20 Mistakes to Avoid When Starting a Business

20 mistakes to avoid when starting your business 

According to the U.S. Bureau of Labor Statistics, more than 18% of new businesses fail during their first two years of operation, and more than 55% of all businesses don’t survive past the fifth year. So how do you successfully launch and run your startup? 

We reached out to hundreds of small business owners, growth strategists, financial advisors, legal experts and business consultants to compile the 20 biggest mistakes startups make so you can avoid them when starting your own business.

1. Being afraid to fail

“The biggest mistake you can make is to be afraid of failure. Failure is key to your success, and jumping into your fear is very positive for your future business. How you pick up after failure and learn from your mistakes is the key to great success.” – Audrey Darrow, CEO, Earth Source Organics

2. Not making a business plan

“Too many businesses start without a basic plan, and if you fail to plan, you are essentially planning to fail. A startup should map out a business plan, even if it is just one page. It should include how much it costs to operate, how much they anticipate selling, who would buy their product and why.” – Deacon Hayes, founder, Well Kept Wallet 

3. Being disorganized

“Being organized is key. Running a small business is like being a circus ringmaster. It’s normal to have dozens of things happening at once. So, I have a daily task list, things that I need to do, and I list them by their priority. It sounds simple, but it works and makes me far more productive.” – Tara Langdale-Schmidt, founder, VuVatech 

4. Not defining your market and target audience

“A common startup mistake is not taking the time to understand the market or customers you’re building for. For technical founders, writing code can seem easier than talking to customers, but there’s no way to know if you’re on the right track unless you’re constantly getting feedback from current or prospective customers. It’s important to recognize that building a great product often doesn’t translate into a successful business. Many companies find themselves focusing on a market that’s simply too small to build a big business in.” – George Deglin, co-founder and CEO, OneSignal 

5. Not filing for the proper legal structure

“The biggest mistakes startups make are not registering their business, picking the right business entity or protecting their intellectual property. These three areas are crucial to a business starting right, where, if not done properly, will cost valuable time and money to correct.” – Heather Green Miller, owner, HGM Law Office

6. Trying to do everything yourself

“A big mistake entrepreneurs make is thinking they are all alone, and they try to operate independently without surrounding themselves with wise counsel. Don’t try to run a new business by yourself. Find and onboard trustworthy seasoned advisors to discuss your business ideas, strategy, challenges and progress. Wisdom and power exist in the multiplicity of counsel. Incentivize four people to join your company as advisors in order to receive continuous feedback so that fewer mistakes will occur.” – James Zimbardi, CEO, Rent Items

7. Partnering with the wrong investors

“An important piece of advice that entrepreneurs should know before starting a business is that their investors are more than just financial backers. A company’s first set of investors will make or break it. These individuals place their confidence in the business’s potential without having a proof of concept presented to them. Once businesses have undergone their seed funding, then they’ll interact with investors who look at the business’s growth and sustainability.” – Krish Subramanian, co-founder and CEO, Chargebee 

8. Avoiding contracts

“One of the biggest mistakes a business owner/entrepreneur can make when starting a business is the failure to implement contracts. No matter how good relationships may be, they can come to a screeching halt when systems and agreements are not put in place.” – Michelle Colon-Johnson, founder, 2 Dream Productions 

9. Hiring too soon

“By far, the biggest mistake a startup can make is hiring employees too soon, such as hiring full-timers when a part-timer might make more sense or hiring an employee when a subcontractor could have done the same job/function. It is very easy to run a small business with part-timers, subcontractors and the services of other professionals.” – Joseph C. Kunz Jr., CEO, Dickson Keanaghan 

10. Underestimating capital requirements

“Most entrepreneurs think they can get further with less. In an effort to minimize equity dilution, they forget to factor in unknowns, challenges or delays along the way. Startup leaders tend to plan for the best-case scenario, but that almost never happens. This mentality can be attributed to leaders’ positivity and having drunk their own Kool-Aid. Positivity has its place, however, when it comes to capital; it often results in having to go back to the well for a less-than-ideal raise.” – Wayne Schepens, founder and managing director, LaunchTech Communications 

11. Wasting money

“Handling money incorrectly and being irresponsible with cash flow is a death sentence for startups with limited access to capital. I’ve made the mistake of hiring too many people instead of the right people and spending money to fill the top of the funnel without having a well-defined process to manage the bottom of the funnel. Putting good money to bad use and trying to be everything to everyone instead of being niche-focused is a surefire way to waste valuable time and money, which are the lifeblood to any startup.” – Thomas Aronica, founder and CEO, Biller Genie 

12. Giving yourself the wrong salary

“Paying yourself too little or too much [is a mistake]. It’s often easier to determine the salary for a new hire than determining an owner or partner’s pay. Consider paying yourself a percentage of revenue. Whatever you choose, make figuring out your pay – and that of your partners – a practice and foundation to healthy expectation of management.” – Diana Santaguida, founder, Agency Undone

