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Danger Ahead: Small Business Owners Warn of Common Mistakes

Danger Ahead: Small Business Owners Warn of Common Mistakes

Fledgling businesses are more susceptible to making fatal mistakes than more established firms. And when they do stumble, they're less likely to recover.  While older firms might be able to bounce back from the occasional misstep, startups often don’t have the sea legs to weather the storm.

Four small business owners share their biggest mistakes in an effort to help others avoid them.

Understanding finances: Anne-Marie Faiola of Bellingham, Wash., accumulated a six-figure debt after five years of owning Bramble Berry, which sells soap-making products, because she didn’t entirely grasp the difference between cash flow and profit.

“I kept seeing the positive profit statements but didn’t have the understanding that positive profits don’t always equal positive cash flow,” said Faiola, who took a finance course to remedy this problem. Because she used credit to add products to her inventory, she saw positive profits that didn’t account for her investment in her inventory.

“If I could go back and do it again, I would have hired a business coach to come in and review my books and my business plan with me quarterly to help provide the structure and knowledge I didn’t have as a newly minted, flying-by-the-seat-of-my-pants entrepreneur,” she said.

Thinking about an expansion: Husband-and-wife duo Carmen and Serge Sognonvi of Brooklyn, N.Y., recently escaped a costly expansion decision. Other mixed-martial arts school owners had suggested they find a bigger space because student enrollment at their school, Urban Martial Arts, has doubled in the past two years. The Sognonvis caught “expansion fever” and found a spot they loved. After careful consideration , they opted not to move.

“We realized that while the space was less than a mile away from our current location, it was a completely different neighborhood with different demographics, much less foot traffic, and it was too industrial and thus deserted in the evenings when most of our classes are,” she said, adding that moving could have been a complete disaster.

Her advice: Don't get caught up in what others in your industry think is conventional wisdom, adapt to the realities of your local market and use the constraints you work under to get creative.

Find a target market: In 2001, Karl Trommler’s real-estate team in Arizona nearly failed primarily because he didn’t target a specific niche. He had tried to serve several cities within Greater Phoenix instead of narrowing his reach to a few neighborhoods.

“This turned out to be a very costly and unachievable task that almost ruined me,” he said. After the setbacks, he refocused his marketing to a smaller audience, and turned things around before expanding his reach and sold the business. He then moved and took what he learned from his mistakes to help another real-estate firm.

“Once I narrowed my focus to certain types of real estate in certain market segments I was able to realize the success I needed early on to expand later,” said Trommler, who is now business development manager at PenFed in Reston, Va.

Be ready to change: Barbara Schantz, owner of Baby Dipper, admits she should have studied the different materials she could have used to make her product, a bowl designed to help parents feed their babies.

“By the time it came to market, there was a huge movement against plastics that contain BPA (Bisphenol A) and mine was one of them,” Schantz said. She ended up having to buy a new batch that was BPA-free because the climate of her market shifted.