In my 20 years as an entrepreneur, I've seen my fair share of small businesses bite the dust. If you're considering opening a small business of your own, knowing how others tripped up can help you shun similar stumbles.
You'll never avoid mistakes entirely, of course, but some mistakes are harder to recover from than others. Keep the following missteps in mind as you move forward:
1. Putting all your eggs in one basket.
A buddy of mine once had a lucrative landscaping company. He won a bunch of commercial accounts with local malls, a huge advantage that should have kept him solvent for years to come.
Most of the malls in the state in which he operated were owned by a massive corporation. During the financial crisis, they filed for bankruptcy protection, which canceled their debts with contractors all over the country.
They owed my friend a quarter-million dollars and didn't pay it. It put him in a deep financial hole, and he asked for my advice. Once I'd gone over the numbers, I told him flat out that it was hopeless. He'd have to take it on the chin and declare bankruptcy.
My friend was a victim of someone else's mistake, but the fact remains that he'd placed his professional survival in the hands of a single customer. No small business owner can afford to take that risk, no matter how solid and reputable the customer seems in the moment.
2. Falling victim to bad luck.
Many small business owners fail because it isn't their time, plain and simple. It's not because of anything they did or didn't do; it would have happened to anyone.
Some forces are beyond human control. You launch an e-commerce business on the eve of the dot-com collapse, for example. Or you unveil a covered wagon emporium two days before a guy named Henry Ford advertises a newfangled contraption called the automobile.
It's important to acknowledge the reality of plain bad luck because a lot of small business owners that fail never find closure otherwise. They think, "I'm just a loser. I never could have done it. I shouldn't have tried."
Bad luck isn't a mistake; letting it stop you is.
3. You spend more than you earn.
When your expenses exceed your income, you're headed for trouble. Maybe you were wildly optimistic about your sales forecast. You thought you'd have bigger revenues, you roughed out an expense budget against that anticipation, and the profits didn't materialize.
In this case, you either didn't adjust the expense side fast enough to accommodate reality, or you put yourself in a position where the math was going to crush you regardless.
An example of the latter might be a restaurant owner whose rent is $10,000 a month, but whose revenues flatline at $9,000 a month in spite of their best efforts. Adjusting the expense side of the equation under those circumstances is futile. They are--for lack of a better word--doomed.
4. You lose relevance.
Let's say you're prescient enough to recognize that a historically struggling neighborhood is showing signs of revitalization. You try the available pizza joints and realize you can offer a far superior product. You open up shop and start killing it--you're repaying your loans, upgrading your equipment, scouting new locations, etc.
You may have been first on the scene, but it's still a competitive landscape. The marketplace is dynamic; losing sight of that fact can be fatal. Before you opened your business, you had the luxury of spending your hours researching and strategizing. Now that you're up to your eyeballs in day-to-day operations, it's easy to forget that your advantages are constantly eroding.
Be vigilant, or else you'll be the one getting disrupted by the new kid in town. Small businesses that don't stay ahead of the curve--even if only by a fraction--will inevitably fall behind it.
Remember my friend with the landscaping company? He did end up declaring bankruptcy. He found himself another job working for someone else and was pretty heartbroken for a while.
I'm pleased to report that the story doesn't end there. He kept scheming, he kept dreaming, and eventually conceived an idea for a brand-new business. It took years and years of hustle, but today that business is absolutely thriving.
In the world of entrepreneurship, failure comes with the territory. Do yourself a favor and don't give up.