Top 7 Mistakes Small Businesses Make

2024.06.03 12:32 PM By Joshua Taddeo, Principal Consultant
Image of a warning sign with the title "Top 7 Mistakes Small Businesses Make".

Starting and running a small business is a dream for many entrepreneurs, but there's no shortage of challenges. From the initial planning stages to the day-to-day operations, small business owners face a multitude of decisions and potential pitfalls that can impact their success. In fact, according to the U.S. Bureau of Labor Statistics, approximately 20% of small businesses fail within the first year, and nearly 50% fail within the first five years.

To help small business owners navigate these challenges and increase their chances of success, we're exploring some common mistakes small businesses make. From failing to plan and neglecting finances to inadequate marketing and trying to do everything themselves, we will delve into the key strategic and operational focus areas where small businesses can use some guidance. Follow a few relevant recommendations in your business to avoid becoming another failed statistic.

Mistake 1: Failing to Plan

One of small business owners' most common and detrimental mistakes is failing to plan adequately. So much of a business's success relies on the work owners do before even opening the doors or entering a new market, and it can have severe consequences for the success and longevity of the business.

Not Writing a Business Plan

Many small business owners neglect to write a comprehensive business plan. A well-crafted business plan serves as a roadmap, outlining the company's goals, strategies, target market, financial projections, and potential challenges. Without a business plan, owners may lack clarity and direction, leading to poor decision-making and a higher risk of failure. Whether a business owner plans on taking funding or not, using a formal business plan forces them to take the necessary steps to review the market, understand the potential and realistic outcomes, and get a feel for whether their solution really provides the value they think it does. It is often best to extend these into detailed market research with feedback from potential customers in the target market. Don't just trust those around you who may say the business is a great idea.

Not Validating the Business Idea

Some entrepreneurs rush into starting a business without adequately validating their idea. They may be passionate about their product or service but fail to assess whether there is genuine market demand. Building a product to solve your own challenges is one thing, and the ROI may be worth it. Building a product or service for others requires demand and profit margins that can sustain the organization long-term. 

Conducting thorough market research, analyzing competitors, and gathering feedback from potential customers are crucial steps in validating a business idea. Skipping this process can result in investing time and resources into a venture that may not be viable. Validate the need with customers willing to pay for the solution before investing too much time or money. It's better to rethink the basis of a company and retool the product or service ideas before investing the time and money necessary to develop a business.

Misreading the Market

Small business owners may misread the market by overestimating demand for their offerings or failing to anticipate changes in consumer preferences and trends. Mistakes in forecasting can lead to overstocking inventory, investing in the wrong marketing channels, or missing opportunities to adapt and innovate. Staying attuned to market dynamics and pivoting when necessary is vital to avoiding this pitfall. Hiring a market research company to get actual data on the Total Addressable Market (TAM), Serviceable Addressable Market (SAM), and Serviceable Obtainable Market (SOM) could mean the difference in starting a business or saving the money for other investments until the forecasts are confident there's a product/service and demand/target audience match.

Underestimating Costs

Underestimating costs is another common planning mistake. Small business owners may fail to account for all the expenses associated with running their business, such as rent, utilities, salaries, insurance, legal fees, and taxes. They may also underestimate the time and money required for product development, marketing, and customer acquisition, leading to cash flow problems and even bankruptcy if they are not addressed promptly. While it's not always possible to vet the final costs at the earliest stages of building a company, owners should have as much detail as possible. They should also leave room for errors or unexpected price increases, which may occur while finalizing their plans.

How to Avoid Planning Mistakes

To avoid these planning mistakes, business owners should:

1. Develop a detailed business plan with clear objectives, strategies, and financial projections.

2. Conduct thorough market research and validate their business idea before investing significant resources.

3. Stay informed about market trends and be prepared to adapt their offerings as needed.

4. Create a realistic budget that accounts for all costs and includes a buffer for unexpected expenses.

5. Seek guidance from mentors, industry experts, and professional business consultants to help refine their plans and make informed decisions.

By dedicating time and effort to planning, small business increase their chance of success and minimize the risk of costly mistakes down the road.

Mistake 2: Neglecting Finances

A second critical mistake small business owners often make is neglecting their finances. Just like, if not more important than, personal finances, business accounting, and reporting have to be on point. Business owners need to understand cash flow management, budgeting, and when to and when not to take on funding or financing. Without this knowledge and ongoing dedication, owners can put the business at risk and hinder its growth potential.

