Entrepreneurship has long been heralded as the quintessential American dream. What's better than owning your own business? Answer: owning a successful, long-running business. Many new business owners make common rookie entrepreneur mistakes in their fervor to achieve quick success, adding to the overall dismal statistical outlook. Fewer than half of small business start-ups survive the first six years. To ensure your company thrives well past year six, take note of the following common entrepreneur mistakes.
The first mistake many new entrepreneurs make is opening a business without accumulating enough start-up capital. It can be exciting to hit the ground running, but it's important to make sure you have enough cash to keep yourself afloat during that crucial first year. Everything related to your business costs money: rent, employee wages, inventory, equipment leases, utility bills. The list goes on and on. Many new business owners place too much emphasis on start-up cash without realizing they need much more than that to survive. Profits won't magically start rolling in the moment you open the door. You must have enough capital to sustain the business and your lifestyle for a minimum of six months, or the time it takes the average new business to begin turning a profit.
The next entrepreneur mistake is related to starting out with too little cash. Borrowing too much money or from too many sources is a potentially devastating business mistake. "You can get in debt as fast as you can spend money, but you only get out as fast as you have profits," says Joshua Steimle, chief executive officer of MWI, an online marketing firm. Taking a loan with the IRS is also a common mistake many entrepreneurs make. The last place you want to be is stuck making the difficult decision between paying your employees or paying down your debt. With smaller businesses or those in a niche market, it's even tougher to see big profits right away. The best thing you can do for yourself and your new business venture is to begin with a good financial cushion.
Probably the most common entrepreneur mistake is focusing on how to attract new customers. It sounds perfectly logical upon first glance, but focusing on getting new faces in the door can backfire. In Forbes magazine, Alex Lawrence discusses statistics that show it costs businesses five times more to obtain a new customer than it does to keep an existing one, and 80 percent of your future profits can come from just 20 percent of your existing customers. Spending your marketing budget solely on attracting new people is a major entrepreneurial mistake. While attracting new customers is great, it's important not to forget those first few faces who walked through the door. Offering stellar customer service, loyalty and reward programs and personalized promotions all help to ensure that a one-time customer becomes a regular.
These new entrepreneur mistakes don't have to be inevitable. Be patient with your start-up and make sure you have the capital you need so you won't have to borrow. Focus on customer retention and building customer loyalty. These efforts strengthen your company's image and value.
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