Small-Business Challenges: 4 Questions to Ask Before Starting a Company

by Daniel O'Donnell
- Jun 24 2014 - 4 min read
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For every successful step that entrepreneurs take in their climb toward sustainability, there are often more mistakes that pepper their career path. The fact is small-business challenges are ever-present, but that doesn’t necessarily mean you have to stumble in the same way that other business owners have.

In contrast, if you take into account the errors others have made along their way to establishing a business, you’ll have a better chance of avoiding these somewhat unnecessary obstacles. To this end, here are four questions to ask yourself to avoid some of the most harmful mistakes entrepreneurs can make.

1. Do You Have Insufficient Funds? Marcus Lemonis, chairman and CEO of Camping World, told the Yahoo Finance segment Off the Cuff that many small-business owners aren’t fully aware of the financial expenses they’ll be responsible for when they’re working to get their company off the ground. As a result, they enter the process unaware of the capital they’ll need, which can be an ugly surprise.

A group of small-business owners on LinkedIn responded to the question, asking each other about the mistakes they first made when launching a business.

“Not having enough funding to get me through the first two years of growing the business,” Jeannine Clontz, president of Clontz Business Services, said during the LinkedIn discussion. “I would have waited about eight to 10 months before starting the business in order to set aside more of my salary to get us through the lean times! Luckily, we made it through anyway!”

small-business challenges

Not everyone is so lucky, though, which is why it’s important to plan ahead to avoid running low on money and having to frequently dip into your personal reserves to purchase, for example, solar-panel supplies or HVAC equipment.

To provide insights into this scenario, Inc. magazine referred to Jeffrey Levine, partner at a Massachusetts-based accounting firm that focuses primarily on small businesses, as well as Allan Roth of the investment-advisory firm Wealth Logic. Diversifying your assets by investing in both stocks and bonds to hedge your investments can help you avoid losing an inordinate amount of money, Inc. wrote. Roth suggested having a conservative portfolio that’s pretty evenly split between low-risk bonds and more innovative stock investments.

2. Where Are Your Customers? Customers are the core of your business, regardless of the size of the company. However, they’re even more crucial for small-business owners because the margins of error when you’re first starting out are so slim. While each entrepreneur experiences different small-business challenges, Lemonis told Off the Cuff that it’s virtually guaranteed that new business owners will lose money. First, it’s important to look at how much you’ll need to invest in acquiring customers.

“Underestimating the cost of customer acquisition, and not finding partners earlier on” were costly mistakes, explained John Wood, software architect and president of RiaForm Technology, who also participated in the LinkedIn discussion.

The San Francisco-based web analytics firm KISSmetrics indicated measuring the cost of customer acquisition needs to be part of a pre-planning strategy. In the simplest terms, you should be contrasting the cost of your sales and marketing efforts over a specific timeframe—monthly, for example—with the number of customers you work with during that time period. This can be tricky when you’re first starting out because you may not yet have a consistent customer base, but even an estimate can be beneficial.

3. Who Are You Working With? As Wood explained, getting off the ground can be difficult using a single financial resource—namely, you. Working with a partner can help diversify and solidify your initial capital, thereby reducing the amount of risk you’ll face as your business progresses. The Wall Street Journal suggested a small-business owner needs to establish this unique relationship with sufficient caution.

The person you work with should have connections, talents, insights, or financial reserves that you find are lacking in your operation. This is important to consider because it will ultimately affect another important business relationship: the way the IRS classifies your partner and ultimately taxes your company.

4. Have You Lost Focus? Ultimately, you’re a business owner who needs to maintain a steady revenue stream, and you must establish this fact as primary to the way you work with clients and customers. While there’s something to be said for pro bono work for a charitable cause, these sorts of ventures can quickly become time consuming in spite of any goodwill it will generate for your small business.

small-business challenges

“[My] husband caught me one morning at about 2 a.m. working on a newsletter for a local civic group—he used to say I wasn’t an entrepreneur, I was a professional volunteer!” Clontz said. “[It] took me a long time to learn to say ‘no.'”

Starting a small business is the ultimate test in discipline and learning where to allocate limited resources. Unless you’re sure that projects that are secondary to your core business functions—such as volunteering—will provide a strong return through customer referrals and publicity, it might be better to wait until your company has a established a firmer footing before expanding into these endeavors.

To read about more small-business challenges, check out Small-Business Tips: 5 Confessions/Lessons Learned from a Product-Design Entrepreneur, Part 1.

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