The increasing opportunities in the gig economy have demonstrated the viability of entrepreneurship for many people. People who have worked a traditional 9-5 job for a long time may now be considering going into business themselves, especially if they have picked up gig-based side jobs.
Even the most experienced and motivated entrepreneurs may struggle when they start to launch their business. First-time entrepreneurs are even more likely to make mistakes, so it is important to understand these missteps and try to avoid them. The ability to anticipate and maneuver around these pitfalls can give your business a greater chance of survival. Some of the common mistakes first-time entrepreneurs often make include:
1. Hiring for the wrong reasons.
As an entrepreneur, you’ll often be the only employee of your business for a significant period of time, but eventually, you will need to hire help. Too often, novice entrepreneurs focus on the wrong qualities when they try to hire someone. One of the biggest missteps you can make is focusing too narrowly on hard skills and what specific things a hire can do for the company. Ultimately, most people can learn the hard skills they need to succeed. The things that cannot be taught are intelligence, enthusiasm, trustworthiness, and integrity.
Of course, some experience is important—if you need an accountant, you can’t hire someone with no accounting skills whatsoever. However, you’ll benefit more from hiring someone with less experience, who truly believes in your business and is a team player, than someone with years of experience, but who only sees the job as a steppingstone to something better. The team player will keep learning and improving their skills to help the company; someone who only has hard skills may not care about the future of your company.
2. Pausing business development too early.
When people go into business for themselves, they generally put the majority of their energy into business development at first. Over time, as they become busy with client work, they may start to feel like they don’t need to spend so much time developing new customers, sales channels, or markets. After all, they are busy with clients’ day-to-day concerns and have little time to devote to anything else. However, this decision can be a huge mistake.
Even when you have enough work, you still need to spend time on business development—you need to keep that pipeline of customers flowing. Doing this can be difficult, since your time will be limited, but you either need to figure out how to fit it in, or hire help. Entrepreneurs should always be thinking about their next deals.
3. Failing to plan for taxes adequately.
As an employee, you don’t need to think about taxes beyond filing your yearly return. Federal, state, and local taxes, as well as Social Security and Medicare taxes, are automatically withheld from your paycheck. In contrast, entrepreneurs need to plan for these expenses and pay them on their own. Most first-time entrepreneurs are shocked by how quickly tax charges add up once they start making money.
As an entrepreneur, you need to be sure to estimate quarterly tax payments and stay on top of this expense. It’s also helpful to look at business projections and plan for any sort of increase in income that may be coming in the future. If you do not adequately plan for taxes, you could face a significant halt in cash flow. Tax issues have jeopardized the viability of many young companies.
4. Trying to market to everyone.
Many first-time entrepreneurs go very broad with their marketing and business development efforts. It seems to make sense that you shouldn’t exclude anyone when first starting a company, since virtually any customer is welcome. However, marketing your company too broadly can be a mistake. Your message may be so broad that it does not actually speak to anyone, so it gets ignored.
While it may seem counterintuitive to target a narrow demographic, companies often perform better when they target a specific niche. Targeting this demographic doesn’t mean you can’t appeal to different groups in the future. Rather, having a focused, narrow marketing strategy can make your target audience feel special and seen. This goes a long way in selling your product.
5. Panicking when slow periods come.
Every business will experience slow periods at some point. Sometimes, novice entrepreneurs panic when this happens and make reactive, nonstrategic decisions to generate more business. A better approach is to recognize that slow periods are going to happen and to take advantage of them when they do. Try to think of slow periods as time to reimagine and come up with new ideas, rather than cause for panic. Often, entrepreneurs get their best ideas when they take some time to step back and think critically about their next move.
6. Focusing on money-making and ignoring money management.
People starting a business for the first time have many hurdles to overcome. A big mistake is ignoring financial details for marketing, sales, and other money-generating skills. People may think, “If I can just keep selling, everything will be ok.” However, if you don’t know how to manage the money you make, your gains will evaporate. Make sure you know how to set appropriate goals and work toward them so your business continues to grow and you stay financially solvent. Too often, novice entrepreneurs start to feel overwhelmed by the finances of their business because they don’t take the time to learn the basics of business accounting. Spend some time learning basic accounting, or hire a CPA who can provide this expertise.