As a budding entrepreneur, you know the stakes are high to start your own business and leave your day job. You’ve got a family to feed and a dream to chase, and you’re painfully aware that the chances for success are slim. It’s estimated that one-third of start-ups fail within the first two years, and another third drop out by the seventh year. With so many failed ventures, you’ve determined not to become one of them.
Failure is a great teacher—it’s a crash course in what not to do again. One of the best ways to avoid business failure yourself is to learn from others’ mistakes. Daymond John’s Success Formula reveals the five most common regrets of failed entrepreneurs—use this list as a guide for not making the same mistakes.
1. Didn’t know the customer
Your No. 1 job as an entrepreneur is to do your market research. One of the top reasons startups fail is that what they’re offering doesn’t have a market. A great product or service solves a problem, but if you don’t make life easier or better for anyone, then no one will buy what you’re selling. Research what’s already available on the market, who might buy your product and what your potential customers are missing and willing to pay for.
Try this exercise: describe your ideal customer. And no, don’t say “everyone”—that’s a sign you don’t know who you are selling to or what problems your business has set out to solve. The more detail you can use to describe your ideal customer, the better and more targeted your product and marketing will be.
2. Didn’t focus on profit margin
Do you know what your profit margin is? Chances are most failed entrepreneurs either didn’t know or had a very low one. Even if you have revenue coming in every month, it doesn’t mean you have a sustainable business model or will be making much of a profit in the long run. Take a look at your inventory and overhead costs. How much are you making back per purchase? This is your profit margin, and you should aim for it to be at least 10%, if not higher. Rather than focusing on revenue, focus on increasing your profit margin: if your prices are too low or your suppliers charge too much, you’ll be doing hundreds of hours of work for only a meager profit.
3. Went at it alone
As the CEO of a small startup, you’ll come across many problems and questions you don’t have the answers for. Many new entrepreneurs assume they can muscle through with using their own hard work and brain power. But this can lead to crucial missteps that ultimately cause the business to fail. A better way to approach your business roadblocks is to ask for help. Use your network to find a seasoned CEO who can advise you from experience.
4. Waited too long to fundraise
Small businesses fail when they run out of cash. Some entrepreneurs get so caught up in the work of developing products or engaging with customers that they put off fundraising until the need becomes desperate. At that point, they don’t have a runway of cash long enough to sustain them through fundraising, so they run out and close shop.
Be sure to fundraise before you start running low. Investors and lenders need time to make a decision, and if times are tight you won’t be able to afford waiting so make fundraising a priority.
5. Hired the wrong people—and didn’t let them go
The great thing about being your own boss is that you can’t fire yourself—but the tough thing is that you might have to fire others. And if you’ve hired your brother-in-law because he took an accounting class in college, you might feel awkward firing him when his work doesn’t cut it. Or maybe some of the employees you hired early on have proven to be only so-so workers.
New businesses tend to hire inexperienced workers, but in the end, hiring the wrong people and keeping them around too long can prove detrimental. Have high hiring standards from the beginning, communicate your expectations for excellence early on—and don’t hesitate to let lackluster employees go.
There you go—the top five regrets of failed entrepreneurs. Once you understand where others have gone wrong, you can resolve to avoid the same mistakes. To further help you on your journey to entrepreneurial success, sign up for a free course at Daymond John’s Success Formula today!