract before you sign it.”
—Anne York, associate professor of entrepreneurship and strategy, and director of the Bioscience Entrepreneurship Program, at Creighton University
4. They think in now.
“Many of the early startup mistakes you can undo. But the hardest one to undo is determining who owns what…. It’s really easy for me and you to, over beers, say, ‘We’re going to start a company—you get half and I get half.’ Then everything’s good. And then a few months into it, you’re working late at your other job and I’m working Saturdays on the new company, and I say, ‘Wait a minute, how is it I’m doing all the work and this guy owns half,’ and that’s the hardest thing to undo.”
The lesson: “Have an agreement early on: What is the amount of work we’re going to commit to doing and how much ownership is each of us going to get. It’ll save you a ton of headaches down the road.
“Another mistake people often make early on is treating all founders the same. In most cases, people bring different value to the table. Companies with a lot of potential fall apart because this wasn’t worked out, and they get three, six, nine months into it, and people are already disgruntled…. Because they didn’t have a discussion ahead of time, there’s no way to say, ‘Hey, you’re out of the company; you can leave with the shares you’ve earned over the past six months, but you’re not leaving with all of them.’”
—Brad Treat, instructor of entrepreneurship at Ithaca College and entrepreneur in residence at Rev: Ithaca Startup Works
5. They have plans for “perfect.”
“One of the key mistakes entrepreneurs make is they believe it’s one lap around the track and it’s the finish line, and so they try and make a perfect product and have a perfect plan, and try to get the right amount of funding. But what they soon find out is that it’s a multi-lap race, and their plans don’t cover that, their funding doesn’t account for the longer race.”
The lesson: The plan? That’s quickly irrelevant.
“A lot of people say, ‘Come up with a better plan.’ But most people who have a lot of experience know that the plan is pretty much irrelevant the first day the business tries to operate…. In this new theory called lean innovation, what we do is, we show people how they can build something quickly—usually within a day—and get out to the customer and show those early models to possible customers, to find out, ‘Are they even on the right track?’
“The question of ‘should you do something’ is so much more important in the early stages of a business than ‘can you do it.’ But so many businesses get the cart before the horse. They spend so much money on perfecting that product or prototype and they’re out of money. And it turns out that they launched a product customers don’t want and the market isn’t looking for.”
—Gary Lynn, professor at Stevens Institute of Technology and the chairman and founder of Breakthrough Technologies Group
6. They forget to ask, Will people pay?
“In some cases, the [business] idea is not a solution to a vexing problem that people are willing to pay money for. The other mistake I see is that people are not able to monetize the idea easily. For example, most phone apps today are free and much harder to monetize given the large number of them in the two primary app stores.”
The lesson: Consider who would be willing to invest.
“You need to have a little bit of money to make money. Many entrepreneurs think others will give them money for very basic expenses, such as getting the company incorporated or building the initial prototype. Typically, the only money available early on is from family and friends, and if they will not invest in your idea (and you wouldn’t, either) then why would someone who doesn’t know you?”
—Ron Vetter, professor of mathematical and computer sciences at the University of North Carolina Wilmington
7. They aren’t flexible.
The most common mistake is “not being flexible. You need to test assumptions in the marketplace early, be willing to pivot, and redesign a product or service until the proof of concept is established. This is a continuous process and needs to be done before asking for external funding. Following a strict entrepreneurship model early on is important to flexible thinking.”
The lesson: Have a flexible brain—and do a personal assessment.
“Assess yourself personally. Do you have the risk profile? Ability to be flexible? Are you able to work with people? Do you have some experience in the field you are going into? Are you coachable? Also learn basic accounting and be able to understand the numbers in a meaningful way. And always remember that you personally do not need to come up with the new idea—you can always license technology or form partnerships with others who have the idea. It is a team effort that needs to be the entrepreneurial package.”
—Craig Galbraith, interim director of the University of North Carolina Wilmington’s Office of Innovation and Entrepreneurship
This article originally appeared on NerdWallet. Steve Nicastro is a staff writer covering personal finance for NerdWallet.