Whether you’re kicking around a business idea or working through your first year, it’s never too early to start thinking about growth. After all, every entrepreneur’s goal is to grow a profitable business.
To make sure your business is slated for growth, start with a detailed business plan. Your business plan is an excellent tool for growth. It will serve as your road map for success, and it should help you think through the milestones you’ll need to achieve to build a thriving business.
But assuming you’re writing and regularly reviewing your business plan, what are the most common pitfalls that can still derail your business? Marc Meyer, a business professor at Northeastern University, has a few good suggestions. He’s been a part of several successful software startups, so he has firsthand experience.
1. Not knowing your competitors
If you don’t know who you’re up against in business, you’ll have a hard time growing, Meyer says. Just about every business has competition, but if you don’t know what they offer and how they work, how will you set yourself apart?
“Customers need a reason to switch (and stay), and the only way they’ll do that is if you give them a clear reason,” Meyer says.
Bottom line? Failure to learn about your competitors and set yourself apart from them will halt your growth potential.
How to learn more about your competition:
- Do industry analysis so you have a general sense of what the market opportunity looks like in your sector.
- Put together a simple competitor matrix that will help you closely compare and contrast your business against your top competitors.
- Pay attention to what your competitors are doing and saying. Join their email lists, and shop online or in their stores.
2. Poor customer insight
When you start a business, you need to know who your target market is, Meyer says. Are you selling to moms or men with a fitness obsession? How often will these customers make a purchase from you? If your product is only needed once every year, you’ll need a lot of customers to make ends meet.
It’s not really feasible to do customer research once and then never do it again. Over time, as your business evolves, you might find that your ideal customer’s demographics have changed. You have to know your customers if you expect to grow
How to gain insight into your customers in your target market:
- Talk to your existing customers—survey them or find other ways to ask them for feedback.
- Look at other ways to gather data about your customers.
- Ask for (and respond to) customer reviews.
3. Lack of funds
You’ve heard the phrase, “You have to spend money to make money,” right?
Well, it’s true in business. You need enough money to make it through each stage of business. During your early stages, you need enough startup capital to keep the business afloat until it starts making money. Later on, when you’re ready to expand, you’ll need another pool of money to reach a new or bigger audience.
So, if you don’t have money before you need it, your business won’t grow. Whether you borrow money or get investors to support you, you need cash to go through successive stages of growth, Meyer says.
How to make sure you have the funds you need to grow:
- Review your financial statements every month, especially your cash flow, so you can see gaps early and make a plan for how to mitigate them. Using a financial dashboard tool like LivePlan can free you from the spreadsheets and make it easier.
- If you invoice your clients, set up a strong system with clear terms to encourage on-time payment.
- You’ll need a business plan if you’re seeking a bank loan or funding from investors. If you don’t already have one, get started now.
4. Making decisions on your own, or “winging it”
A lot of entrepreneurs start with a team of one. That’s okay, but it’s not easy to start and grow a successful business all by yourself. You need some advice—some good advice.
Whether you get a business mentor, a business coach, or create a board of directors, Meyer says you need someone in your corner to bounce ideas off of, help you make decisions, and talk through problems.
A few resources for finding a sounding board:
- SCORE offers a free business mentorship program.
- An expert business advisor can help you make sense of your business financials and can help you model different scenarios for growth.
- Indie Hackers calls itself “a place where the founders of profitable businesses and side projects can share their stories transparently, and where entrepreneurs can come to read and learn from those examples.”
5. Poor leadership
If your business is big enough to have a management team, you want to make sure every member is willing to think outside of the box, energize the company, and be willing to take a few risks to grow the business.
“Growth stops if the leaders are either too rigid or incapable of envisioning a new stage of growth and aren’t breathing excitement and new energy into research, development, and sales,” Meyer says.
In other words, you need leaders with vision and the wherewithal to make that vision a reality.
Resources for growing your capacity as a leader:
- This guide for founders who want to become better leaders.
- Performing a SWOT analysis that involves getting input from your whole team—not just leaders—is a great way to learn from different perspectives and even build team morale and buy-in for change. Check out this SWOT analysis template.
- Be honest and self-critical about your weaknesses and skill gaps. Hire people who are good at the things that you’re not an expert on.
6. Not tracking your cash flow
If you’re just paying bills and depositing what’s left into the bank, you’re making growth extremely difficult. After all, how can you grow if you don’t know how much money is going in and how much money is going out? That’s your cash flow, and keeping a good handle on it will help you.
You need a good accounting procedure in place if you plan to attract new customers, reach new markets, and boost sales, Meyer says. Whether you hire an accountant to help you or invest in software like Xero or QuickBooks, you need to track your money so you can plan for growth.
How to get better at tracking your cash flow:
- Transition your bookkeeping from Excel spreadsheets to a cloud accounting tool. It’s a way to keep things organized without doing double (or triple) data entry.
- Monitor your cash flow through monthly cash flow analysis. This is going to give you a good window into your accounts receivable, or the items you’ve invoiced clients for but that they haven’t yet paid. You want to avoid a situation where you’ve made a ton of sales, but you don’t have any cash in the bank because clients haven’t paid yet.
- Beware common accounting mistakes that can be costly and affect your financial health.
Whether your goal is growing sales, expanding to a new location, or scaling so your startup is attractive to buyers, paying attention to your customers, your competition, and your cash flow will help you make better spending decisions and more nimble strategic decisions. Good luck!