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The Seven Top Mistakes New Entrepreneurs Make and How to Avoid Them

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  • The Seven Top Mistakes New Entrepreneurs Make and How to Avoid Them

    We re in the midst of an exciting timeƂ for entrepreneurs. The biggest surge of startups in U.S. history occurred in 2005, with close to 672,000 new companies with employees created, according to the Small Business Administration (SBA). That s 30,000 more companies started than in 2004!

    Meanwhile, the majority of us would like to have our own business. A 2006 Yahoo Small Business and Harris Interactive survey found that 66 percent of respondents said they wanted to start their own company, and 37 percent of them hoped to do so in five years.

    However, even with the growing popularity of startups, the risks are high. About 544,800 small businesses closed in 2005, according to the SBA, and another 39,201 filed for bankruptcy.

    Of course, you want to give your startup the best chances of succeeding, so be sure to read (and pass along to your entrepreneur friends) these top mistakes -- according to Harvard Business School -- that new business owners need to avoid.

    1. Not hiring a lawyer to help with legal issues. Hire a competent lawyer early on so there will be no surprises later (when things will inevitably be more complicated).
    2. Making promises in your business plan that can t be delivered. This constitutes fraud and could get you into real trouble when you start looking for funding.
    3. Starting a business that competes with your employer. If you are employed, you cannot legally start a business that is in competition with your employer s.
    4. Revealing your invention or business idea without a nondisclosure agreement or patent. It is quite possible for your idea to be stolen. A nondisclosure agreement is a wise choice to protect your plans, particularly in dealing with people you don t know.
    5. Negotiating funding from a venture capitalist based solely on valuation. Valuation is not the only thing that matters. You also need to evaluate the firm s reputation, contacts in the industry, and history of standing by its entrepreneurs in tough times.
    6. Hiring a lawyer who s not experienced with entrepreneurs or venture capitalists. You will benefit greatly from legal counsel that knows what to watch out for. Those who don t have experience in this area often miss important warning signs.
    7. Not incorporating soon enough. Incorporating early -- before significant value has been created -- can help you avoid potential problems between founding partners (if one later demands more equity than they deserve) along with help you bypass tricky tax problems down the road.
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