(and how to avoid them)
By Emma Broholm
The number of startups has skyrocketed in the last couple of years. According to the OECD, SMEs contribute 50% or more of the GDP, provide employment to an estimated 60% of the local workforce, create up to 70% of the new jobs, and account for 30% of exports. These numbers make it seem like every SME created thrives. However, first time, entrepreneurs only have an 18% chance of success, with more than50% failing after four years. These statistics show the immense challenges all entrepreneurs face when starting up a business. For first time youth entrepreneurs, the challenges are even greater.
Part of this can be attributed to some form of discrimination based on age, credit history, financing restrictions, or perhaps not being able to dedicate themselves fulltime to their business e.g. combining classes whilst starting their business. However, not succeeding can also be attributed to mistakes that almost every young entrepreneur makes. The following article will discuss 5 common mistakes young entrepreneurs make when starting a new business and how to avoid them.
1. Lack of proper leadership
Unfortunately, one of the main reasons businesses fail is due to lack of proper leadership. There are a plethora of missteps a founder can make that which can result in the failure of an otherwise successful business. Some examples include:
- Hiring unqualified employees. It is understandable, especially when just starting your business, that you would want to hire employees that you feel comfortable with, like your best friends. However, once your business starts growing and you want to attract investors, your friends will not suffice. Investors fund people, not ideas. If your friends do not have the same knowledge, passion and experience as you do, it may result in a missed funding opportunity. Getting an expert on board early on, who has expertise in a specific area, will help your business in the long run. Often it is worth investing in higher salaries from the get-go. Building a team wherein many different skillsets are represented will demonstrate to investors that building a strong team is something you have taken into consideration. In fact, financiers argue that while the business idea is important, many place a greater emphasis on the team.
- Keeping secrets. The only way for you to know if an idea works is to share it. This does not mean that you should share your ideas with every person that you run into in the supermarket, but not discussing your idea with experts in the same field can result in the inability to properly assess your product or business model or not pivoting at the right moment in your startup development.
- Not sharing responsibilities. Micromanaging has an extremely negative connotation and for good reason! You are one person and if you want your organization to grow into a sustainable business, you will never be able to organize every single aspect of it. Don’t expect that you can do so without experiencing a serious burnout. Delegating is the only way that you won’t break down before you’ve gotten your business off the ground.
Key Takeaway - as the leader of your company, it is up to you to recognize any shortcomings, flaws, and changes, which need to be made to sustain the continued growth of your enterprise.
2. Over- and underestimating the competition
Competition is part of business. Having no competition means that there is most likely no market for your product. On the other hand, too much competition and your enterprise may become lost in the fray. You will need to find a unique way in which you can set your enterprise apart from the crowd. It is crucial when creating a product or service to:
- Assess the competition
- Conduct market research
- Correctly define the opportunity size aka will people pay for your product/service? What is the additional value provided by your business? This should be highlighted with your marketing strategy or the way you interact with your clients.
Correctly assessing the competition is a key step in starting up that many young entrepreneurs overlook when they are so enthused about their product. Don’t fall victim to this misstep.
3. Not having a business plan or revenue model
A business plan and a revenue model are fundamental elements of a sustainable business. Although many experienced entrepreneurs say a business plan can be defined later, for young entrepreneurs, it should be done early and comprehensively to provide a guide for all the elements which need to be properly fleshed out before going to market or seeking investment. Without experience or a well written business plan properly defining your revenue model, investors won’t take a second glance. Investors will want to see a well written business plan with a clearly defined revenue model before they consider investing. The business plan and revenue structure are also important for you as an entrepreneur. Having a business plan, which can easily be presented and explained, is the best way for you to remain clear on your objectives and to easily explain it to others. Having a written business plan and revenue model will also allow you to identify specific elements of your initial plan, which can be tweaked or adjusted at later stages, without losing sight of your original idea.
4. Unrealistic financial expectations
No matter how good your idea is, $1 is not going to change into $1.000.000 overnight, in six months, or even in a year. You are going to put a lot of time, effort, and money into your business and it might take what seems like forever before you break even. This does not mean that you should not dream big. Dream of that $1.000.000. However, hold on to a small dosage of reality and realize that the first couple of years you will struggle just to break even. Statistically, startups do not become profitable until year three, so keep that in mind and don’t be too tough on yourself if the profits don’t come in right away. With dedication, preparation, and a strong team, the day will come.
5. Giving up too easily
If you’ve read this far, you might be thinking, “why in the world would I still want to start my own business?” This is, by far, the biggest mistake a young entrepreneur can make! Every single successful business suffered setbacks or failures. You will experience them as well. But giving up, because you are afraid of setbacks, would be your bigges
Emma Broholm graduated from Leiden University with a degree in Law. She is currently an intern with Child and Youth Finance International. She is an alumni of the European Youth Parliament and has previously had articles published in Microfinance Gateway.