17 Biggest Mistakes New Business Owners Make
In this article, we will take a look at the 17 biggest mistakes new business owners make. If you want to skip our detailed analysis, you can go directly to 5 Biggest Mistakes New Business Owners Make.
Why Do Businesses Fail?
There are a number of reasons that eventually lead to business failure, ranging from improper planning to underestimating costs, despite having a terrific business idea.
Quibi was a short film content generation business based in the United States. The company targeted people who used mobile devices to stream content. The business was formed in 2020 and within 6 months of operation, the company had to shut down. Similarly every year numerous businesses sign bankruptcy or shut down operations. Not all businesses require hefty setup costs, but making smart decisions with capital management is necessary, regardless. You can check out some of the most profitable businesses with low startup costs.
One such business that happened to fail in 2023 was Bitwise Industries. Bitwise Industries was a computer programming and technology company based in the United States. The company was formed in 2010 and filed for its shutdown this year in 2023. The company ran out of money despite having received $80 million in funding on February 28, as reported by Reuters. The company filed for bankruptcy on June 29, after having fired its employees weeks ago.
What Do Some Businesses Do Differently?
However, some businesses have been operating for years boasting success and prominent growth. These companies employ the right strategies at the right time and make cost-efficient decisions. Some of the prominent names include Datadog, Inc. (NASDAQ:DDOG), Snowflake Inc. (NYSE:SNOW), and UiPath Inc. (NYSE:PATH). Let's study their growth and what they did differently.
Datadog, Inc. (NASDAQ:DDOG) offers services in cloud-based industries, including monitoring of databases, servers, and tools through a SaaS-based data analytics platform. On August 8, Datadog, Inc. (NASDAQ:DDOG) reported earnings for the fiscal second quarter of 2023. The company reported earnings per share of $0.36 and outperformed EPS estimates by $0.08. The company's revenue for the quarter amounted to $509.46 million and was ahead of market consensus by $65.26 million. Datadog, Inc. (NASDAQ:DDOG) grew its revenue by 25.44% in the second quarter.
Snowflake Inc. (NYSE:SNOW) is a cloud computing company based in the United States. The company was founded in 2010 and continues to thrive through engaging in strategic partnerships. On September 8, Snowflake Inc. (NYSE:SNOW) reported on the updates to its partnership with Salesforce, Inc. (NYSE:CRM). Salesforce, Inc.'s (NYSE:CRM) "Bring Your Own Lake" (BYOL) data sharing fosters a collaborative link between Snowflake Inc.'s (NYSE:SNOW) and Salesforce, Inc.'s (NYSE:CRM) data cloud platform. The two combined allow users to easily convert their database into crucial insights, and also offer a bidirectional data-sharing capability through the launch of the BYOL Data Federation, allowing users to access data from Snowflake on the Salesforce Data Cloud. The tools are extremely beneficial for data analysts, the sales function, and the marketing function.
UiPath Inc. (NYSE:PATH) is a software company that was founded in Romania but is now based in the United States. The company offers AI-powered business automation platforms. On May 10, the UiPath Inc. (NYSE:PATH) released some of its new AI features. The features enhance workflow by streamlining all activities and automating them. The features offered lie under four primary categories including AI-powered automation, powerful developer tools, enterprise-grade management, and faster time to automation value. The tools range from generative AI, and automated cloud robots, to ROI comparisons and analysis. You can also check out some of the best-funded AI startups in 2023.
As discussed, few startups make it to become prominent members of the industry. These businesses continue to invest in technology and innovation. They are able to pivot to new avenues of growth when existing means of revenue seem to slow down. However, not all startups and small business owners learn or reflect on their strategies, often signing themselves up for failure. With that, let's discuss the 17 biggest mistakes new business owners make.
Our Methodology
For the article, 17 biggest mistakes new business owners make, we employed a consensus approach. Since it is a very subjective topic, it was quite challenging to rank our list. We sourced our data from 6 sources. These include LinkedIn, Shopify, The Guardian, and three reports by Forbes published separately. Extracting information from all six sources brought our total count to 70. Of the 70, the common mistakes were selected and ranked based on the number of times an item appeared across the 6 sources. If an item appeared in all six sources, it was awarded with an insider monkey score of 6. The list is in ascending order of the aforementioned metric.
It is to be noted that items with a similar score are ranked back to back in our list.
17 Biggest Mistakes New Business Owners Make
17. Neglecting Overall Management
Insider Monkey Score: 3
Based on our methodology, neglecting the overall management of the business is one of the biggest mistakes a new business owner can make. Micro-managing every function of the business leaves little time for overlooking business functions, strategizing, and establishing quarterly goals for each function.