Image of a frowning piggy bank with a band aid on its face representing small businesses neglecting their finances.

Neglecting Cash Flow

Cash flow is the lifeblood of any business, yet many small business owners fail to manage it effectively. They may focus too much on revenue and profits without considering the timing of cash inflows and outflows. This can lead to situations where the business is profitable on paper but lacks the cash to pay bills and salaries or invest in growth opportunities at the right time. Neglecting cash flow can also make it harder to secure financing, as lenders and investors want to see evidence of solid cash management in addition to profits.

To avoid this mistake, small business owners should:

  • Create and maintain a cash flow forecast that projects inflows and outflows over the next 12 months or more.
  • Monitor cash flow regularly and proactively address any shortfalls or surpluses by adjusting AR/AP payment terms when possible, taking on additional funding or finances as needed, or saving for/delaying investments when prudent.
  • Implement strategies to accelerate cash inflows, such as offering discounts for early payment or requiring deposits for large orders where the law allows.
  • Manage cash outflows carefully, such as negotiating better payment terms with suppliers or cutting non-essential expenses.

Lack of Capital

Another common financial mistake is starting a business with insufficient capital. Many small business owners underestimate how much money they will need to get their venture off the ground and sustain it until it becomes profitable. They may rely too heavily on personal savings or credit cards, which can quickly deplete or lead to high-interest debt.

To avoid this mistake, small business owners should:

  • Develop a realistic startup budget that accounts for all costs, including overhead, inventory, marketing, and salaries.
  • Explore various financing options, such as loans, grants, and investments from investors familiar with new business funding.
  • Consider starting small and scaling up gradually as the business generates revenue and proves its viability to avoid taking on too much risk without the necessary foundation.
  • Have a contingency plan in case of unexpected expenses or revenue shortfalls.


Finally, some small business owners make the mistake of overspending, particularly in the early stages of the business. They may invest in expensive equipment, office space, or marketing campaigns without a clear return on investment. They may also fail to track expenses carefully or distinguish between essential and non-essential costs.

How to Avoid Financial Mistakes

To avoid this mistake, small business owners should:

  • Develop and stick to a detailed budget, reviewing and adjusting it regularly as needed.
  • Prioritize expenses based on their impact on revenue generation and customer acquisition.
  • Look for ways to reduce costs without compromising quality, such as negotiating better rates with suppliers or using cost-effective marketing channels.
  • Consider outsourcing or automating certain functions rather than hiring full-time staff when the company can achieve the same output without the additional labor costs.

Mistake 3: Inadequate Marketing

Marketing is essential for attracting and retaining customers, yet many small business owners make the mistake of not giving it the attention it deserves. While marketing can not create more demand than is available in a market, it can influence purchase decisions to benefit your organization's products and services. Having inadequate marketing means competitors can push the market demand more toward their offerings, limiting the business's growth potential and competitiveness.

Image of a businessman shooting arrows but missing the target representing inadequate marketing.

Not Knowing the Target Audience

One common marketing mistake is not clearly defining or understanding the target audience. Small business owners may try to appeal to everyone rather than focusing on their ideal customers' specific needs and preferences to drive profitable results. Mismatch in marketing targeting can lead to generic or ineffective marketing messages that fail to resonate with anyone.

To avoid this mistake, small business owners should:

  • Conduct market research to identify their target audience's demographics, psychographics, and behaviors.
  • Develop buyer personas that represent the different segments of their audience and use them to guide marketing decisions.
  • Include buying signals with buyer personas when the marketing channels allow targeting with behavioral data rather than just demographic information.
  • Continuously gather customer feedback and adjust the target audience's definition as needed.

Not Having a Solid Marketing Plan

An additional mistake is not having a comprehensive marketing plan that outlines the business's marketing goals, strategies, and tactics. Like a business plan, a detailed marketing plan should be a guide to positive ROI and, ultimately, marketing success. Without a plan, small business owners may engage in ad-hoc or inconsistent marketing activities that don't build on each other or support the overall business objectives.

