The top three small business mistakes & pitfalls—and ways to avoid them.

How to steer clear of what derails most startups.
So, you’re starting a business, or you’ve already started one. Congratulations! You’re doing something most people will never do. We want to see you knock it out of the park. Here are three key areas that can make or break your new venture’s chances of success. Let’s go through each one and offer ways for your business to steer clear of these common small business mistakes and pitfalls.

Pitfall 1.

The number one business pitfall is the lack of a market need for the product or service offered. Imagine putting your all into an idea you’re passionate about only to realize, after exhausting your time, money, energy and focus on it, that nobody wants to buy it. It’s every startup’s nightmare, but it happens all too often.

So how do you avoid this common business mistake and pitfall? You’ve got to validate your idea. And you’ve got to do it sooner rather than later. And you’ve got to continue doing it.

Think of product development as an iterative process:

  1. Test the idea.
  2. Learn from the test.
  3. Apply what you’ve learned to help you refine the idea.
  4. Repeat.

Adopt the practice of evaluating your course regularly—even every month—to decide whether to continue ahead in the same direction or make a course correction. A series of small course corrections, made early enough in the game, could save you lots of time, money and heartache later on.

So how do you validate your idea and avoid our first pitfall of entrepreneurship? Here are some ways to do it:

  • Try selling your minimum viable product (MVP) early on. Your MVP is your product in its most basic version. What are the absolute minimum features it needs to deliver the primary benefit? You can look for shows or events in your industry and use them as a venue to try to make some sales of your MVP—before you’ve invested time and money into polishing it into your final vision of the product.
  • Competitive research is also important for validating your idea. If there are competitors, and if they have a track record of making money from their version of the idea, that’s an indication that there’s a market for it. Research how they position the product and how they reach buyers. And identify how your idea is different from theirs in a way that buyers will care about.
  • There are some great online tools that can help you validate your idea. Check out the popularity of similar products on Google Trends or with the Google Ads tool Keyword Planner. Another idea is to conduct an online survey to gauge interest in your product using a service like Survey Monkey.
  • Crowdfunding is a good way to validate an idea because having strangers pay real money for a potential product is a great test of its viability. A Kickstarter or Indiegogo campaign will give you honest answers and insights you won’t get from your family and friends. Run the campaign early, and if nobody funds it, you’ve saved yourself a ton of work.
  • Some people use what’s called a smoke test to validate their business idea. The way it works is you create a website for the product as if it’s a real thing that’s for sale. Run a small AdWords campaign to try to drive traffic to the site. Then see how many visitors you get and, more important, how many try to buy the product. It sounds like a lot of work. But if you put in the time and effort up front, you can tweak the site as needed to test variations on the product features, the marketing messages, the price point and other factors. So it will continue to be useful as you build your business.

The important takeaway from this is you need objective ways to evaluate the potential demand for your potential product. Validate early and often.

Pitfall 2.

The second biggest business pitfall is running out of cash. Make sure you’ve planned for a money crunch, so you don’t run into a cash flow problem. But if you do, try these tips to help make your money stretch a little more:

  • Optimize your margins. Take another look at your pricing. Adjusting it by a small amount that doesn’t make too much difference to customers could make a big difference to your cash flow.
  • Get paid sooner. If your business issues invoices, offer a small discount for early payment. And if you have customers paying late, contact them right away and offer a discount if they pay you today.
  • Pay later. Don’t part with your money until you have to. Wait until the day a bill is due before paying it, so you can keep cash on hand for a longer time.
  • Don’t keep old inventory around. If you’ve paid for it, sell it. If it’s no longer selling for the regular price, discount it so you can at least get something for it.
  • Consider as-a-service payment models. You can keep from tying up cash in large capital expenditures by buying your software as a service, for example. And look into other things you can buy as a service.
  • Make it easy for people to pay you. Accept online and mobile payments.


Pitfall 3.

The third small business pitfall is not having the right team. A person can be excellent at their job in the corporate world, but that doesn’t mean they’re the right person to have on a startup team. Why? Because it takes a special kind of person to succeed at a startup. You need to look for certain traits, including:

  • Being driven by passion. You probably can’t offer things like a competitive salary and benefits when you’re first starting out. And you definitely can’t offer job security. But some people are motivated by other factors—things like passion for the mission and vision, the thrill of starting something from the ground up, the adrenaline rush of working hard on something that’s never been done before. These are the people you want on your team.
  • Stamina. Building a business from scratch isn’t a cushy 9-to-5 kind of a job. It takes hard work and long hours. You want people who can go the distance with you.
  • Breadth of talent. You’ll probably be starting out with a lean team, so everyone will have to be able to wear many hats. Look for people whose talent has a “T” shape: deep expertise in one area nobody else on the team has (the vertical part of the “T”), and broad capabilities in several other areas (the top bar of the “T.”)
  • A sense of ownership. Make sure the people you choose are true believers who can see your vision, and who can get behind the mission of your business and make it their own.
  • Chemistry and collaboration. You and your team will be working together closely, and it will get intense. Healthy disagreements can be productive, but in general you should be able to get along, work together toward a goal, and form a consensus when needed.
  • An appreciation for metrics. It’s important to quantify goals and measure progress. Strategy should be driven by data and evidence, not just gut feelings.

Starting a business is an exciting challenge that can be rewarding in so many ways. It’s good to be aware of the potential small business mistakes and pitfalls that can derail you. If you can avoid these three, you will be ahead of most startups. Best of luck to you.

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