Common Mistakes When Starting a Small Business

Graphics: DALL·E

For many self-employed professionals, there comes a time when solo operations are no longer sustainable. With increasing return clients and a steady workload, expanding into a small business seems like the logical next step. 

But growth comes with challenges. Did you know that approximately 20% of new businesses fail within their first year, and nearly 50% never make it past five years? Even independent contractors scaling their operations aren't entirely safe. After all, a business, even when it's small, requires a mindset change – and some basic understanding of the common mistakes to avoid. Let's start with those and see how one can adjust to a new role.

Small Business Mistakes (Most) Beginners Make

Miscalculating Net Profit

Real business expenses include the owner's salary

One of the biggest mistakes first-time business owners make is miscalculating profit, often confusing earnings with actual profit. Imagine you’re a hairdresser with a new salon. You pay rent, hire staff, and continue working on clients’ hair yourself. 

At the end of the month, whatever remains after paying rent and your employees seems like profit, right? Not quite. Your own wage should be counted as part of the operational expenses, especially if you spend time on tasks an employee handles. 

So, if your new income is lower than you’re used to, or the balance after subtracting your average market salary is negative, it means that your business goes negative, too. 

The initial negative balance is no reason to stop, though. The situation is quite typical for most startups, especially in their early development stages. But you still need a proper understanding of your finances to set realistic goals and make necessary adjustments. 

True Business Profit Formula:

Revenue – (Rent + Wages for Staff + Your Own Market-Rate Salary + Utilities + Other Expenses) = True Business Profit.

Key point to remember: Your salary is not your profit. The sooner you let go of the ‘employee’ mindset, the sooner your real profits (the positive balance after subtracting ALL of your expenses AND your average expert salary) will start to grow. 

Handling the Early Days Overload 

Graphics: DALL·E

When solopreneurs start scaling their operations, the resources are usually limited. Often, a cautious entrepreneur’s only investment is their own time and expertise. But if you do not have enough money to hire new staff right away, you’ll have to take on quite a few extra duties. 

When I first scaled my writing business, I became an HR manager, sales rep, business analyst, and more—all while continuing my core work as a writer. It was exhausting and unsustainable. Many entrepreneurs fall into this trap, which always results in burnout. In turn, burnout creates a vicious cycle of delays and decreased output, making it harder to grow.

But there is a way out. Learn to prioritize and handle the tasks one at a time: no procrastination, but no rush. The fuss will not help you get your chores done  — on the contrary, it's another productivity killer. 

And, of course, you must carve out time for yourself. You’ll eventually hire people to handle these jobs, but until then, pace yourself. 

Key point to remember: growth takes time, especially when original resources are limited. Break large objectives into small, manageable tasks and handle them one by one while leaving enough time for rest. Time management and delegation are essential for growth. 

Failure to Hire New People 

The last paragraph logically leads us to the next point — when your profits start to grow, you have to let go of the 'extra' positions. Going solo for too long is a dead-end strategy. What starts as resourcefulness can quickly turn into stagnation if you don't delegate. 

Outsourcing the most time-consuming or specialized tasks is the best strategy. Even when you’re tempted to get rid of the roles you dislike first, be strategic about it. Often, these chores are high-responsibility duties, so new business owners need to be extra careful with who they hire. 

Keep in mind that your first hire may not be a perfect fit—this is normal for new businesses. You may get lucky, but for most first-time entrepreneurs, the first hire is hardly ever a 100% hit. 

To boost your chances of success, define job roles and use trial periods for full-time employees. Efficient hiring isn't just about skills; it's about finding people who align with your business vision. 

Key point to remember: task delegation can be daunting, but it’s the only strategy for growth. Start by hiring for roles outside your core expertise. When profits allow, bring in specialists to support your business growth.

Unrealistic Expectations from Employees 

If all employees were as invested as you are, they'd be running their own businesses

Another common mistake is having unrealistic expectations for your first employees. If you've built your business from the ground up, you're likely an expert in your field. Still, not all employees will share your entrepreneurial mindset or your professional rigor. 

While you may thrive in an environment with creative freedom or regular challenges, some employees work best with clear guidelines and structured expectations. To ensure smooth operations, establish clear roles, set performance benchmarks, and create training materials such as standard operating procedures (SOPs). 

Not all employees will be as invested as you are—if they were, they'd likely be running their own business. Instead, set clear expectations and give them the structure they need to succeed.

Key point to remember: leading by example is the best strategy, but don't expect all employees to be as diligent and ambitious as you are. Define specific job duties for each and provide clear guidelines without challenging your staff to overachieve.

Takeaway

It's a fact that most new businesses fail – and these mistakes add to the failed startup statistics. But a growth mindset is not about avoiding mistakes; it's about learning from them. Challenges are opportunities for growth, and missteps are lessons bringing you closer to your goal.

Besides, the first step to solving any problem is admitting there is a problem. By working on these common pitfalls—mismanaging finances, overloading yourself, delaying hiring, and setting unrealistic expectations—you give your business the best chance to thrive. Keep learning, keep growing, and build a business that succeeds.