To avoid this mistake, small business owners should:

  • Develop a marketing plan that aligns with the business plan and includes specific, measurable, achievable, relevant, and time-bound (SMART) goals through an Objectives and Key Results framework.
  • Identify the marketing channels and tactics most likely to reach and engage the target audience, such as social media, email marketing, content marketing, or events.
  • Develop a marketing pipeline highlighting specific marketing channels and types that align with customers' actions at each stage. (ie. Display ads for the top of the funnel, retargeting and webinars for the middle of the funnel, and forms that lead to calendar scheduling for people ready to speak to sales)
  • Allocate a sufficient marketing budget and track each activity's return on investment (ROI).

Ignoring Marketing All Together or Not Gathering the Right Marketing Data

Some small business owners may ignore marketing, believing their products or services will sell themselves. Some businesses are lucky enough to gain traction through word of mouth alone, though we rarely see that leading to growth without a robust marketing plan working alongside customer referrals. Even the best offerings need adequate promotion to reach their full potential.

Additionally, even if organizations know the importance of marketing, many struggle to collect the right data for marketing success. Building a multi-touch marketing attribution model that includes all conversion types, even phone conversion, and correctly interpreting that data for marketing decision-making is critical. While data collection and analysis is one of the more complex activities a small business can engage in, accurately targeted marketing campaigns are the primary factor in achieving a positive ROI. It doesn't matter how many new clients the organization attracts if their purchases are unprofitable through overspending on the wrong marketing tactics.

To avoid these mistakes, small business owners should:

  • Recognize the importance of marketing in driving awareness, consideration, and purchase of their products or services.
  • Make marketing a priority and allocate time and resources consistently, including hiring the right talent to hold the team accountable for results.
  • Continuously educate yourself on marketing best practices and trends and seek guidance from marketing experts as needed.
  • Utilize the tools necessary to develop multi-touch attribution models and adjust the channel mix model to align with the organization's intended return on investment goals.

Not Investing in Organic Marketing

Some small business owners may focus too heavily on paid advertising and neglect organic marketing opportunities. While paid ads can generate quick results, they can also be expensive and short-lived. Organic marketing, such as search engine optimization (SEO), content marketing, and social media engagement, can build long-term brand awareness and credibility. Especially when first creating the business, a well-organized LinkedIn outreach strategy may yield more significant results for the time spent than anything paid initiatives.

To avoid this mistake, small business owners should:

  • Develop a robust digital brand through a well-designed website, engaging social media activity, and regular thought leadership creation.
  • Optimize their website and content for relevant keywords and phrases their target audience is searching for.
  • Engage with their audience through social media, responding to comments and messages and sharing valuable content.
  • Build their brand as a trusted expert in the target niche through authentic connections with ideal customers.

Not Thinking Freebies and Contests Through

Finally, some small business owners may use freebies or contests as a marketing tactic without fully considering the implications. While these marketing tactics can be effective ways to generate buzz or attract new customers, they also have the potential to attract the wrong audience or create unsustainable expectations, costing profitability for results that won't last.

To avoid this mistake, small business owners should:

  • Clearly define any freebie or contest's goals and target audience and ensure they align with the overall marketing strategy.
  • Set clear terms and conditions for the promotion, including eligibility, duration, and any restrictions or limitations. Make sure to vet these with the legal team in case the organization has to defend a position on these terms in court.
  • Ensure the team collects customer information and permission to add them to the marketing automation system and ad channel targeting. That way, even if they don't purchase immediately, they are more likely to stay connected to the brand.
  • Monitor the promotion results and adjust future tactics based on the lessons learned.

Mistake 4: Trying to Do Everything Alone

Image of a woman sitting in a dark office alone at her computer representing small businesses trying to do everything alone.

Many small business owners try to handle every aspect of their business or sometimes feel like they need to. While this may seem like a way to save money or maintain control, it can limit the business's growth and lead to burnout and costly mistakes. This can be especially tempting in the early stages of the business when resources are limited, and the owner is passionate about the vision. Even if they've worn different hats throughout their careers, at some point, owners have to decide on the best use of their time and talents.

Many owners end up focused on sales and product development, closely connected to customers for direct feedback. Owners rarely maintain the focus on executing the work of an expert in a specific field if there are any plans for growth. That's why business experts often recommend not turning a hobby into a business. You'd be surprised how often the thing you love isn't the thing you get to do while trying to run a successful organization.

