The 2 Biggest Mistakes Made By Start-Up Businesses
By Bill Stroud
In my career as a business consultant I have evaluated numerous businesses from high-tech start-ups looking for venture funding to small businesses conducting selling personal services. The two biggest things businesses seem to get wrong are:
1. No Understanding of their Break Even Point
Understanding how much money you need to make to cover your costs may seem like an obvious thing to do but many businesses don’t seem to understand this. More specifically, businesses often don’t calculate what it costs to produce or deliver a single unit of their product or service. This is where a basic break-even analysis should begin. If you are selling widgets, figure out the cost of all the inputs to manufacture that widget. How consistent is the pricing of the inputs. A good example of how this can be underestimated is with gas and commodity prices sky-rocketing these costs are likely to have gone up in the last six months. If you are selling a service this is a bit harder but you need to calculate things like office supplies and products (toner, printing costs etc.) whatever the per unit costs are of delivering your service. Overhead and factoring this in comes into play as well but first just focus on the per unit costs.
2. No Marketing Plan
Not having a marketing plan or underestimating what amount of marketing is necessary to generate a sale is the second biggest mistake start-up businesses seem to make. Frequently, if it is a service business or some type of franchise, small businesses got into the business because someone sold them on how easy it would be to do the particular business. Oftentimes this resulted in vague or undefined explanations of how to market the business. Activities like going to networking meetings, advertising in the paper or flyers or simply putting up a website are the only advice and instructions given. No accounting for how long it would take to realistically generate sales from these activities is given or understood.
The Result
The result of making these two big mistakes is an unprofitable business. Either sales are made but with no regard for the actual costs is the outcome, no sales are made and therefore no income or both. Either way the business then fails.
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