Most people start a business with the idea of getting rich or to be free of working a normal job, however the first few years are purely a matter of survival.
Building wealth is usually out of the question during this time. The only thing that matters is finding the money to keep the business open another day.
Many failed companies were built around a good idea, but they failed because of bad business practices, internal structural issues and psychological errors.
Starting a business is arguably the most intense personal development course a human being can take. It forces you to confront your relationship with money, people, ego, and resilience.
While some lessons must be learned through experience, the most expensive lessons are best learned by observing the scars of others.
Based on the hard-won experience of veteran entrepreneurs, here is a detailed breakdown of the most common mistakes that threaten to bankrupt new businesses, and how you can navigate around them.
Too little starting capital
Starting with insufficient capital is the biggest business error you can make. It is the single most dangerous and common reason for business mortality.
New entrepreneurs tend to be too optimistic in their revenue and expense calculations.
They calculate the bare minimum needed to open the doors or launch the website, assuming that revenue will start flowing immediately to cover the bills. This is a fatal calculation. Revenue is rarely immediate, and expenses are rarely static.
When you are undercapitalized, you lose the ability to make strategic decisions. You stop playing to win and start playing not to lose.
You cannot take advantage of bulk inventory discounts, you cannot weather a slow month. You also cannot invest in the marketing required to create a virtuous cycle, where customer acquisition costs are lower than the revenue they bring.
If you’re building a business while working a normal job, then you should only quit if the revenue from the business can cover both your day to day living expenses, and can pay for continued growth.
If you want to go all in on the business from day 1, then a robust rule of thumb for calculating your startup capital is to calculate the minimum amount you think you need to get started, including licenses, initial stock, equipment, and rent. Then, double that number. Finally, add 25% on top.
This may seem excessive, but surprise expenses are a guarantee, not a possibility.
Your prices are too low
Many new business owners fall into the trap of pricing themselves too low. They feel unproven so they compensate by offering the lowest price on the market to attract customers.
Your pricing doesn’t just affect your revenues and profits; it is tightly connected to consumer psychology and positioning.
Low prices do not just lower your margins; they attract a specific type of customer: the “high-stress” client
Customers who shop solely on price are often the most demanding, the least loyal, and the quickest to complain. They value the low price, not the quality of the product or service.
However, when you raise your prices, a strange thing happens: the high stress customers disappear. By displaying higher prices upfront, you create a filter. You eliminate the people you do not want to serve without having to speak to them. You attract clients who value quality, respect your time, and understand that expertise costs money.
Furthermore, if you are not charging enough, you cannot afford to provide a great experience. Profit is what allows you to hire better support, buy better packaging, and offer faster resolution times.
You aren’t saying “no” to customers
In the early days, you are desperate for revenue. This desperation makes you unwilling to say “no” to excessive customer demands.
A customer asks for a feature you don’t support, a delivery timeline that is unrealistic, or a service that you don’t provide? You say “yes” to capture the euro.
This is often “bad revenue.” Not all money is created equal.
Some customer requests are simply unprofitable to fulfill. If you customize your product for one overly demanding client, you will end up disrupting your business flow, stress your team, and erode the profits you would have made on the deal.
The fear of saying “no” often comes from the fear of negative reviews. New owners are held hostage by the fear of a one-star rating. You must accept a harsh truth: it is impossible to please everyone.
If you refuse a request that would hurt your business and the customer leaves a negative review, ignore it. Focus your energy on the 95% of customers who fit your business model, not the 5% who are trying to break it.
You obsess over product instead of marketing
Beginner entrepreneurs fall into the trap of believing that “if you build it, they will come.”
These entrepreneurs spend months, sometimes years, perfecting a product in a vacuum. They obsess over the packaging, the logo, and the feature set, only to launch and have 0 customers.
The problem is that the most beautiful product in the world is worthless if no one knows it exists.
Ideally, you should start a business only after validating a marketing channel.
Can you acquire a customer for less than the profit they generate? Do you know where your audience spends its time?
Focusing on the product is comfortable because it is within your control. Focusing on marketing is scary because it involves rejection and metrics. However, business is marketing.
You are not a baker; you are a business owner who sells bread. The shift in identity is crucial. You must spend equal, if not more, time on marketing and selling your product as you do on the creation of your product.
You buy stuff you don’t need
Managing cash flow is one of the most important skills of successful business owners.
Many fall into this trap because they think every purchase can be written off as an expense for tax purposes. However, this doesn’t mean the purchase is free, you are still spending the money.
Do not buy a brand new, top-of-the-line MacBook Pro or a luxury company vehicle on day one just because “it’s a business expense.” Your old laptop is likely fine. Your current car will get you to the meeting. Conserve cash for things that generate revenue.
However, the other extreme is equally dangerous. When it is genuinely time to buy equipment essential to your business, do not buy the low quality products.
Buying the cheapest tool often means you will buy it more often (because it breaks down frequently) or you will have to buy additional products (because a cheap product can’t do everything a more expensive product can do).
If you are a photographer, buy the good lens. If you are a carpenter, buy the reliable saw. Buying quality equipment that will scale with you is an investment.
Knowing when to buy and when to save money is a skill that takes years to learn. However, a good rule of thumb is: don’t buy a product until the pain of not having it is greater than the cost of buying it.
