Running a small business is one of the most challenging—and rewarding—things an entrepreneur can do. Even if you line up great investors, assemble a five-star staff, locate your home office in one of the best places to start a company, and have a killer idea, the odds for success are daunting.
According to the latest numbers from the U.S. Bureau of Labor Statistics, about one in five (18.4%) small businesses fail in the first year. The odds don’t get better once you make it through that first year. By the five-year mark, almost half (49.7%) have failed; at the 10-year mark, just under two-thirds (65.5%) have failed.
We’re not trying to discourage you. The truth is, the leaders of many of those failed businesses made the same, common mistakes. If they had been able to avoid them, they might have been among the third of businesses that made it past the decade mark.
Here are seven of the most common mistakes that hurt small businesses—and how you can avoid them.
A famous adage notes that overnight success takes only a decade. Growing a business is like growing a tree: It takes a lot of time and nourishment before it becomes a giant. If you’re out there measuring it every day, you’re probably going to give up out of frustration. Give your business time to find its footing and to flourish. Whatever you think is a reasonable timeline for seeing results, you should probably double it.
How do you stay patient when you’ve got so much on the line? You likely have outside expectations weighing on you, a staff that looks to you for leadership, maybe even asset-based loans to worry about. Much of staying patient depends on perspective. Hone and perfect your processes and let them take you where you need to go—without fixating on where you’re going. As many business experts advise, be process-oriented, not outcome-oriented.
Overlooking the Competition
You should absolutely focus on your product and work on making your business as efficient, innovative, and profitable as possible—but don’t let that focus cause you to ignore the competition.
Your business doesn’t exist in a vacuum. You’re competing for customers and market share against rivals, probably many of them. One of the hardest things for many founders to hear is that your rivals can teach you a lot, if not by emulation, then by omission. What are they not doing that you could do? What openings or vulnerabilities do they have? What mistakes have they made?
And don’t forget that some of your biggest competition is, well, nothing. The customer you’re chasing could always simply do or buy nothing. And if you don’t convince them they need your products or services, they may may not engage with you. Customer inaction is a competitor just as much as your actual business rivals.
Not Having a Purpose
A small business needs a well‑defined mission or purpose. Why?
First, if you want to convince talented recruits with job security to leave jobs and roll the dice with your business, you’re going to have to offer them more than just money. People do their best work when they’re part of something larger than themselves.
The second reason you need a purpose is to get through the tough and uncertain times that are sure to come. If you’re just in business for the money, any serious adversity is going to make you doubt what you’re doing—and maybe even quit. But if have a purpose—whether that’s as lofty as improving society or as personal as proving your doubters wrong—you’ll be motivated to push through the rough patches.
Thinking Cheaper Is Better
Some entrepreneurs think their path to riches and market dominance will be paved with cut-rate prices. They make the mistake of assuming customers are purely rational beings and, given a choice between competing products of roughly equal quality, they’ll simply choose the one that’s cheapest. That’s not usually the case though.
Most customers are happy to pay a premium for a product they perceive as better or more convenient. For example, let’s say you’re looking for a real estate agent. One charges a hefty commission, and one offers to do it for a quarter of the cost. Some potential clients might be suspicious of the cheaper agent’s expertise. People often assume that cheap things are cheap for a reason. Although cheaper products aren’t necessarily worse, some customers will see a higher price as de facto proof of a product’s superiority. Pricing is more complicated than “low equals good.”
There’s another problem with cutting prices. If you cut prices to the bone, you might have to cut salaries and staff to the bone too. It’s tough to cultivate loyalty and enthusiasm among your staff when you’re paying subpar salaries.
Lack of a Detailed Business Plan
Starting a business without a business plan is like starting a long hike in the woods without a map; you’re probably going to end up lost and in trouble.
Even if it’s only a single page, a good business plan is a road map for your business. It lays out where you’re going, why, how you’re going to get there, and how much it’s going to cost you. Your early plans aren’t going to be totally accurate, but they can provide you with much-needed clarity and a sense of direction in uncertain times.
Overlooking Your Customers
It may sound unlikely that any business would overlook their customers. After all, everything they do—from building and refining the actual product to staffing up and networking—is essentially for customers. But it’s very possible to be too focused on the business and the product, when you should be talking to customers instead.
Interacting with potential customers is one of the most valuable things you can do. It can take your business out of the realm of the abstract and place it in the real world, so to speak, where its value (and its shortcomings) will be so much more obvious. You might learn more in an hour with a customer than in a week of meetings. If that doesn’t sound like something you’re interested in, however, you could pivot to a business based from home.
Not Protecting IP
In the whirlwind of excitement that often accompanies the birth of a new small business, it’s easy to overlook little details like filing for patents and trademarks, registering your business, and other tasks. And if you experience some early success, you may never have the time or inclination to look back and tie up those loose ends. But this kind of oversight can be extremely expensive if one of your rivals ends up filing a patent over your head and you have to hire lawyers to iron things out. All success grows from a solid foundation.
You will face a multitude of challenges throughout your career as a business owner, but you can improve your odds by starting your endeavor on solid ground.
Luke Babich is the co-founder of Clever Real Estate, a real estate education platform committed to helping home buyers, sellers, and investors make smarter financial decisions.
Babich is a licensed real estate agent in Missouri, and his research and insights have been featured on BiggerPockets, Inman, the LA Times, and more.
He has a bachelor’s degree in political science from Stanford University, where he graduated with honors.