common mistakes, mistakes entrepreneurs make

Common Mistakes First Time Entrepreneurs Make

It is not easy to get a business off the ground. Around 770,000 businesses are started in the US every year. Sadly, many of them fail. According to 2019 figures, 90% of startups fail. Of those, 21.5% fail in the first year, 30% in the second year, 50% in the fifth year, and 70% in their 10th year. Several research projects have looked at why small businesses fail. The research has revealed a number of reasons, which, if you know about the common mistakes first time entrepreneurs make, can help you to avoid the same pitfalls. 

It’s in the nature of life and business that you will fail at some point at something in your business. Still, knowing beforehand about the most common mistake others have made can help you avoid disastrous decisions. 

Let’s look at some of the most common mistakes first-time entrepreneurs make.

Inadequate planning

Business success depends largely on thorough planning and smart decision-making. Many businesses that fail were started without proper planning. Any new business needs a short and long-term plan that sets out measurable goals and objectives with deadlines to achieve them. 

Formulating a business plan should include a realistic evaluation of the intended product or service the startup intends to provide, estimated operating costs, anticipated sales volumes, and who the target audience would be. The planning process forces you to take a realistic look at your planned business. It may also cause you to adjust your ideas.

Tony Hsieh, CEO of Zappos, gives this tip to keep in mind when planning your venture: “Chase the vision, not the money; the money will end up following you.”

Not testing your business idea sufficiently

Testing your business idea helps you avoid building a product or service no one wants to buy, causing you to waste effort, time, and money in the process. To this end, you need to develop a minimum viable offer (MVO). An MVO differs from a minimum viable product (MVP) in the sense that it tests your business idea; an MVP tests your product or service. For an MVO, you don’t build a prototype; you describe the value of your business idea without building the prototype.

The purpose of your MVO is to help potential customers understand your idea and for you to find out whether they think it is feasible. Your MVO should explain the problem your target audience is experiencing, what they are currently using to deal with the problem, why it falls short, and how your solution can help.

Take note of what people are saying in response to your MVO and what they expect from a solution. If your offer doesn’t provide it to at least 40% of your target audience, consider pivoting and testing again until you get at least a 40% approval rate. At this point, it’s also a good idea to test pricing. 

Testing your business idea will help you to gauge what the market wants. According to CBInsights, one of the top reasons why startups fail is due to misinterpreting market demand. 

Offering something that the market doesn’t need or want

Research has shown that finding solutions for problems that are interesting to solve rather than real problems people experience, is the reason for 35% of startup failures.

Products or services that are not differentiated from existing market offerings and don’t deliver real value tend to fail. For a brand new business idea to succeed, it really needs to be brand new. Products and services that are only marginally different, better, faster or cheaper than existing offerings won’t capture market share. 

CBInsights mentions the much-reported failure of Quibi, the short-form video streaming service for mobile phones as an example. Quibi partly failed because the founding partners, Jeffrey Katzenberg and Meg Whitman, didn’t seem to understand how people use streaming services and what they want from them. Neither did they find a way to differentiate Quibi from successful services like TikTok.

Not getting the right team together

According to Entrepreneur, 23% of startups that fail do so as a result of team issues. Not to mention, the inability to hire the right key people can spell disaster and is one of the most common mistakes first time entrepreneurs make. A diverse team with different skill sets is needed for the success of most companies. In the early days of a startup, the business needs generalists who can work on diverse tasks in diverse roles to get the company going. As it matures, more specialized skills are required. 

Be very careful when you start hiring – don’t hire too many people too fast and take your time over the process. It’s too costly to make a hasty hire and then sit with an employee that’s not working out for you.

CEO of Salesforce, Marc Benioff, says this about hiring: “The secret to successful hiring is this: look for the people who want to change the world.” 

So, before looking for skills and qualifications, try to find people that share your vision.

A weak founding team

Two founders are better than one, increasing the odds of success with 30% more investment. Two or more founders can split the responsibilities between them and each focus on their own strengths.

However, many businesses fail when the partnership doesn’t work out. More often than not, there comes a time when one person feels hard done by because of a perception that they are working much harder than their partner. Or they have different ideas on how to move forward and internal strife ensues. After a while the business dissolves because the partnership failed. 

A clearly laid out business plan with defined duties and responsibilities could go a long way toward avoiding conflicts that can sink the ship. CBInsights cites a weak founding team as a reason for the failure of 23% of startups.

Not listening and responding to customer needs

Paying attention to your customers is paramount. A business can’t hope to be successful if it doesn’t know its customers’ wants and needs. A CBInsights analysis of 101 startups reported that 14% of startups fail due to not regarding customers’ needs.

The most successful businesses are open to constant customer feedback. Conversely, companies that ignore customer feedback do so at their peril. Customer reports tell you what you are doing right and what you need to improve. Feedback from unhappy customers can be a blessing, allowing a business to change course and fine-tune its offerings for customers.