Some of the most prominent companies that have come a long way since going public include Datadog, Inc. (NASDAQ:DDOG), Snowflake Inc. (NYSE:SNOW), and UiPath Inc. (NYSE:PATH).
16. Refusing to Pivot or Innovate
Insider Monkey Score: 3
Continuing to invest in a business idea or industry no longer providing an opportunity for growth is one of the biggest mistakes a business owner can make. Businesses should be able to pivot and innovate when the current opportunity stops offering growth.
15. Not Designating a Budget for Marketing
Insider Monkey Score: 3
Not allocating a budget for marketing is one of the biggest mistakes a new business owner can make. In today's digital world, the marketing expense for business is not limited to creating advertisements, in fact, there are smarter ways to go about it through digital marketing. Small businesses need to set aside enough budget for social media, content creation, search engine ads, and SEO to name a few.
14. No Clarity on Long Term Goals
Insider Monkey Score: 4
Not establishing attainable and clear long-term goals for business is one of the biggest mistakes a new business owner can make. These long-term goals must be reflected in the corporate goals a company sets in the short run. A business owner who is unclear on where to take the new business in the next five years or ten, lacks vision.
13. Fear of Failure
Insider Monkey Score: 4
Taking a pessimistic approach toward a new business is one of the biggest mistakes a new business owner can make. An optimistic outlook is essential when it comes to setting up and executing a new business. Business owners must be prepared to face roadblocks during the journey but must move forward with a solution-oriented approach.
12. Huge Focus on the Product
Insider Monkey Score: 4
Business owners with unique product ideas often dismiss the possibility that the customer may not even want the product. An immense focus on the product rather than the customer as a new business often results in a huge risk of customers not wanting or liking the product, no matter how unique or useful it is.
11. Lack of Focus
Insider Monkey Score: 4
The euphoria that comes with setting up a new business often results in owners making big mistakes. One of the most common mistakes new business owners make is a lack of focus. While testing and experimenting with different things is key, companies should be able to define the parameters within which they are to operate, or experiment. Setting foot into every domain as a small business is not wise and may be counterproductive.
10. Unclear Goals & Objectives
Insider Monkey Score: 4
Stemming from a lack of planning, new business owners often set unclear business goals and objectives. These goals may lack focus, specificity, a basis for measurement, a defined time frame, and business relevance. At times, the goals set by owners may be unattainable or unrealistic to achieve as a small business or startup. Goals for each function should reflect the long-term goals and corporate objectives of a business.
9. Limited Focus on Profit
Insider Monkey Score: 4
While sales revenue is integral to the running of a business, a lack of focus on profit results in businesses going bankrupt. Moreover, a company not offering enough returns to its shareholders is not a good sign for investors and other stakeholders alike. A high sales revenue does not necessarily translate to a high profit. Companies must ensure that a high sales revenue does not come at the expense of high costs. Instead, a focus on earning a profit or increasing margins should be vital.
8. Poor Hiring Decisions
Insider Monkey Score: 4
Poor hiring decisions or hiring without a plan is one of the biggest mistakes new business owners can make. Moving forward with key human resource decisions without sufficient planning is a key issue resulting in long-term adverse impacts. New businesses often under hire or over hire, neglecting the growth and revenue potential of the company. This not only adds costs to the business but it also wastes sufficient time for the HR function.
7. Doing Everything on Your Own
Insider Monkey Score: 4
While information technology, automation, and artificial intelligence eliminate the need for companies to hire a plethora of workers, owners often end up doing everything on their own. Strategizing and overlooking all the business functions is tiresome on its own, and attempting to take care of minuscule tasks results in owners feeling unmotivated and lost.
6. Overspending
Insider Monkey Score: 4
Overspending is a common mistake new business owners make. In all the glitz and glamor of a new business, owners often end up spending more than they can afford. Overspending could stem from hiring professionals demanding high salaries or overdoing the office space setup. Moreover, without prior testing, businesses often end up producing way more than the market demand, often resulting in a lack of funds or revenue to pay for the expense.
Datadog, Inc. (NASDAQ:DDOG), Snowflake Inc. (NYSE:SNOW), and UiPath Inc. (NYSE:PATH) are some of the top businesses that have grown immensely by taking key strategic decisions at the right time.
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Disclosure: None. 17 Biggest Mistakes New Business Owners Make is originally published on Insider Monkey.