10 Feb 7 Common Entrepreneurial Traps to Avoid in 2021
90% of startups fail.
20% of small businesses fail in their first year, 30% of small business fail in their second year, and 50% of small businesses fail after five years in business.
Finally, 70% of small business owners fail in their 10th year in business.
We hate to be the harbinger of bad news, so we’d like to start, again, by welcoming you to 2021 and congratulating you on surviving one of the most turbulent years yet.
2020 was a whirlwind of happenstances and no one, including business owners, could predict what happened next.
Big event after big event.
Everyone is looking towards 2021 to make amends, make a big splash or make their mark; entrepreneurs included.
To help, Mentor Africa Foundation has this ready as a guide for innovative entrepreneurs, with seven (7) common entrepreneurial pitfalls you must avoid in 2021.
7 Common Entrepreneurial Traps to Avoid in 2021
1. Lack of a Business Strategy
A common misconception is a belief that small businesses do not require a business strategy.
On the contrary, every business requires a business strategy.
Indeed.com defines a business strategy as –
“the actions and decisions that a company takes to reach its business goals and be competitive in its industry. It defines what the business needs to do to reach its goals, which can help guide the decision-making process “
A good business strategy doesn’t only define your business goals; it sets aside a roadmap to achieving said business goals.
It helps you outline your top competitors, the strategies needed to find your target audience and carve out your market share.
It also gives direction to your organization, creates a measure for success, and allows for easy adaptability in this ever-evolving business environment.
Types of Business Strategies
They include but are not limited to:
- Structuralist strategy
- Growth Strategy
- Differentiation Strategy
- Focus Strategy
- Acquisition Strategy
- Price-skimming Strategy
2. The ‘Do It Yourself’ Fantasy
Welcome to the age of ‘a-team-of-one’, several small businesses are owned and managed by one founder wearing many hats.
For a new business, this is understandable.
However, for true business growth, entrepreneurs must realize that they simply cannot do it all by themselves.
It is so much bigger than writing “Happy birthday to our CEO” on the company social media and reposting with your account.
A major business management pitfall is overlooking the value of human capital.
Too many businesses put a major focus on financial capital, especially in a time where sources of business capital are abundant, without putting commensurate energy into human capital development.
As a business owner, irrespective on the size of your business you should never compromise on human capital.
Never be unwilling to outsource, delegate and when you’re ready, employ capable hands.
The concept of being able to be your sole employee and grow a successful business is a myth.
3. Hiring Too Soon
While it Is foolhardy to not employ new hands when your business in on a growth trajectory, entrepreneurs must also avoid the trap of hiring too soon.
Hiring too soon is a very common misstep when growing a startup, one that is not easy to see while it’s happening, and it is one of the mistakes that are quite difficult to undo.
A common misconception when hiring more hands is that it means you get to create more value.
However, without a corresponding increase in demand and accountability, what you are creating is more waste.
You should begin to bring in more hands only when you have tried to do it yourself and failed.
For example, you might need an administrative officer when running admin duties is putting damp on more pressing issues.
Keep in mind, that the goal of hiring new hands is to bring in expertise to an area that is deficit.
Not when there is more cash flow or when the job could easily be delegated.
Only when the new role is to bring in expertise that is required and currently unavailable in your current workforce.
4. Not Paying Yourself an Appropriate Salary
First things first; if you aren’t already paying yourself a salary, stop right now and genuinely ask yourself why. You’re already thinking; “I barely make enough for overhead costs; how can I pay myself a salary?”.
Paying yourself have several far-reaching benefits for your business, including tax benefits.
However, more importantly, it helps with business accountability, added work incentive, and puts the founder in a great light for investors.
This payment when decided upon must be consistent and be regarded as ‘reasonable compensation’. This simply means the salary should not exceed the existing wage ballpark for the position you hold and for your industry.
When deciding your salary, you must take into account the company’s annual income, profits and expenditure and overall pay structure of your workforce.
You should also keep in mind that at the start of your venture, paying yourself a ‘befitting salary’ should not be the goal. The goal is for accountability and financial discipline.
5. Not Understanding the Financial Requirements of Your Venture
Startup capital is crucial.
It might be the single most important factor in the success or failure of your business. Funding is required for the launch and continuity of your business.
Lack of adequate funding can prove to be a barrier to breaking into your industry, prevent you from carrying out adequate market research, and can be a major impediment to business development.
When starting your venture in 2021, you must do your research to ascertain the financial implications of launching a business in your desired market, research several sources of business funding open to you, and find ways to secure that funding for your business.
Sources of business funding include:
- Startup Loans
- Government and Private Startup grants
- Personal Savings
- Business Accelerators
- Business overdrafts
- Angel Investors
- Venture Capital
- Hire Purchase
6. Under-Valuing Your Product or Service
Small business consultant, James Chittenden, once advised: “Don’t price too high, but don’t price too low just to gain market share. If you are good, price like it!”
Oftentimes, to break into the market business owners create a price they believe will be more receptive to their customers and hope to get a bigger market share by making their product or service cheaper than their competitors.
While this is a known and sometimes winning technique, industry pricing range exists for a reason.
In your market research, you should find out the appropriate pricing range in your market and the disposable income of your target audience for that particular product.
Undervaluing your product can make you lose out on potential customers while also running at a loss after deductibles.
Never undervalue your product.
7. Launching Too Quickly
There’s so much conversation around launching too late and they are all valid.
Entrepreneurs want to make sure they have a smooth launch and send a near-perfect product into their market, and as Reid Hoffman, co-founder of LinkedIn, has been credited with saying, “If you’re not embarrassed by the first version of your product, you’ve launched too late.”
There is however room for the conversation around launching too early.
As much as entrepreneurs want to think of themselves as innovative problem solvers eager to share their solutions with the world, their ideas are a dime a dozen and exist in a larger ecosystem. There is a need to analyze the industry vis-à-vis the efficacy of your product.
You need to consider timing, manpower requirements, bugs in your system or product, market acceptance rate, viability, sustainability and scalability.
A launch is a very important process in venture development and timing is of the essence.
However, you should look at it as less of an announcement and more as a foundation.
You do not want to begin your business on a shaky foundation.
Made it this far?
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