Launching a startup can be challenging, and the Canadian small-business landscape is littered with enthusiastic entrepreneurs who had great ideas, but couldn’t manage to stay afloat.
According to Industry Canada, 28 per cent of Canadian small- and medium-sized enterprises fail after only two years in business.
Fortunately, you can mitigate risk by taking steps to avoid these five common mistakes:
Mistake No. 1: Not validating your business idea
Julia Deans, CEO of the Canadian Youth Business Foundation (CYBF), says many entrepreneurs fail because they don’t understand their customers or markets before moving forward.
“A lot of people go ahead without testing their idea with real people,” Ms. Deans says. “Then the customers don’t come, and they don’t know why. It’s because they didn’t really know their customers. They didn’t ask people, ‘Would you buy this if I made it?’”
Ms. Deans says business owners need to talk to their potential customers, study their markets and ask themselves: “What am I offering that others don’t? How am I offering it in a way that will persuade customers to come to me?”
Jeff Cates, president of Intuit Canada, agrees that validating your idea and researching your market is an essential first step that many fledgling entrepreneurs miss.
“That’s the heritage of Intuit,” Mr. Cates says. “The original product was Quicken. Our founder, Scott Cook, saw how much time his wife was spending at the kitchen table balancing the home books and said, ‘There’s got to be a better way.’”
Mr. Cook started calling would-be customers and getting deeper insights into how average Canadians balanced their home finances. “He went into people’s homes to see, ‘What is this experience?’ Only then did he start to move to his product concept,” Mr. Cates says.
“I think that’s a great teachable to all businesses. Get deep customer insights using things like ‘follow-me-homes,’ and then test and build. But constantly get information from customers.”
Mistake No. 2: Not knowing yourself
Business owners may be so focused on their ideas that they don’t take the time to consider whether they have what it takes to survive as an entrepreneur, Ms. Deans says.
“Look at yourself and your family. What can you afford to do? How much time and energy and resources do you have when it comes to starting your own business? It’s not for everybody at every time.”
It’s also important to be honest with yourself about your personality and skill set, Ms. Deans says.
“Are you somebody who is going to be comfortable with the ambiguity of not knowing what’s going to happen next? Of having to be the boss and lead?”
Mistake No. 3: Lack of financial management skills
For many entrepreneurs, the biggest obstacle to success is a lack of financial acumen. The CYBF recently held 10 roundtable discussions across the country, and the top issue among young entrepreneurs was lack of financial management skills.
“People are not taught it in school, they are scared of math and they just don’t understand how important it is to have good financial management skills,” says Ms. Deans.
As a result, many entrepreneurs end up avoiding accounting tasks until they are staring at a stack of receipt-filled shoeboxes at tax time.
Mr. Cates says one of the reasons Intuit created its signature cloud accounting application, QuickBooks Online (QBO), was to make the financial learning curve a bit smoother.
With QBO, entrepreneurs can keep track of their financial data from any Internet-connected computer or mobile device anywhere, anytime. They can also create custom invoices, capture receipts and track expenses, sync bank and credit card information, and produce business reports.
“QuickBooks Online is going to help you manage your financials and streamline the workload,” Mr. Cates says. “The stuff you have to do – maybe you don’t want to do – QuickBooks Online makes it easier.”
Mistake No. 4: Not getting help
Entrepreneurs often have difficulty asking for help when they need it, particularly when it comes to financial matters. Intuit’s research shows that money is one of the main reasons business owners avoid enlisting outside help, Mr. Cates says.
“Even though 73 per cent of the startups [we surveyed] said, ‘Yes, an accountant would add value to my business,’ only 13 per cent actually went ahead and connected. We asked, ‘Why is that?’ The top reason was cost. There’s also a complexity to that situation. People wonder, ‘Who should I pick? How do I divulge this information that’s so important?’”
To help remove the barriers that keep small-business owners from seeking financial help, Intuit launched a website to help them find an accountant in their area: findapro.intuit.com.
As well, QuickBooks Online has been designed to maintain an active connection between accountants and business owners, Mr. Cates says. Both sides see the same financial information simultaneously. “Accountants can act as a second source, to help coach the business owner in a more active way, not just perform tasks at the end of the month,” he says.
Mistake No. 5: Giving away too much equity
Lack of capital is frequently a challenge for new business owners. But in their quest for funding, says Ms. Deans, entrepreneurs should be wary of giving away too much of the businesses they’ve worked so hard to create.
“We’ve met some young entrepreneurs in hot businesses where it’s a cool IT startup and everybody wants to give them money and take equity,” she says. “All of a sudden, they realize they’ve given away more equity than they will ever be able to support.
“You might be better off going out and getting more customers, rather than giving away parts of your business.”
While there is no secret formula to ensure small business success, you can increase your chances by avoiding these all-too-common pitfalls. By doing your research, staying on top of your financials and getting outside help when you need it, your enterprise will be well-positioned to survive, and thrive.
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