4 Red Flags Entrepreneurs Need to Avoid When Starting Out

If you're among the record number of new businesses in the U.S., you'll want to check out these 4 things that entrepreneurs should avoid when starting out.

Discounting Possible Threats of Financial Risk

It may look as if it's clear-cut, but it can be tricky for new entrepreneurs to spot or plan for the financial risk of startups.

Examples of financial risks to your business include extending credit to customers, your own company's debt load, or interest rate fluctuations, according to an article posted on American Express' Trends and Insights page.

"Keep debt to a minimum and create a plan that will start lowering that debt load as soon as possible," John Boitnott writes in the post.

Further, he reminds entrepreneurs that the likelihood of financial risk increases exponentially if your entire income depends on a limited amount of clients. The results may be detrimental to your business if those clients decide to stop using your products or services, Boitnott explains.

The solution?

He recommends using marketing as a way "to diversify your base so the loss of one won't devastate your bottom line."

Doing All the Talking

New business owners - and rightfully so - are so focused on what they plan to say or should say in meetings, i.e., about their new product, services, and brand, that they can make the mistake of doing all the talking. 

Instead, to be successful, entrepreneurs need to pay close attention to what's being said, according to serial tech entrepreneur Ben Lamm, founder and CEO of Colossal.

Being an entrepreneur is more than knowing what you want to say, Lamm writes in a post for Entrepreneur magazine. He recommends listening more and talking less to ensure an open dialogue is maintained.

Lamm, who founded his first company in 2004 and started six others between 2010 and 2022, advises first-time entrepreneurs to be "active listeners" - a valuable tool to have when starting out and growing your business and leadership skills.

You may gain new ideas and insight by fostering an environment that allows your staff to feel head, Lamm writes.

He recommends maintaining eye contact, refraining of interrupting, holding any preconceived notions and interjecting with questions at appropriate times during the discussion. Be present and focus on keeping your thoughts from wandering, Lamm suggests.

Ignoring Lessons from Mistakes

Some of the most successful entrepreneurs point to the importance of learning from their early failures.

John Thornhill, Innovation Editor at the Financial Times and founder and editorial director of Sifted, the FT-backed site for European startups, advises new entrepreneurs that learning from their mistakes sooner than later is crucial for success.

He notes that while it's not realistic to have all the answers, it is part of starting a new business.

According to an article he wrote for the Financial Times, Thornhill recalls a Stanford professor (Haim Mendelson) who looked at his team's business plan and went on to decimate it, calling them out on the half-baked plan that was missing key information.

"If you only have 70 percent of the answers when you start a business then you are evidently going to make a lot of mistakes," Thornhill says. "But that is part of the process: all startups are a trial-and-error game."

Failing can't be avoided, and hopefully isn't detrimental to your business.

Working Without a Plan

Most loan and grant programs for new entrepreneurs require a business plan to apply, so you likely created one if you sought startup funding. Otherwise, you might want to avoid going further without one.

If you launch your business without a plan, you'll likely cause chaos and confusion - similar to hiking 50 miles in the wilderness with no GPS help.

"Eventually, you will lose your way and may not find a way out," writes Caroline Castrillon in a Forbes blog.

Castrillon cites a Harvard Business Review study that reported entrepreneurs with formal plans were 16 percent more likely to achieve viability compared to those without one.

According to a U.S. Small Business Administration post, a good business plan will steer you through the stages of starting and running your startup.

It will serve as a roadmap on how to structure, operate and grow your business, the SBA says.

"It's a way to think through the key elements of your business," according to the post.

Your business plan doesn't have to be an official document or elaborately detailed. Select a format that works for you.

"What's important is that your plan meets your needs," the SBA says on its website.

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