As a first-time entrepreneur, you will make mistakes. As an experienced entrepreneur, you will make mistakes too; maybe not as many as when you first started out, but yes, there is always room for error (unfortunately). After all, much of entrepreneurship is trial and error until you find out what really works for you, your business, and your customers.
Now that you are aware that mistakes will likely be made, you need to do what you can to avoid the obvious (and most detrimental) ones. Here are some of the biggest and most common mistakes that first-time entrepreneurs tend to make within their first year of setting up a start-up business.
#1 Not having a solid reason for your start-up
When you pitch your business idea to investors, bankers, or even family members, you need to be sure that there is both demand and room for your business idea in the market. You need to be able to convince everyone around you that your business will be a success for reasons X,Y and Z. More often than not, entrepreneurs are passionate about a particular business idea, but there is no real demand for it: a recipe for failure.
#2 Failing to draw up a complete business plan
Even if you know that your idea will take the industry by storm and make you a millionaire within your first year, you still need a business plan. This applies to every entrepreneur, whether you are experienced and already have 2 successful start-ups or you are a 21 year old first timer. Bankers and investors will close the door on you if you cannot present a detailed business plan.
#3 Assuming you can get investment
Not every entrepreneur starts off with capital behind them. It is difficult to save up (not to mention time consuming) for your business when you have outgoings and expenses. It is also risky to invest all of your own savings into a start-up. If it goes bankrupt, it will literally take you with it! You need to take out the appropriate insurance and obtain investment from an investor, or get a business loan from your bank. Many first-time entrepreneurs assume they will be granted as much capital as they need just by presenting a professional looking business plan, but this is not the case. Since the financial crisis, you will be lucky to secure a bank loan. You should try to raise money through investors, and register your business idea on angel investment sites to generate more capital. A good example of such a site is kickstarter.com
#4 Not having a plan B
It doesn’t matter how many investors are backing you, the amount of capital you have raised, or the sheer brilliance of your idea, you still need a plan B. What if the investors back out? What if the product doesn’t sell as expected in its first year? What if your employee steals from the business? What ithe marketing strategy crashes completely? You need to be ready for any of these occurrences, and with a solid plan B in place, you can reassure investors that your business has the capacity to evolve, develop, and bounce off any problem or unforeseen circumstance that may arise.
#5 Not having a prototype
Time and time again, entrepreneurs write up an impressive business plan, but fail to produce a prototype of their product. You need to remember that there is only so much you can say on paper. Without having a prototype to give others an indication of how the product will look, feel and operate, you may struggle to win them over. In most cases, a good prototype can make up for a poorly written or uninformative business plan. Be sure to enlist the help of professionals when constructing the prototype (and remember to get them to sign a non-disclosure agreement).
#6 Failing to keep it a secret
Following on from point 5, entrepreneurs are often so eager to pitch their ideas and contact people who can help with the formation of the business, that they fail to ask them to sign a non-disclosure contract. This legally binding contract forbids the individual signing it to talk to any other person other than you (or other named persons) regarding the business plan. It also prevents the individual from using the business idea for his or her own profit, or from copying it. As you can see, it is a very important document to have on you at all times!
Hopefully now you can steer clear of these classic pitfalls that so many budding entrepreneurs fall into.