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These 4 Pitfalls Could Crush Your Startup If you're launching a product, avoid these business-derailing mistakes.

By Adam Callinan

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

Yes, the lifestyle of an entrepreneur is alluring, so much so that HBO decided to air a TV show about it. Yet the reality is that it's really not easy, and unless you have the mindset and stomach to put up with an enormous amount of risk and probable failure, you're most likely not cut out for the lifestyle.

If you do, in fact, think you're up for it and have what you feel is an idea that's more revolutionary than sliced bread, there are a number of pitfalls that you need to avoid right up front. Here are just a few:

1. Overbuilding your initial product. You've got your great new idea and as you begin developing the product or service, you'll notice that it becomes really easy to get carried away with the addition of a laundry list of unnecessary bells and whistles. The result is that you inadvertently create a product that has seven different options for the customer to choose from, leaving you in a position that is impossible to verify what the customer likes and doesn't like -- whether it works or doesn't.

Related: Don't Make These 10 Startup Mistakes

To avoid this common point of failure, create and prove one concept at a time. Keep it simple, then as you attain feedback you can adjust accordingly.

2. Assuming people will actually pay for it. One of the biggest and most common mistakes new entrepreneurs make is they seek validation from their friends and family about their idea. But beware, your friends and family have altered perceptions of reality when it comes to you, because they like you. They are going to naturally be emotional about their criticism, or lack thereof, which means that you're not getting honest feedback.

Instead, ask them -- and anyone else you can find -- to pay in advance for your new product. If they whip out their wallets, you likely have something. If they all forgot their wallets at home, you'll need to head back to the drawing board.

3. Misunderstanding your costs. There are a number of items that are commonly missed when looking at overall costs, particularly at the beginning and with respect to businesses that manufacture something. These costs often appear long after the bills are paid and include things such as expedited shipping due to manufacturing delays as well as the cost and life of molds -- many of the items involved in manufacturing have finite lives.

Related: Critical Lessons from 5 Common Startup Mistakes

As you are creating your financial models and budgets, pad your manufacturing and shipping costs by at least 20 percent, if not more, to account for these expenses.

4. Failing to understand your margins. When it comes to business, and more particularly revenue generation through sales, it is easy to get caught up in only thinking about how much money you are going to make. Although this is rather important, you must also think about the revenue potential your future sales people, distributors and retailers will have. If they don't have the ability to make a reasonable amount of money, they're not going to be terribly motivated to move your product. This usually happens as a result of margins that are too thin, or just plain old greed, both of which are bad business.

Instead, work to increase your margins by adding value to the product so there is enough money to be made for every party involved -- which isn't going to be limited to those you're dealing with today. Remember, everybody needs to win for the product to be successful.

Related: Richard Branson on How to Avoid Common Startup Mistakes

Adam Callinan

Entrepreneur and Venture Investor

Adam Callinan is a founder at BottleKeeper, the fast-paced and sarcasm-infused solution to the warm beer and broken bottle epidemics that have plagued the world for centuries. Callinan is also a founding partner at Beachwood Ventures, a Los Angeles-based early-stage and non-traditional venture-capital firm at the intersection of technology and entertainment. As an entrepreneur, Callinan has spent over a decade building small businesses in and around technology, medical devices and consumer products, which most recently includes an exit in 2013. Callinan lives in Manhattan Beach with his wife Katie.

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