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How to Avoid the Pitfalls of Starting a Business

Although the risks involved with starting a small business are considerable, there are steps you can take to increase the odds that your business will survive beyond its first few years of life. One of the most important things you can do is become knowledgeable about the risks and pitfalls faced by small businesses during the startup phase.

It's impossible to anticipate every challenge you will encounter, but here are some of the main reasons small businesses fail during startup:

Insufficient Capital

Starting a business requires the proper resources. The worst thing you can do is launch a small business without the resources you need to do business and turn a profit. Many would-be small business owners launch their businesses with the idea that they will acquire the resources they need to run business as the business grows. The problem is the business may never grow because it is under-resourced.

To acquire the resources you need, you are going to have to raise capital from savings, from financing, and even from family and friends. But be careful not to put everything you have into the business. If the business fails, it's good to know that you'll at least have a house to live in!

Lack of Planning

Planning is essential in launching a small business. Although it might seem tedious, you need to do your research about the kind of business you are launching, market demographics and cost estimates. There are resources to help you with this such as your local chamber of commerce and industry associations. Ask questions, get answers and make plans so the decisions you make will be informed ones.

Bad Location

You've probably already heard that the most important thing is location, location, location. For many kinds of businesses, this isn't far from the truth. A cheaper monthly rent payment will not help you if you don't have any customers. Scout around and maybe even employ the services of a local real estate agent to help you find the best location for your company.

Low Sales

Face it — without sales, you're doomed. Stimulating sales is an art form that you will probably spend your whole career perfecting. In the meantime, you can do simple things to get the word out about your business. Rather than hoping for the best through word-of-mouth promotion, take advantage of advertising and marketing opportunities in your area.


It would be great if your business was the only business of its kind. But since that's probably not going to happen, you have to be prepared to deal with competition. This can be daunting, especially if you're the new guy and the competition has been around for a while. However, you can compete as long as you know what you're up against. Take time to shop your competitors. Take note of what they're doing right, and how you can position your business to get a piece of the market share.

Unanticipated Growth

Growth is supposed to be a good thing, right? But if your business grows too fast, too soon, you might have a mess on your hands. Even worse, it could cause your business to self-destruct from the inside out. The only way to avoid this problem is to plan for growth ahead of time so you will be prepared for it when it comes.