For every story of a successful business that takes off from a modest start, there are many more tales of failure or regret. While this shouldn't discourage one from take a brilliant idea and turning it into a thriving business, there are some common mistakes that should be avoided in doing so. These errors aren't just common; they can be deadly to any entrepreneurial endeavor. (For related reading, also check out Are You An Entrepreneur?)
Picking the right person to guide your business from idea to success is as important as choosing a lifelong marriage partner. Many experts suggest that budding entrepreneurs avoid becoming partners with family members or close friends, as it could blur the boundaries needed to make good business decisions.
While many real-life partners have made excellent business partners, not everyone has been so fortunate. U-Haul's bankruptcy in 2003 is a striking example of what can go wrong when families bicker.
Securing legal rights to your product or business idea is important in ensuring no one else can lay claim to it. Patent law cases are rampant, entangling big names such as Samsung vs. Sharp and Microsoft vs. Salesforce.com.
In order to ensure that your idea really remains your idea, patenting and trademarks are the best way to protect your rights. You don't want to end up like Robert Kearns, the inventor of the intermittent windshield wiper; he faced a lifetime of lengthy court battles to prove the genius behind his idea.
Being Careless With Control
It might seem like a sound decision to hand over authority to business partners or trusted experts. History, however, has proven that this can often be a costly mistake. If you are the sole proprietor of a small business, or largely responsible for the cash that passes through the corporation, it's ultimately your responsibility that funds be wisely spent. Never give check-signing authority or access to online financial accounts to an employee, as this puts you in danger of having fraudulent activity occur. (Learn more about different business structures in our Starting A Small Business Tutorial.)
Avoiding All Risk
If you're in need of equity financing, it will take a certain element of faith to reach out and allow investment partners into your small business. Without them, you could fail to grow, dooming your company to become stagnant and behind the times. While it takes some courage to begin approaching and screening angel investors and other partners for the resources that you'll need to carry on, it can be done with minimal risk to your own capital and the company's processes and culture. By reaching out to proven leaders in your business niche, you can get the capital you need, in addition to access to their networks, contacts and skill.
It may be tempting to keep your business ideas to yourself out of fear that someone may steal them. Failing to get expert advice or consulting services as a result of your stealthy objectives, however, may cut you off from valuable connections that can improve your business as time goes on. Most issues of this type can be solved by a well-written confidentiality agreement - something that doesn't have to break your business budget. This type of agreement (also called a "non-disclosure agreement" or "NDA") can be a simple one-page contract guaranteeing that your business practices not be revealed to the media or others in your industry - especially competitors. While samples of generic NDAs can be found online, it's recommended that you seek counsel with a law professional to craft one that suits your specific business and needs.
The Bottom Line
Learn from the failures of others, and avoid these five common blunders of businesses from every niche. Many of them are not very expensive, and being prepared for the unexpected can help you avoid messy legal matters down the road. (For more information, see In Small Business, Success Is Spelled With 5 "C"s.)