Watch Out for these Common Small Business Missteps

Starting a new business is both exciting and challenging. It’s exciting because your new business is full of promise. It’s challenging because, well, running a business is hard work! There’s a lot to do in order to be successful when starting a new business, and it’s easy to make mistakes, especially when you’re a new business owner. Perhaps that’s why about one in five businesses fail in their first year and only 50 percent make it past their fifth year. 

Why do so many new businesses fail? Some common reasons include:

  • Lack of funding:  It takes money to make money, as the saying goes. Yet, too often, new business owners don’t properly invest in their own company, nor do they sufficiently seek out other sources of capital. This sometimes results in shortfalls, which can jeopardize everything from payroll to buying the raw materials necessary to run the business. 
  • Poor management:  New business owners aren’t always experienced managers, which can have a negative impact on the business. That includes hiring the mismatched people for a given role or failing to build a company culture that others want to join. 
  • Ineffective business planning:  Another truism in business is “Failing to plan is planning to fail.” Unfortunately, it’s far too common for new businesses to not spend enough time building an effective strategy for launching, marketing, and sales. They don’t consider all the factors that could influence their success, such as market conditions, competitive landscape, and expected capital needs (see the first bullet point). Failing to plan properly will result in serious challenges that a business must react to, rather than proactively working to avoid them in the first place. 
  • Unsuccessful marketing:  Some new small business owners will underestimate how much they should spend on marketing, but spending marketing dollars ineffectively can also torpedo a business. That can range from putting too much money into a channel that’s not performing to not getting the message right. Marketing is an integral part of launching and running a business, and not strategizing effectively can often spell failure for the entire business. 
  • No market need:  One of the most important things a business can do is to identify and understand its customers. Sometimes, overenthusiastic entrepreneurs will drink their own Kool-Aid by coming up with an idea that they think will sell well, only to find that no one is interested in their product or service. Conducting even a little market research beforehand can go a long way to avoid this (more on that below).

Luckily, new small business owners can learn from the mistakes others have made in the past. Let’s take a closer look at some of the common mistakes and the strategies you can use to ensure your own small business success. 

Common planning and strategy mistakes  

Neglecting to properly plan and strategize can pose a significant risk to a new business. In fact, having no plan at all can spell disaster. Operating without any goals or a specific direction means that you’ll be spending a lot of energy making ad hoc decisions, many of which may be entirely avoidable with even the smallest amount of planning. 

Not having a plan, which includes conducting market research, can lead to a poor understanding of customer needs, resulting in a product or service that does not resonate with the target audience. This will likely result in low sales and low customer retention. 

Additionally, it’s essential to research key competitors and understand the competitive landscape. Failing to recognize market conditions and the context in which your business operates will likely result in spending a lot of time, money, and energy trying to win customers only to find yourself coming up short. Imagine, for example, spending a lot of money developing a mobile app, only for it to replicate native features when the manufacturer updates the operating system. 

Lastly, poor financial planning is a common mistake—and sometimes a deadly one. New entrepreneurs often underestimate startup costs and do not properly budget for various expenses. This can result in not having enough funds to properly pursue opportunities, to hire enough employees, or to not make capital investments that are required for the business to operate effectively. 

training new hire

Operational mistakes

They say the devil is in the details and having a successful business is as much about execution as it is about planning. That is, your operations need to be sound if you expect to gain any traction. 

One of the most common operational mistakes that new businesses make is mismanaging cash flow. This often stems from not controlling expenses effectively. Without a clear understanding of your financial situation, you may overspend on non-essential items or services, draining resources prematurely. 

Failing to invoice or collect payments promptly can also lead to cash flow problems. When businesses do not have a system in place to ensure timely payments, they may find themselves in a cash crunch, unable to meet their own financial obligations like payroll.

Another common mistake is taking on too much debt. While borrowing can provide the necessary capital to start or grow a business, being over-leveraged is risky. Taking on debt can limit a business’s flexibility and ability to respond to market changes or unexpected challenges.  

Finally, expanding too quickly can also lead to problems. While growth is generally a positive sign, it can also lead to growing pains if not managed properly. Growing too quickly can stretch a business’s resources thin, leading to employee burnout and dissatisfied customers. It can also lead to a dilution of the business’s core values and brand identity, as rapid growth can make it difficult to maintain a consistent culture or level of service. 

Marketing and customer service mistakes

One of the most common mistakes new businesses make is not having a clear marketing strategy. This often stems from not defining their ideal target customer. Without a clear understanding of who they are trying to reach, businesses will struggle to create effective marketing campaigns. What’s more, without a well-planned and executed marketing strategy, businesses will not promote their products or services effectively, leading to low brand awareness and poor sales.

Another critical mistake is ignoring customer service. In today’s digital age, customer reviews can significantly impact a business’s reputation. Negative reviews can deter potential customers, while positive reviews can attract them. What’s more, poor customer service can result in losing repeat customers, which are essential for building and growing a business.

Finally, not adapting to market changes often leads to business failure. It should be no surprise that market conditions often shift—both dramatically, as in the case with the pandemic, or over time. Changes in customer preferences, competition, and technology all have an impact on the environment in which a business operates, and failing to adapt to these changes makes it easier to be disrupted by competitors or becoming obsolete. 

Stay on top of the game

Starting a new business comes with many challenges, but none that can’t be overcome with careful planning and execution. From managing cash flow and controlling debt to defining a marketing strategy and providing excellent customer service, new business owners need to pay attention to every aspect of running their business. 

Just remember: It’s normal to make mistakes. Not all of them are fatal, as long as they’re addressed promptly and you learn from them. The more you can plan ahead, the easier it will be to course correct or even avoid common mistakes altogether. 

Of course, it’s always good to have a helping hand. Homebase has a suite of tools designed for small businesses and new business owners to help steer clear of common mistakes early on, paving the way to your own success story. 


What is the #1 reason small businesses fail?

According to, the top reason small businesses fail is poor cash flow management. Without healthy cash flow—i.e. making sure more money is coming into your business than what’s flowing out of it—business struggle to cover daily operating expenses, invest in activities that drive growth, or respond to unexpected expenses.

How can I avoid cash flow problems?

Developing—and sticking to—a budget is the best way to avoid cash flow problems. Additionally, be sure to send invoices out promptly and reduce expenses wherever you can.

Why is market research so important?

Market research is key to business success. Nothing operates in a vacuum, and failing to do sufficient market research can lead to underperforming marketing, stiff competition, or simply failing to connect with customers in a meaningful way.

When is the right time to expand my business?

There’s no one-size-fits-all answer to this, as businesses can vary greatly based on type and industry. That said, a few signs that indicate it’s a good time to invest in growth include:

  • Having a solid base of regular customers and income
  • Having more customers than your business can handle
  • Identifying an opportunity that may require additional resources
  • Running out of physical space

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