When setting up any business, there is also always the risk of failure. To minimise this risk, you can learn from the experiences of others who have set up in business before you, whether they have succeeded or failed.
Listening to their experiences will also help you to stay on track, even when the going gets tough. For support on this, take a look at the following 10 tips to guard against the most common types of start-up failure:
Are you absolutely convinced about your business idea? If so, take some time to carefully draw up your business plan and ideally also your Business Model Canvas. This will help you not only to recognise the potentials, but also the weaknesses. A strong business plan is also the best support when it comes to talking to the bank. Take the greatest care to avoid understating your expenses to increase your chances of obtaining finance. If margins are narrow, you may pay the price later. Talk to your friends and acquaintances about your idea and obtain feedback from potential customers. This is how you can improve your product or service before you start and ensure you don’t ignore the market.
Quote Eva Risse, Master Roofer
- Eva Risse, Master Roofer
The biggest hurdle was my own lack of awareness. That doesn’t mean that I wouldn’t do it again now. However, I would approach it more carefully and obtain better information from organisations that support people setting up their own business.
Don’t just focus on your strengths
You have a high-quality product or service and your team's work is outstanding - fantastic! To ensure that remains the case, you need to clearly analyse your weaknesses and not just rely on your strengths. Because the things that are going well today may not necessarily continue to go well tomorrow. A thorough analysis of weaknesses will help you to minimise risks and thus provide you with new opportunities.
Know your customers
You don’t just need to know about what you are offering, you also need to know about your potential customers. The best-made product will not sell if it does not fulfil the needs of your target group. Pay attention to this, or you run the risk of failure.
Set yourself apart from the competition
To enable you to conquer your targeted market, you also need to analyse your competitors. Also consider whether your product has any unique selling points. Because if your product is no different from that of your competitors, you will find it difficult to establish yourself on the market. Similarly, your competitors may copy the product you have already established and entice your customers away from you by offering them a better or simply a cheaper product. Even after you have set up your business, keep an eye on your competitors and make sure that you continue to have a unique selling point.
Don’t overshoot the target
If your business has got off to a successful start and initial revenues are coming into the business account, there is a huge temptation to start investing: in flashy company vehicles or offices, a secretary or the latest smartphone for you and your employees. But wouldn’t it be enough just to be working from home and only entering into essential maintenance and leasing agreements? Take a long hard look at your investments and, to begin with at least, hold back on accumulating unnecessary costs.
Keep an eye on your financial plan
Even without any ridiculous investment, money can become short until suddenly you are insolvent. To avoid that happening, you need to ensure that you work to your financial plan as far as possible and that you do not underestimate purchases and include a suitable liquidity reserve for the start-up phase.
Take care to achieve the right work-life balance
Being your own boss is great, but it requires you to make sacrifices. Your new business needs your full commitment, but that doesn’t mean that a 60-hour working week should become the norm. Look after your health and take regular breaks, because burnout will affect your business, not just you. You should also talk openly with your family and close friends about your plans right from the start. They can support you in maintaining a healthy work-life balance.
Set the right priorities
Managing a start-up requires much greater self-management than was previously the case when you worked for someone else. Avoid taking a casual approach and learn to prioritise your workload. Use to-do lists and always keep your eye on deadlines and other timings.
Put together a practical team
As long as you are not planning on being a single-person company and the order book permits, you will need to employ staff. This can result in conflicts or it may be that the skills of individual team members are not compatible. Therefore, analyse beforehand exactly which talents you need and ensure that new colleagues complement each other and counterbalance each other’s weaknesses. You also need to study the topic of personnel management closely, because even the best qualified members of staff will yield nothing if they don’t get on with each other and their differences contaminate the working environment.
Quote Katrin Wieschenkämper, Fashion Designer
- Katrin Wieschenkämper, Fashion Designer
You can take hurdles and make something of them. So, for example, when I had a break-in and half of my collection was stolen, I used it to issue a press release. The publications and reports have mitigated my losses to some extent.
Guard against setbacks
As you have seen, as convinced as you are about your business idea, starting up comes with many risks that can’t always be avoided. A major customer, whose payments you have relied upon, suddenly leaves you or a key member of staff suddenly decides to leave your company. You should always have a plan B for cases like this, to protect you from the worst-case scenario. This also includes insurance, so that you are not in a position of having no income if you suffer any inability to work and to ensure you are part of a pension scheme to provide you with an income when you retire.