You’re hiring too many people
There is an ego boost associated with hiring. Saying “I have ten employees” feels like success.
However, hiring before you have clear processes is a recipe for burning cash and creating chaos.
To prevent [useless hiring](https://eddy.com/hr-encyclopedia/overhiring/), first create a detailed job description and identify what business processes and procedures you want the new employee to perform.
Once you know exactly how the task is done, you can hire someone to do it. Until then, stay small and agile.
Salaries are the biggest expense a business can have so make sure you have enough revenue to sustain one or more employees.
You have too much trust in others
Business doesn’t mix well with friends and family. New owners often feel that using contracts or strictly enforcing terms signals “distrust.” They rely on handshakes and verbal promises because they want to build good relationships.
This is naive.
Contracts force clarity about who does what, and what are the consequences of not doing something.
When you are too trusting with suppliers, partners, or clients, you leave yourself open to exploitation. Suppliers will prioritize other clients who have strict penalty clauses for late delivery. Clients will stretch payment terms from 30 days to 90 days if you let them.
Protect your business. Get it in writing. If the relationship is strong, the paperwork shouldn’t be a problem.
You give up too quickly
The hardest phase of having a business comes after the initial excitement wears off but before the profits start coming in. This is where most businesses die.
Assuming you have the capital to survive (see point #1), giving up too early is the worst mistake you can make. Building a successful product and finding market demand takes time. It requires iteration and experimentation.
You might need to tweak your offer twenty times before it clicks. You might need to change your ad copy fifty times before you find the winning approach.
If you quit the moment things get hard or the moment your first launch fails, you haven’t really started a business. You’ve just conducted a failed experiment.
Resilience is the primary asset of the founder. You need enough time to be wrong so that you can eventually figure out how to be right.
You aren’t hiring and delegating enough
This seems contradictory to point #6 (Overhiring), but it is the other side of the coin. Once you do have clear business processes and healthy revenue, you must [learn to delegate](https://hbr.org/2025/09/why-arent-i-better-at-delegating) and let go of control.
Many founders believe no one can do the job as well as they can. While that may be true, if you are doing €15/hour work (packaging, scheduling, basic admin), you are not doing €500/hour work (strategy, partnerships, sales).
Delegate the tasks that drain you or that can be done 80% as well by someone else. If you are the primary limitation for every decision and every action in your company, your company cannot grow past your personal energy limits.
You aren’t choosing the right partners
Choosing a business partner is as serious as choosing a spouse. You will likely spend more time with them than with your family, and your financial futures will be legally intertwined.
A common mistake is choosing a partner simply because they are your friend, or because you are lonely and want someone to share the journey with. Choosing your partner like this is a big risk, because it’s rare for two people to invest the same amount of energy and emotion into a business.
At some point, resentment will appear, and that will lead to open conflicts regarding who should own more shares in the company, how business decisions are made etc.
This logic extends to suppliers. If your business relies on a specific raw material or software, that supplier is a de facto partner. If they fail, you fail.
Choose your shareholders and suppliers rigorously. Do they share your work ethic? Do they have the same risk tolerance? Do they have complementary skills, or are you both idea people who don’t have the skills and competence to do the actual work?
A bad partnership is infinitely worse than doing it alone.
You’re not doing enough experiments
A common mistake of new business owners is finding one thing that works such as one ad, one product, one sales script, and relying only on that single approach.
Eventually, ad costs will rise (Customer Acquisition Cost or CAC). Eventually, competitors will copy your product. Eventually, the market will shift. You must constantly run variations.
- How can you increase the Revenue Per Customer?
- Can you combine products?
- Can you try a different marketing angle?
If you are not allocating a percentage of your time and budget to experimentation, you are waiting to be defeated by a more agile competitor.
You don’t understand taxes
You do not need to be a certified accountant to run a business, but you also cannot be financially illiterate. Many new owners look at their bank balance and think, “That’s how much money I have.”
They forget about:
- VAT Tax: Money you collected that isn’t yours.
- Income Tax: The chunk the government wants at the end of the year.
- OpEx (Operating Expenses): The cost to keep the lights on.
- CapEx (Capital Expenditures): Investments in long-term assets.
- Etc.
Remember, profit is not revenue.
The most painful realization for a new owner is often the tax bill. If you made €100,000 in profit but spent it all on “reinvesting” in things that aren’t immediately tax-deductible (like inventory sitting on a shelf or principal payments on a loan), you still owe tax on that money, even though the cash is gone.
It is an essential business survival skill to know the difference between cash flow and profit, and knowing how to forecast your tax liability bill. Ignorance here leads to bankruptcy and IRS audits.
Conclusion
Business is a game of hard work, perseverance and luck. The winners are often not the smartest or the most talented, but the ones who made the fewest fatal mistakes and stayed in the game long enough to get lucky.
By capitalizing properly, setting prices for profit and not survival, verifying your market, and keeping a close eye on your cash and your contracts, you insulate yourself from the chaos that destroys 20% of businesses in their first year.
Treat your business with the seriousness it deserves, respect your own capital, and remember: it is cheaper to learn from this article than to learn from your own bankruptcy.