Trying to do everything alone can lead to several problems:

  1. Spreading yourself too thin doesn't give each task the attention it deserves.
  2. Neglecting important but less urgent tasks, such as strategic planning or personal development.
  3. Becoming a bottleneck for decision-making and execution, slowing down the business's progress.
  4. Burning out from the constant demands on your time and energy.

To avoid this mistake, small business owners should:

  • Prioritize tasks based on their importance and urgency and focus on those owners alone can do.
  • Delegate or outsource tasks others can handle, such as administrative work or specialized functions like marketing, legal, or IT.
  • Develop systems and processes that allow the business to run smoothly without the owner's constant involvement.
  • Optimize manual processes with the Lean Six Sigma framework and automate processes wherever possible.

Not Hiring or Overhiring

Another mistake is not hiring or bringing on help when needed. Small business owners may be reluctant to add staff due to the cost or the fear of losing control. They may also struggle to find the right people or to let go of tasks they are used to doing themselves. However, insufficient help can limit the business's capacity and growth potential. It can also lead to missed opportunities, poor customer service, and employee burnout.

Further, small business owners may over hire during periods of increased demand. It's essential to build a mix of employees and contractors to balance affordable labor costs with direct hires and handle the opportunities of spikes in demand through temporary external support, which tends to be more expensive.

To avoid these mistakes, small business owners should:

  • Regularly assess their staffing needs based on the business's goals and workload.
  • Hire for fit and skills, looking for people who share the business's values and culture.
  • Provide clear job descriptions, training, and feedback to help new hires succeed.
  • Foster an environment where everyone feels valued and empowered to contribute their best work.
  • Utilize outsourced support to handle spikes in demand until the forecasts establish that level of demand as continuous or expected.

Problems Managing Teams

Finally, some small business owners may experience team management problems, especially as they grow to a multi-level organization where middle management is more involved in the day-to-day management. Management issues include micromanaging, poor communication, lack of trust, and high turnover. By learning to delegate, hire strategically, and build a strong team culture, small business owners can avoid the pitfalls of trying to do everything themselves and set their businesses up for long-term success.

To avoid these problems, small business owners should:

  • Set clear expectations and goals for the team and hold everyone accountable for meeting them.
  • Collect, monitor, and analyze KPIs with the team so that everyone understands how their work impacts essential business metrics.
  • Communicate regularly and transparently, sharing both successes and challenges.
  • Provide opportunities for growth, ways to develop their skills, and a chance to take on new responsibilities.
  • Recognize and reward outstanding performance and address any issues or conflicts promptly and fairly.
  • Follow management best practices from leading business experts.

Mistake 5: Mismanaging Intellectual Property

Intellectual property (IP) is a valuable asset for many small businesses, yet some owners do not correctly secure or manage it. Lack of legal protection can lead to lost revenue, legal disputes, and damage to the business's reputation. Working closely with a legal advisor is the only way to ensure the organization secures legal protections on its IP. Moreover, they can provide guidance on potential issues for IP when developing new products and services.

Not Securing Intellectual Property

One common mistake is not taking steps to secure IP, such as trademarks, patents, or copyrights. Small business owners may not think their IP is worth protecting, may believe it's too expensive to attain or defend, or may not know how to go about it.

However, failing to secure IP can leave the business vulnerable to several risks:

  1. Competitors using similar branding or copying products or services.
  2. Difficulty enforcing ownership rights or pursuing infringement claims.
  3. Lost licensing or partnership opportunities that depend on clear IP ownership.

To avoid this mistake, small business owners should:

  • Identify the business's valuable IP assets, such as logos, slogans, inventions, or creative works.
  • Work with an IP attorney to determine the appropriate type of protection for each asset, such as trademarks, patents, copyrights, or trade secrets.
  • File for protection as early as possible and maintain it over time, renewing registrations as needed.
  • Monitor the market for potential infringement and take action to enforce the business's rights.

Mistake 6: Expanding Too Quickly

Image of a businessman on a rocket looking shocked as he shoots up into the sky representing small businesses expanding too quickly.

Another common mistake small business owners make is expanding too quickly without a solid foundation or plan. Sometimes, that means opening too many new locations, launching an excess of new products, or entering new markets before the business is ready. Team results are inconsistent without proper operational procedures and hard to replicate at scale. The lack of SOPs is especially detrimental to remote team management.

