Every business has multiple moving parts, and like plates spinning in the air, failure to pay attention to any one of those parts could spell disaster. Some business mistakes can be fatal, while others will impede business growth. Common business mistakes are the result of erroneous assumptions and missteps that can be easily avoided.
The good news is that U.S. small to medium-sized businesses (SMBs) are certainly growing. Businesses with less than $5 million in revenue saw an average of 7.8 percent in annual sales growth in 2015, which was up nearly one percentage point over 2014. In 2016, a Wells Fargo survey revealed that 71 percent of SMB owners anticipated they would continue to be in good financial shape for the next 12 months.
Along with growth, there are some failures as well. Half of SMBs survive beyond five years, and 82 percent of SMBs that fail do so because of poor cash management (one of the business mistakes that can clearly be prevented).
To ensure that you are part of those SMBs that continue to prosper, watch out for common business mistakes like these:
- Undercapitalization – Lack of capital is an ongoing challenge for many businesses. Misjudging expenses and cash flow is one of the primary reasons why businesses fail or fail to grow. Remember that growth takes cash, and you need to be sure of your funds before you can commit cash for growth. Profits aren’t cash but part of accounts receivable (AR), and every dollar in AR is one dollar less you have in cash. Cash flow is not intuitive, and you need to be careful how you balance incoming revenue against expenses. Remember that cash is always more important than profit.
- Falling in love with your idea – Successful entrepreneurs are visionaries who see new possibilities, but becoming wedded to an idea that doesn’t work can be disastrous. You may be convinced that your approach will be wildly successful, but don’t let enthusiasm blind you to reality. Listen to your customers. Watch market trends. Be open to adapting or abandoning a pet idea that isn’t working or isn’t working fast enough. Successful entrepreneurs understand the concept of “failing fast.”
- Lack of focus – In addition to becoming too obsessive about your business idea, your business also can lack focus. If your business becomes too fluid and you are continually distracted by new ideas and new possibilities, you will never get ahead. Focus on core competencies, and when you have mastered your primary objectives and are showing success, then expand into other areas. Trying to embrace too much too soon leads to lack of focus.
- Quick to hire, slow to fire – Staffing is a challenge for every business. If you are growing rapidly, you need to add new staff fast, which may mean you are not adequately vetting candidates. For example, do the applicants know your business? Do they have experience? Do they have references? Don’t end up with the wrong people who can’t help your business grow. When it is clear that an employee isn’t performing, too often bosses want to be good guys and try to fit nonperformers into another job. Staff is expensive, and when you make a bad hire and keep a nonperformer, you are increasing your costs; you have to hire another person to do the job, so you have double the payroll, plus the nonperforming employee will have a negative impact on productivity. Do yourself a favor—hire carefully and find the right fit for the job you need so that you don’t end up needing to terminate new employees and blowing your reputation.
- Failure to measure performance – You can’t tell how well your growth strategy is working if you don’t measure your progress. Determine what key performance indicators (KPIs) will help your business grow. Make sure KPIs are measurable and support the company’s long-term objectives, as well as short-term goals. KPIs should include financial goals, employee motivation, sales growth, and marketing goals.
- Ignoring company culture – With growth comes change. You need to control that change, especially when it comes to nurturing your corporate culture. Creating a toxic culture driven by constant pressure for results, lack of trust, and departmental fiefdoms is a sure way to slow growth; everyone becomes too worried about their own neck to care about the company’s needs. Start by establishing corporate values and create a code of conduct that represents those values. That is the manifesto for the type of corporate culture you want to engender. Use it to assess every move you make. Remember that leadership starts with senior management, so be sure your executive team understands and embraces the kind of culture you want to create.
- Ignoring technology – Many businesses believe they can’t afford to adopt new technology to promote company growth. You can’t grow effectively without technology, and it doesn’t have to be expensive. For example, cloud-based customer relationship management and marketing tools can support growth, helping your team stay focused while providing metrics for KPIs. Other technology tools can break down internal barriers and promote better collaboration and teamwork. Spoke, for example, is a simple smartphone app that extends a company's by routing calls directly to employees’ smartphones. Spoke is very cost-effective, yet it can promote a collaborative company culture, making it easier to reach team members and provide better customer support.
You can easily avoid common business mistakes by applying a little common sense, doing a little research, and having a little patience.
Take the time to plan in advance to avoid pitfalls, map out a growth strategy, and assemble the right team and tools you need for success. Be sure to stop and assess your progress periodically. If you can assemble the right elements and keep them balanced, your business will be sure to grow.