Don't make these five mistakes when starting your new business. Keep your burn rate low, embrace frugality, and love customer discovery.
Have you started your own business? Do you think you have what it takes? If you do, you aren’t alone.
According to a report from the Global Entrepreneurship Monitor, more than half of working adults throughout the world think they have what it takes to start their own businesses.
Furthermore, 66 percent of those surveyed think entrepreneurship is a smart career choice.
If you happen to be one of these people, it is important to avoid the following mistakes that might kill your company.
Related Article: The Curious Case Of Startups: How to Spot the Failures and Successes
Read ahead to find out what you should and shouldn't do.
Fundraising Too Early
When you first start your business, chances are that you will have an unpredictable cash flow.
Just because you may be approved for a loan, doesn’t mean that you will be able to pay it back.
The same goes for an outside investment from a seed or angel investor.
Debt and equity financing comes with significant emotional and financial responsibility.
If you receive a loan or investment too early, you may find it difficult to pay back with all of the unexpected expenses that inevitably come with starting a business.
Wait until you know your expected costs and you've found product/market fit.
Before taking that investment, work toward developing a minimum viable product, or MVP. An MVP is a low cost way to test your value proposition.
Launch early, you should be embarrassed by your first MVP.
Focusing Too Much Time on a Business Plan
Having a plan is never a bad thing. Constantly fretting about building and sticking to a specific business plan, however, may delay you from actually taking action to get results.
New companies are constantly evolving and pivoting. As you learn more about the industry you are operating in, you are undoubtedly going to have to make changes.
A business plan you write today will have to be edited tomorrow. Focus your time on execution, not planning.
Consider using a business model canvas template. The business model canvas is a great tool to use to quickly test and develop your ideas.
Keep it simple and to the point. Focus on the right side of the canvas when you are first getting started.
Related Article: No Stopping Us: 9 Newbie Mistakes Your Startup Can Avoid
Hiring Too Many People Too Fast
When your business is still in the infancy stages, it is important to limit how many employees you hire.
The more people you hire, the more people you have to train and manage.
Though you may have to work more late nights, working alone or with a few employees, allows you to be more efficient and spend more time getting things done.
Also, as you hire more employees, you will be depleting whatever money you have much more quickly.
Burn rate is every startups most significant metric. The lower your burn rate, the more time you will buy yourself.
Too many employees will inflate your burn rate very quickly. Consider using metrics such as revenue per employee as a barometer for hiring.
Only Hiring Friends and Family
It may be tempting to only bring your friends and family members onto the team when starting a new business.
It seems smart, right? You are more comfortable with them and think that you would work most efficiently with them.
If you only hire your friends and family, however, chances are they won’t have all of the necessary skill sets required for your company to thrive.
In addition, friends and family are likely to be overly optimistic. Would you rather have someone who finds real problems and helps to solve them, or someone who tells you everything is OK just so your feelings aren’t hurt?
Hiring is hard, but don't let bias make hiring even harder.
Trying to Solve a Problem That Doesn’t Exist
When starting a business, it is vital to choose a real problem to solve. Sure, you may have a neat invention that people might think is interesting, but if you aren’t creating value for the customer you will fail.
The top businesses succeed because they provide something useful to their customers.
One example is student loan refinancing company, SoFi, who recently raised $1 billion on a whooping $4 billion valuation.
SoFi realized that student loan debt had become a $1.2 trillion problem, and the company came up with a solution that actually improves the situation by saving graduates money through refinancing.
SoFi was able to perfect their solution through customer discovery at Stanford University.
Start by doing customer discovery. Ask your customers what they desire, and test your thesis from your business model canvas.
After 100 customer discovery interviews you should have a pretty good idea if your product is actually solving a need.
If you are planning to start your own business, congratulations! You are taking a step that many people are too afraid to take, ever.
Just because you decide to go for it doesn’t mean that you will succeed.
Spend significant time doing research on why companies similar to yours failed, and learn from them.
There are countless reasons why your business may breakdown, but avoiding these common mistakes will help you dodge many of them.
Keep your burn rate low, embrace frugality, love customer discovery and launch quickly.