Expanding too fast can strain the business's resources and cash flow, leading to quality issues, customer dissatisfaction, and financial instability. It can also distract from the core business and dilute the brand. Quick expansion often leads to major operational mistakes that impact the potential for continued growth.

To avoid this mistake, small business owners should:

  • Carefully assess the business's readiness for expansion, including its financial health, operational efficiency, and market demand.
  • Develop a detailed expansion plan with realistic timelines, budgets, and contingencies.
  • Test and validate new offerings or markets on a small scale before committing significant resources.
  • Prioritize sustainable growth over rapid growth and be willing to adjust plans as needed.

Spreading the Organization's Efforts Thin with Products

Another expansion mistake is offering too many products or services, especially if they are not closely related or aligned with the business's core competencies. This can confuse customers and sales teams alike, strain resources, and reduce overall quality and profitability. Every product and service offering created should be tracked through its lifecycle so that the company can adjust the business model, marketing, sales, and fulfillment around customer expectations. To do that appropriately requires time and attention that fast expansion doesn't always allow for.

To avoid this mistake, small business owners should:

  • Focus on a narrow range of offerings that meet a specific customer need or niche.
  • Develop deep expertise and efficiency in those offerings rather than trying to be all things to all people.
  • Carefully evaluate new product or service ideas based on their fit with the business's brand, target audience, and capabilities.
  • Build and track products and services through their lifecycle to match customer expectations with offerings at different stages.
  • Prune underperforming or non-core offerings to maintain focus and profitability.

Mistake 7: Ignoring the Competition

Finally, some small business owners make the mistake of ignoring or underestimating their competition. They may believe their offerings are unique or superior enough to stand out, or they may not take the time to research and analyze their competitors. While we primarily focus on feedback from direct or potential customers as a source of direction, the customers may not see all the market opportunities available. Monitoring the competition expands your organization's view of the market landscape, provides insights into potential directions of future or potential demand, and can hint at marketing channels the team may want to try.

Ignoring the competition can lead to several blind spots and missed opportunities:

  1. Not understanding the market landscape, including customer preferences, pricing, and trends.
  2. Not identifying potential threats or disruptions from new or emerging competitors.
  3. Not learning from competitors' successes and failures and adapting accordingly.
  4. Not differentiating the business's offerings or value proposition from competitors.

To avoid this mistake, small business owners should:

  • Regularly research and monitor their competitors, including their offerings, pricing, marketing, and customer feedback.
  • Automate as much of that research pipeline as possible to save time and build alerts on key indicators to pay closer attention when needed.
  • Analyze their business's strengths, weaknesses, opportunities, and threats (SWOT).
  • Identify areas where the business can differentiate itself and provide unique value to customers.
  • Develop a strategy to dominate your market through products and services that are hard for competitors to emulate.
  • Stay agile and responsive to changes in the competitive landscape, and be willing to pivot or innovate as needed.

Embracing the Challenges and Opportunities of Small Business Ownership

Image of a piece of lined paper with business related icon sketches and a folded piece of paper in the shape of a lightbulb in the center representing the  challenges and opportunities of small business ownership.

Running a small business is a challenging and rewarding endeavor, but it is not without its pitfalls. By understanding and avoiding common mistakes, small business owners can increase their chances of success and build solid and sustainable businesses.

From failing to plan adequately and neglecting finances to inadequate marketing and trying to do everything themselves, small business owners face a range of potential missteps. They may also struggle with mismanaging intellectual property, expanding too quickly, or ignoring the competition.

However, small business owners can establish an incredibly competitive business by proactively addressing these challenges. Proactive steps include developing a comprehensive business plan, managing cash flow and budgets carefully, and investing in a mix of marketing tactics to reach and engage their target audience. It also means learning to delegate and build a strong team, securing valuable intellectual property, expanding carefully and strategically, and staying attuned to the competitive landscape.

Ultimately, the key to avoiding costly mistakes is to approach small business ownership with a growth mindset by continuously learning, adapting, and seeking guidance and support when needed. It means staying focused on the business's core strengths and values while being open to new opportunities and innovations.

If you're looking for support in building a resilient organization, our small business consulting services are available to help your team avoid these top 7 mistakes. Reach out for a free consultation to learn how we can help across a wide range of supporting and advisory services.