3 Common Small Business Mistakes and How to Avoid Them

Levi King
Tue, 19 Nov 2024 23:47:08 +0000
Small-business-mistakes, Business-pitfalls, Business-don-ts, Dos-and-donts, Small-business-challenges

Any study of success must begin by acknowledging one basic rule, which is that the degree to which success is achieved largely depends on how ably you recognize and cope with mistakes.

Well-established companies, though far from immune to failure, usually have the momentum and resources to power through pitfalls. Younger businesses can counter missteps through a much nimbler mix of ingenuity and elbow grease, but nothing beats simply avoiding them by mapping possible pitfalls in advance.

It’s only common sense that business pitfalls—like every other kind—come in many forms. When I was first starting out, what surprised me as a newbie was how often the psychological variety of mistake competes with practical ones in the race for causing the biggest headache.

Here are three mistakes that I learned from early on, each of which has a lot of applicability over a vast array of challenges.

3 small business mistakes to avoid

1. Taking bad advice from educated people

My first year in business was a wild ride. Growing up, my parents had scared me away from the idea of debt of any kind; consequently, I lacked the slightest trace of personal or business credit history. Lenders weren’t about to take a risk on a total nonentity, and I found myself putting everything I earned back into the business.

If you had paid me a home visit back then, the fact that I was making decent money for once would’ve escaped you as you pondered my skid row apartment. It’s tough to operate a business without operating capital; I’m sure I’m not the first entrepreneur to prioritize making payroll over having a couch and a loveseat.

I inherited my Certified Public Accountant (CPA) from my dad, and I trusted him both for that reason and because of those shiny letters next to his name. During one of our early discussions, he advised that I remain a sole proprietor rather than incorporate. He probably didn’t see much in me to inspire hope that I’d beat the odds and be profitable right out of the gate; though I believed otherwise, I didn’t have the confidence to challenge the wisdom of a man of superior wisdom and experience.

Nine scrappy, sleepless months later, we met again. I’ll never forget his face as he studied my numbers in silence. He was a big guy; when he suddenly started laughing, his desk reacted seismically. He explained through explosions of mirth that not incorporating had cost me an extra $20,000 in taxes. Writing that $20,000 check took a very painful bite out of the operating capital I’d built up.

This guy represented a lot of American small farmers, so perhaps he can be excused for having a dark sense of humor. I say it retrospectively, as in the moment, I was tempted to complete the miniature earthquake on his desk by tipping it over. He taught me a priceless lesson, however: so-called experts are as susceptible to shortsightedness, bias, and unreason as anyone else.

You own your business; the buck stops with you. Never take anyone’s advice at face value, regardless of how pitifully you stack up in terms of time in the trenches. You believed in yourself enough to risk everything for a dream—honor that trust by seeking a wide range of opinions before making momentous decisions.

2. Underestimating the importance of your credit history

The second it dawned on me that a dearth of credit history meant the same for financing, I applied to American Express for a $500 secured credit account. If anything, they were more skeptical about my potential than my soon-to-be-ex-accountant had been, and sternly informed me they’d happily fulfill my request when they received my $500 security deposit.

Less happily, I wrote them a check. But I’m pleased to report that not many years had passed before the people who couldn’t trust me with a skimpy $500 had a change of heart to the tune of $100,000, and all I had to do to multiply my credit line over the years was pay my monthly bill on time.

As a business owner, you have one guaranteed method for proving trustworthiness to lenders and suppliers. It has nothing to do with your brilliance or energy; nothing to do with the originality of your ideas or the loyalty of your customers. Going viral with a slick marketing campaign means nothing without it.

Don’t do what I did and wait until your first sizable paycheck to discover that a loveseat is not in your immediate future. Start building your personal and business credit today.

Business credit cards are an essential part of that journey. I recommend securing one as soon as you can, but have no fear—they’re exactly like personal credit cards in that they provide you with a revolving line of credit with a predetermined credit limit.

It’s a beautifully uncomplicated process. You 1) use the credit to improve your business; 2) use your earnings to pay off the card; and 3) the slate is wiped clean, the credit once again available for taking the next step. Meanwhile (4), behind the scenes, quietly but inexorably, your credit history is gaining muscle. Keep it up, and it’s a foregone conclusion that when the day arrives to secure that next-level loan, all you’ll have to do is flex.

3. Taking the basic needs of your employees for granted

We’ve all heard breathless influencers proclaim that following one’s passion is the secret to health and happiness. I can testify that it’s true. I’ve also learned that if you’re fortunate enough to take that path, enlightenment doesn’t necessarily follow.

Even as my career started taking off, I clung to the assumption that my employees were motivated solely by money. It was a critical oversight regarding basic human nature, and yet another example of the difficulty of applying one’s personal insights to others.

Jon Katzenbach’s Why Pride Matters More Than Money helped me open my eyes to the complexity of the situation. You’ll rarely meet a human being whose motivations aren’t a diverse mix of the practical and the emotional. You’ll never employ a human being to join you on your path who isn’t blazing their own simultaneously.

To get in tune with the hearts of your employees, begin by analyzing yours. Why did you start your own business? In an ideal world, how would you treat your customers one-on-one? When you were an employee, what did you look for in a leader—in a manager? How would you define an optimal company culture?

Most importantly, what brings you the greatest amount of satisfaction? If your answer to that question is genuine accomplishment and being appreciated by those you respect and care for, chances are good that your colleagues are wired similarly.

The trick here is to use your feelings as a sounding board without forgetting that they’re a guide to human nature in general rather than a road map to each individual who enters your circle of influence. No two personal road maps are precisely alike. Your honesty about those feelings, and how sensitively you apply your takeaways to others, will play a significant role in whether your work environment is conducive to the kind of creative yet functional teamwork that historically fosters success.