Here’s the unvarnished truth for novice entrepreneurs: A staggering 90% of startups don’t succeed. This figure comes from various estimates.
As you embark on your entrepreneurial journey, expect to encounter your fair share of missteps, and for some of you, these could mark the end of your first business endeavor. However, inexperience doesn’t have to be a roadblock. Seeking guidance from seasoned professionals can significantly enhance your odds of thriving.
NerdWallet reached out to educators specializing in business and entrepreneurship, as well as those leading entrepreneurship centers in universities nationwide. In this piece, seven experts share insights into common pitfalls faced by first-time entrepreneurs and offer strategies for avoiding them:
1. They get too attached.
“A frequent error is becoming overly attached to their startup concept…. New entrepreneurs revel in the excitement of birthing an innovative product or service and are often resistant to criticism about their ‘baby.’ Enthralled by the idea, they neglect the practical steps needed to bring it to fruition and generate profits. Without a money-making component, you don’t have a business—just a financial drain.
“Successful entrepreneurs understand that starting a business hinges on effective execution: determining how to deliver a product or service to the market, gauging customer interest, and assessing whether you can achieve profitability in a timely manner. Moreover, it’s vital to launch your product or service as quickly as possible to outpace competitors.
“Entrepreneurs also need to be agile, adaptable, and ready to pivot their business model based on evolving market insights.”
The takeaway: Maintain a realistic outlook on your business. How? Network effectively.
“Regularly engage with fellow entrepreneurs and conduct extensive market research. If you’re pursuing studies, connect with your university’s entrepreneurship program, which offers a wealth of resources to support your success. If you’re an alumnus, leverage your alumni network to find fellow entrepreneurs who are typically eager to assist newcomers. Numerous entrepreneur meetup groups have emerged. Consult the U.S. Small Business Administration, your state’s economic development resources, and look into accelerators and incubators.”
—Susan Scherreik, director of the Center for Entrepreneurial Studies at the Stillman School, Seton Hall University
2. They lack a support system.
“A common oversight is failing to build a robust support network. This can be mitigated by collaborating with partners who bring complementary skills, forming an informal advisory group of both technical and business experts, and establishing a formal board of directors.”
The takeaway: Cultivate your own support network. Additionally, practice is essential.
“The skills necessary for entrepreneurship can be acquired. Think of them as the foundational elements of a sport that need to be learned properly and honed through consistent practice.”
—Nik Rokop, assistant professor of entrepreneurship at the Illinois Institute of Technology
3. They struggle with financial management.
The predominant error “is usually tied to ineffective cash flow management. This encompasses operational decisions (leasing versus buying, new versus used, etc.) and forecasting (failing to create an accurate revenue prediction).”
The takeaway: Avoid the pitfalls of cash flow mismanagement. What helps? Seeking and acting on advice.
“Gaining industry experience beforehand is crucial for understanding typical business operations. Stay optimistic while remaining receptive to expert guidance, which you should actively pursue and heed—especially regarding your product’s competitive edge and its added value.
“Draft a business plan, even if it consists simply of a competitor analysis/market niche strategy and your financial projections, along with sound assumptions. Stay adaptable. Prepare for long hours, particularly in the initial three to five years. If your venture hinges on intellectual property, ensure it’s safeguarded. Examine every contract carefully before committing to it.”
—Anne York, associate professor of entrepreneurship and strategy, and director of the Bioscience Entrepreneurship Program, at Creighton University
4. They focus too much on the present.
“Several early-stage startup errors can be rectified. However, one of the most challenging is defining ownership… It’s easy for us to casually agree, over drinks, ‘We’ll start a company—you’ll get half, and I’ll take half.’ Then, months later, I’m burning the midnight oil at my other job while you’re working weekends on the startup, and I think, ‘Wait, how is it fair that I’m doing all the heavy lifting for someone who owns half of this venture?’ That’s tough to fix.”
The lesson: Establish an agreement early: how much work each party will contribute and their corresponding ownership stake. This will help you avoid significant headaches later.
“Another common early mistake is treating all co-founders the same. Often, individuals contribute varying levels of value. Ventures with considerable potential crumble when these dynamics aren’t addressed, leading to discontent after months of work when it’s too late to re-negotiate responsibilities and ownership.”
—Brad Treat, entrepreneurship instructor at Ithaca College and entrepreneur in residence at Rev: Ithaca Startup Works
5. They aim for “perfection.”
“A major error entrepreneurs make is the belief that it’s a one-time race to the finish line, so they strive to create a flawless product and formulate a perfect plan while securing just the right amount of funding. However, they soon realize this process requires multiple rounds, and their initial plans and funding expectations may not be sufficient for the protracted journey.”
The lesson: Plans? They quickly become irrelevant.
“Many claim, ‘Just formulate a better plan.’ Yet, experienced individuals recognize that a plan becomes nearly obsolete the moment a business begins operating…. This new methodology known as lean innovation demonstrates how one can develop something rapidly—often within a day—and engage with customers to validate their early models and ascertain if they are on the right path.
“In the early phases, the question of ‘should you proceed?’ holds greater significance than ‘can you do it.’ Unfortunately, many businesses reverse this sequence, squandering funds on refining products or prototypes only to find they’ve created something no one wants or needs.”
—Gary Lynn, professor at Stevens Institute of Technology and chair and founder of Breakthrough Technologies Group
6. They neglect to ask, Will customers pay?
“Sometimes, the [business] concept fails to address a pressing issue that people are willing to pay to solve. Additionally, a frequent misstep is the inability to effectively monetize the idea. Take mobile apps, for instance; they often come at no cost, creating a challenge in generating revenue due to the overwhelming competition in primary app stores.”
The lesson: Identify potential investors.
“To generate income, you need an initial investment. Many entrepreneurs mistakenly believe that others will cover basic expenses, like forming a company or constructing a prototype. Ultimately, early funding typically comes from family and friends; if they aren’t willing to invest in your idea (and you wouldn’t either), why would a stranger?”
—Ron Vetter, professor of mathematical and computer sciences at the University of North Carolina Wilmington
7. They lack adaptability.
The most prevalent mistake is “not being adaptable. It’s critical to test market assumptions early, be ready to pivot, and redesign products or services until achieving proof of concept. This should be a continuous effort prior to seeking external funding. Sticking rigidly to a startup model early on can hinder innovative thinking.”
The lesson: Cultivate an adaptable mindset—and conduct a personal assessment.
“Evaluate yourself: Do you possess a risk tolerance? Are you flexible? Can you collaborate effectively? Do you have relevant experience? Are you receptive to feedback? It’s also essential to grasp basic accounting principles to comprehend financial data meaningfully. Remember that you don’t have to originate every idea; licensing technologies or collaborating with others who possess ideas can be part of an entrepreneurial team effort.”
—Craig Galbraith, interim director of the University of North Carolina Wilmington’s Office of Innovation and Entrepreneurship
