5 Ways You Can Ruin Your Startup Before Getting Your First Customer

Contributed article in our entrepreneurial series. Enjoy! – Kimberly

If you are planning a startup, know this: you are statistically unlikely to succeed. According to Forbes, nine out of ten startups fail. They may have run out of cash, have ineffective management, fail to properly market their product or service, or some combination of all the above.

But you are not destined to fail. Before you even think about opening your doors to the public, you need to ensure that your business is prepped for success. Here are five factors that commonly cause startups to fail and what you can do to keep your future business afloat:

1. Financing Your Startup with Predatory Loans

Getting startup capital can be a struggle. Bootstrapping your business is a challenge for most starting entrepreneurs, so getting a loan can seem like a wise move. But, as with any loan, you must be careful to avoid unscrupulous providers. If you find yourself with a startup loan that comes loaded with excessive fees, early repayment penalties, and elusive refinancing promises, you may be victim of a predatory loan. Despite federal regulations, there are myriad offers out there that could (or very nearly) qualify as a predatory loan, and even well-known banks engage in such anti-consumer practices.

There are a couple steps you can take to prevent yourself from falling into one of these long cons. First, recognize the signs of a predatory loan: If the annual percentage rate of the loan is in the triple digits, back away. These loans are sometimes offered as “account advances,” but don’t be fooled by the euphemism — they hit your wallet just the same. Also be sure to avoid any unrealistically high loan offers, especially if the provider states that “bad credit isn’t a problem.” These are sure signs that something is amiss.

Secondly, ask questions. A lot of them. All you need to do to find the right loan is shop around as long as necessary and get as many details as you can regarding each loan. Do not take this research lightly, since it could make or break you in the long run. Some questions to ask include:

  • Are there any restrictions on refinancing the loan in the future?
  • What is the rate of interest after all fees and prepaid interest is included?
  • How long is the payoff period?
  • Could the loan rate, for any reason, reset or increase? What would the new rate be?
  • What repercussions are there for late payments?

These essential questions will ensure that you find a loan that isn’t meant to trap you in an inescapable financial hole.

2. No Clear Employee Guidelines

Employee guidelines are the bedrock to workplace productivity. Attempting to “make it up as you go along” can only lead to chaos and litigious disaster. Your rules should strive to promote virtues like punctuality, professionalism, good etiquette, and productivity.

If your employees will be teleworking, you should still have some “office” rules. If they will be communicating via a messaging app, establish that only work-related discussion should be relayed through this channel. Emphasize the importance of goal-oriented, clear, and courteous communication.

Do you know the saying “Ignorance of the law is no excuse”? For legal and financial reasons, your employees need to be held to the same standards. Most businesses opt to provide new hires with an employee handbook and require that each person reads through it prior to beginning work. Through this tactic, there should be no misunderstandings. If you are unsure of what to include in your employee guidelines, check out some tips and templates at the National Federation of Independent Businesses.

3. Poor Hiring Practices

Some of your unemployed friends and family will rush for an opportunity to earn some money by working at your new business, so you may wish to rely on them before doing any serious candidate searching. Resist the temptation. Unless they are truly qualified and have a hard-working attitude, they could end up costing your business more money than you might imagine — not to mention introducing some personal issues that you really don’t want to deal with.

It all boils down to money. Big businesses lose millions of dollars each year due to bad hiring practices, and your business can suffer in the same way. Hiring and onboarding a new hire costs some serious capital. When a bad hire neglects to perform his duty, that hurts your bottom line. When you are forced to fire him a few months later, company morale suffers, further damaging productivity. These costs add up, often to as much as five times an average employee’s annual salary.

4. Waiting Too Long to Launch Your Product or Service

Before opening your doors to your first customers, you will be tempted to refine your processes and products until they are “absolutely perfect.” That’s understandable. However, it doesn’t make good business sense.

Getting customer feedback is an integral part of product development. Collect data on what customers think about your business through incentive programs; for instance, you could offer coupons or gift cards for completed surveys. Then, adjust your product to match client desires. Through this ongoing process, you can refine your offerings to suit the needs of customers.

If you wait too long to begin this process, you are wasting money. In order to make intelligent decisions regarding revisions or upgrades, you need data. And, of course, customers provide that data.

5. An Ineffective (or Nonexistent) Online Presence

If you still think of online shopping as a minor source of revenue when compared to physical sales, here is a wake-up call: four out of five Americans are online shoppers. You need an online presence, and an effective one at that.

Of course, you need a homepage if you want to make any sales. You could work through vendors like Amazon or Walmart, but you really should have a homepage as well. It will allow you to provide an online storefront, promotional information, and contact details. Just be wary when registering your domain name; you want a name that can’t be misinterpreted in an embarrassing way. Furthermore, don’t choose an unintuitive, impossible-to-remember URL just for the sake of scoring a “.com” domain name.

Social media is a great way to interact with customers, receive customer complaints, and gauge the public’s perception of your brand. Don’t simply create an account on every site. This is an ineffective use of your time, since you won’t have time to properly engage with followers if you spread yourself too thinly. Instead, focus on one or two sites. Different networking sites tend to have different demographics, so choose one that intersects most closely with your brand and is actually relevant (there’s no need to start a Myspace profile).

By reading these painfully common startup blunders, you should have a greater sense of direction for your own entrepreneurial future: A future in which you will create a productive work environment through thoughtful rules and hiring practices. One in which you will remain financially solvent through a realistic startup loan, online sales, and constant improvements to your service. And, most importantly, a future in which you will grow.

Author Bio: Devin is a freelance writer from Daly City, CA. He writes about small business marketing and SEO. On his downtime, he enjoys experimenting with car modifications and collecting vinyl records. He also enjoys researching and writing about auto history. You can connect with Devin on Twitter.

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