Poor or neglected marketing

According to Investopedia, bad marketing is one of the main reasons why first-time businesses fail. It’s a sad truth that no matter how fantastic your product or service, it won’t sell if no one knows about it. Marketing goes wrong when companies sell their products in a way that doesn’t appeal to consumers, or they focus on the wrong features because they don’t understand what their audience is looking for. Many founders are thrilled with their product, but are unable to get their message across. And many tend to neglect marketing altogether. 

In practice, most entrepreneurs are experts at what they do but have very little knowledge of marketing. Being enthusiastic about an original product or service that you believe will change the world is not enough if you can’t get the message across. For many entrepreneurs, the best answer is to hire a marketing expert to spread the word professionally. It costs money, but not doing it will cost more.

Running out of cash 

Running out of cash together with the inability to secure financing or investor interest is the top reason startups gave for their failure – 38% of startups failed for this reason.

The question is, why did the money run out? The reason can be because money stopped coming in, an inability to obtain financing, or extend financing. If it’s because money stopped coming in, the reason for the business failure lies in an inferior offering, poor customer service, or a problem with the sales team. 

Companies also run out of cash when expenditure exceeds income. That can happen as a result of failed marketing efforts. Also, early-stage companies can run into financial problems if they don’t secure adequate capital for essential sales and marketing activities. The truth is that many startups run out of money soon after launch.

Lack of focus on sales

When they have extra time at their disposal, most entrepreneurs would rather spend more time building their product than getting out of the office and making some sales. However, small businesses can’t afford not to focus on profitability –they simply won’t survive without adequate sales revenue to cover costs and run the business.  

Anand Sanwal, CB Insights co-founder commented: ‘’My slowness in getting us selling has had bottom line impacts, in that we should have made a lot more money earlier than we did.” 

Delivering poor quality

The last thing you want to do is introduce a poor quality product to the market. High-quality products and services are the basic minimum for a successful business. In today’s competitive marketplace, there is no room or tolerance for mediocre products and services. Companies that don’t deliver quality don’t stand a chance. 

No attention to customer experience

Apart from an outstanding product or service, your key differentiator is the customer experience (CX) that you offer. Companies that don’t pay attention to customer experience will struggle to gain and keep customers. 

Spending time and effort on CX will guarantee you loyal customers down the line. While you spend your time on getting customers, also devote time to thinking about how their experience with your company and its products will be. As Brett Trainor, startup mentor and business coach observed in one of his blogs, ‘’… in many ways, your brand is determined by that customer experience. If you’re not delivering an exceptional one, your customers will talk about it (in person and especially, online), which will take the reins and define your brand for you’’.

According to research by Zendesk, successful startups all have excellent CX in common.

Hiring mistakes

Hiring mistakes can be very costly as labor is the biggest cost of doing business. Hiring mistakes that startups make include hiring too soon, hiring full-time employees when part-timers will do, hiring too many people, hiring the wrong people, and offering lavish perks. In the long run, it makes more sense to keep employee staffing levels low and nurture a core group of competent and loyal employees.

Not grasping what starting a business entails

Too many people are seduced by the big startup fantasy. They read about the business success, money, and opulent lifestyles some entrepreneurs can afford, and they imagine it’s there for the taking. Just find your passion and follow it, is the mantra. 

The reality is that starting a business is tough and requires sacrifice. Getting a business off the ground takes everything out of you – it has cost more than one entrepreneur their relationships with family, friends, and partners. Some startups fail because the entrepreneur embarked on a journey that he or she wasn’t fully prepared for. 

Former Zenefits CEO Parker Conrad told CBInsights, “I think people are unprepared for how hard and awful it is going to be to start a company. I certainly was.”


CBInsights also cites burnout as a reason for startup failure. Work-life balance is pretty much non-existent in the startup ecosystem. In fact, working endless hours is kind of a badge of honor amongst those in the startup world, so the risk of burnout is high. Burnout was given as a reason for startup failure 5% of the time. 

Entrepreneurship is very intense, and many entrepreneurs can’t separate their sense of self-worth from the business. As the ups and downs of startup life start happening in quick succession, some entrepreneurs can’t help but take business setbacks as personal setbacks. It’s not long before depression sets in, followed by burnout.

The widespread belief that entrepreneurship goes hand in hand with long hours and personal sacrifice validates burnout as a result of overwork.

Burnout can cause team members to lose all passion for and interest in the venture leading to its demise.

Final thoughts

There are many reasons why early-stage businesses fail. Still, in the end, it boils down to not focusing your attention on the right things, or focusing your attention on one aspect of the business at the cost of other equally critical factors. We learn primarily from our own failures, but being aware of common mistakes first time entrepreneurs make can help you avoid unnecessary missteps.