Top 12 Pitfalls of Starting a Business

Lan Nguyen

Tennis fans Ernabel Demillo and Meredith Kasun thought they had a great idea for a new business: a neoprene belt that could hold all your tennis balls.

By March, BodyStyle Athletics was up and running, but it has been slower going than the owners expected. Why? They underestimated how much they had to spend to educate customers.

"We assumed people would know what the TennisRAQ was," explains Demillo. "We budgeted $1,000 a month on marketing and advertising, but we've way surpassed that. Right now, we're reworking the budget."

They're not alone. Experts say this is just one of several common mistakes first-time small business owners make. Here are the top 12 pitfalls and how to avoid them:

Idea Trumps Demand

You think you have the best idea for a company, but is there really a need? According to Victor Cheng, founder and president of Bookmercial Productions, a branding and marketing consulting company, veteran entrepreneurs "are demand driven. They become students of demand and find a solution. Rookies are supply driven. So they get the process backwards." Dig deep and really discover if someone would be willing to pay for your product or service. If the answer is no, then you don't have a business.

Being Just One of the Guys

Given today's tougher economic climate, a company needs to stand out in order to survive. That means solving a problem that no one has solved, recommends Cheng, author of Bookmercial Marketing (Innovation Press). "Or you can solve a common problem in a unique way, or solve a common problem in a common way but specialize in a particular audience."

Failing to Get Good Legal Advice

Before Pom Lampson launched her London-based lingerie line, Sexy Panties and Naughty Knickers, she ran the name past a lawyer. Told that it would be OK to have S.P.A.N.K. embroidered on the back of her designs, even if she started selling in the U.S., she set up shop in 2004. Four years later, it's become a favorite with celebrities like Gwyneth Paltrow, Eva Longoria-Parker and Kelly Ripa. But this success also attracted the attention of SPANX, a multi-million-dollar body-shaping hosiery company started by Sara Blakely in 1998. SPANX sued Lampson in April in Georgia for trademark infringement.

"Although I never used S.P.A.N.K. to build the brand, SPANX is trying to close me down," says Lampson. "It's really hard because, I made this business out of nothing, and I'm tiny compared to them. I advise, get a second legal opinion. You have to plan for the long term."

Not Doing Your Homework

More homework -- not something you want to hear. After all, putting together that business plan may have taken months. But before you throw away your money on any marketing or publicity idea, you have to make sure it's the best way to reach your customer.

BodyStyle Athletics has to rethink its marketing plan because it wasted valuable funds on sponsoring tennis tournaments that did not reach the consumers it wants.

"We sponsored this massive tennis tournament, but it turned out we had no idea who the customers were there and the kind of traffic booths would get," says Demillo. "We now know not to sponsor tournaments unless we've researched them, and the only way to do that is to participate in them as a fan." Their new plan: to hold demos at tennis clubs and sporting good stores because "it's such a unique product and people don't know how to use it."

Short on Start-Up Funds

Always raise more than you think you'll need, warns Bob Prosen, president and CEO of The Prosen Center for Business Advancement. "Starting a business will take longer than you think, so you'll need more money." Take that budget and increase it by another 50%.

Underestimating What It Takes to Sell

As Demillo discovered, marketing took a huge bite out of their start-up capital. Cheng recommends that entrepreneurs should devote 80% to 90% of the starting budget to sales and marketing. "Putting people on the wait list isn't bad," he asserts. "You've proven that people want it. If you have a stack of orders and they've given you their checks, then you're in a more comfortable position."

Unwilling to Be a Salesman

Cheng says of all the successful business owners he's met and advised, those who remain in the game are the ones who are good at selling and marketing. "They ought to take a leadership role even if they hire consultants to help them." Not willing to do the pitch? Then don't hang out that shingle.

Skimping on Staff

How long your company stays around is, in part, determined by the quality of your employees. While hiring part-timers or less qualified people may save money at first, they ultimately become more costly down the road. Why? They may take twice as long to do something or make mistakes that can possibly be damaging. "You get what you pay for here," says Prosen.

Going It Alone

No one is an island, especially when involved in a start-up. Find mentors and tap them for their knowledge and connections. You may avoid more rookie mistakes. Surround yourself with an experienced team of advisers, board members and employees. "Lenders may not like you as an individual but they may like your team," says Prosen, who also wrote Kiss Theory Good Bye (Gold Pen Publishing). "It's important that you lay out clearly for the lender that you've got the talent."

Not Communicating

As the business grows, be sure that new employees are one the same page as you on the company's mission and priorities. For Sydney Price, owner of Manhattan-based play space City Treehouse, that meant writing down everything discussed at the staff meetings, since in just one month it grew from five full-time staffers to eight full-time staffers and four part-timers.

Being Overly Ambitious

City Treehouse's Price says too often entrepreneurs want to get off the ground with a bang. "They want to do everything," she explains. But the object is to be around for the long haul. That's why she had a soft opening, first offering music classes taught in conjunction with Music Together in April. By the summer, she added language classes after partnering with Bilingual Birdies. In the fall, after hiring two full-time people to teach, the space will offer a mix of unique classes and partnered ones.

Crying Uncle Too Soon

Starting a business takes time, passion, sweat equity, luck, the patience of Job, and in many cases, a healthy dose of stubbornness. Even though she faces a lawsuit that threatens her dream, Lampson is determined to hang on.

"When you hit a brick wall, you fight hard until you can get through," she says. "Generally there is a way around. You have to fight and keep fighting."

If you have a story idea, email Lan.thestreet@hotmail.com.

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