Startup Businesses: 5 Common Mistakes Every Entrepreneur Should Avoid Making

December 30, 2017

Many startups fail each year, but most of those failures are due to simple mistakes. If you can avoid the common errors associated with new businesses, you could increase the odds of your company being successful. Take a look at five common startup mistakes, and what you can do as an entrepreneur to avoid them.

Choosing the right business structure

This is one of the most critical aspects of starting a business, and many entrepreneurs choose the wrong business type when it is time to register the company. Knowing your business type is something that will help answer many questions that you have, such as what structure you should choose, where you can find financial resources, what state you must register in, and more. The type of business structure that you choose will also affect how you conduct business and your taxes.

Some common facts that entrepreneurs should know about business structure are:

  • Sole Proprietorship – Less formality and administrative work.
  • LLC and S-Corp – Protects personal assets from any liability of your company.
Naming the Primary Entrepreneur

It is okay to have more than one founder, but too many entrepreneurs could lead to trouble in the long-run. Keep in mind that a small percentage of successful startups were founded by one person. However, there is typically one person who is the primary driver of the business. This is a person who will make the most sacrifices, in terms of giving up their free-time and being prepared to do whatever it takes to make sure the startup succeeds. The primary driver is generally the person that investors, business partners, managers, and team members will look to. It is important to choose the primary entrepreneur at the beginning, instead of waiting and experiencing issues that disrupt the company in the future.

Skipping out on Equal Vesting with Multiple Founders

Many startups consist of founders who were childhood friends, college classmates, or people who were colleagues at a previous job. Regardless of how much you trust the other founder (s) in your company, it is important for everyone to have vesting schedules for their equity. If someone leaves the company, for whatever reasons, your business won’t crash and burn. Vesting will protect everyone. Reverse vesting is important for all founders because this allows the company to buy back the stock over time.

Failing to Enlist the Help of a Professional

Many startups make the mistake of forming their business without seeking advice from a professional, especially an attorney. There are forms that an attorney can fill out for you, and laws that he will understand but you don’t. A professional accountant is also necessary for startups, to help you with vesting, financing, and tax filings. Even though you can find a lot of information online or in print, it is best to have a professional who understands business and legal terms that could prevent you from making costly mistakes.

Fundraising in the Early Stages

Most entrepreneurs can attest to the frustrating and discouraging aspects involved in raising funds for a new startup venture. This is because investors don’t generally invest in ideas, regardless of how much potential the product or service has. Keep in mind the investors typically look at countless proposals each year, which is why they invest in proven companies, instead of ideas. Therefore, you should avoid raising money for your startup in the beginning. After your product is developed, and it has attracted pilot and beta customers, you can begin working on your proposals for investors.

Remember that building your business will require more than a good idea and office space. You will need to practice self-control and do some research to help avoid these common mistakes, amongst other errors that most startups encounter. Building a successful business will require you to have patience and passion. Always keep a clear mind when making business decisions that will impact your company in the short-term and the long-term.




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