13. Undervaluing your product or service

“Don’t price too high, but don’t price too low just to gain market share. If you are good, price like it! Many entrepreneurs start with the best of intentions and give things away for free or do free things for charity, community or visibility. Be very careful with this because you don’t want to be known as a source of freebies. Ring the cash register first.” – James Chittenden, founder, OneClickAdvisor 

14. Launching too quickly

“One of the biggest mistakes startups make is launching before they are ready. The saying ‘Done is better than perfect’ is the right advice; however, the ‘done’ needs to ensure it can handle new clients. Once you have launched into the public and you start getting clients, ensure your systems and processes are in place – such as payment terms and process, contracts, communications – whilst still being able to maintain your marketing strategy. The back-end processes need to be watertight before you start taking on clients; if they aren’t, these are the cracks that will show and appear unprofessional.” – Gems Collins, business coach, Gems Collins LLC  

15. Expanding too quickly

“When you start to see success, it can be easy to assume that growth will continue and the best way to make the most out of it is to simply copy and paste your working formula. However, if you … expand your business too rapidly, it could have dire consequences. You may find your period of growth was only temporary and end up stuck with a bunch of new staff but no work and no funds to cover them. That’s why it’s important to take a slow and steady approach to expansion and never act on a spur of good results.” – Mark Webster, co-founder, Authority Hacker

16. Not implementing a proper bookkeeping process

“Many startup founders begin without a bookkeeping process in place. Great bookkeeping habits help you make smarter business decisions, spot opportunities early on, and head off problems before they become unmanageable. Understanding your financials helps to keep a pulse on your business’s financial health. Good bookkeeping practices also ensure you’re on top of issues like tax and insurance payments that can get otherwise great businesses into trouble.” – Paola Garcia, vice president, Pursuit 

17. Not creating a marketing plan

“If you have successfully validated the problem, market and idea for your startup, then you need to have a plan for how you’re going to get your first user, first 10 users, first 100 users and so on. That’s where you need a detailed marketing strategy that encompasses the initial acquisition of users, the conversion of those users into paying customers, and making those customers so happy with your product that they help you get more users (through reviews, word of mouth, referrals, etc.).” – Sam Sheppard, co-founder, Cabana 

18. Hiring the wrong people

“Different skill sets and backgrounds are needed for the different positions you’ll want to fill. When you get started, make sure you have hardworking, all-around generalists who can do everything you need them to [do]. When you begin to grow, look at hiring those who are specialized for the roles that need a specialist. Don’t hire a generalist when you need someone who is specialized, and don’t hire a specialist when you could hire a generalist to do it.” – Devin Miller, founder, Miller IP Law 

19. Overpromising or underlivering

“Don’t overstretch yourself in the pursuit of revenue. It is far better to tell a potential customer that you can take on their project next month, for example, rather than take on too much. Not only will this save you from failing to meet targets due to an increased workload, but it will also make you look like you’re in high demand. And that’s always good.” – Zhen Tang, chief operating officer, AILaw

20. Underestimating the demands of business

“The biggest mistake startups make is underestimating the demands of the business. Documentaries and blogs about startups are making people think optimistically; this is because the information available does not highlight the hardships of starting a business, but it glorifies the end, which is a thriving business. Because of this, people think that a startup is easy and fun, when in reality, it is quite the opposite. Startups take most of your time and money. It can even ruin relationships.” – Esther Meyer, marketing manager, GroomsShop 

Why businesses fail

Companies can fail for a number of reasons. Common causes include not securing enough business financing, assembling an inexperienced management team and not implementing a marketing strategy.

The COVID-19 pandemic has been an additional challenge for new business owners. Safety measures such as face masks, hand sanitizer and plexiglass dividers for staff and customers can get costly. Furthermore, at the start of the pandemic, lockdowns led to lower spending that proved challenging for small business owners. 

A 2020 study published in the journal PNAS found that 43% of small business owners temporarily closed during the early months of the pandemic. Similarly, a 2020 Federal Reserve study reported that roughly 200,000 establishments permanently closed during the first year of the pandemic.

The economic ramifications of the global health crisis are still being felt worldwide. Although certain external factors are out of your control, some matters – like sticking to an accounting checklist – are entirely in your hands.

Starting your business correctly

A successful startup is not built by one person alone, so surround yourself with subject matter experts and mentors you can lean on and learn from. Don’t be afraid of failure; instead, learn from your mistakes and pivot your business model as needed. Test new ideas and acquire feedback so you can tweak your product to better meet customers’ needs.

Although there are several startup mistakes you’ll want to avoid while building your business, occasional mistakes are inevitable. Don’t be too hard on yourself during the process. One of the best things you can do is take what might first seem like bad news, learn from it and put it to good use. With that mentality, business success can be right around the corner.

Shayna Waltower and Adam Uzialko contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.