There are many challenges for startups, so much so that only 1 in 10 startups end up making it.
That means the other 90% of startups fail to make it. Here we look at the biggest challenges for startups and what you can do to avoid these mistakes.
Let’s dive right in.
Common Challenges for Startups
1. Idea or Product is Not Fit For Market
A whopping 42% of startups create a product that the market does not require.
You may think your idea is genius and you would buy it. You ask family and friends, and they love it. So then what happens? You create your plan, put it to market and then nothing.
All your time, resources and investment down the drain, all because you didn’t test your idea to market.
What to Learn From This?
Don’t be married to your idea, even if you think it is genius. Others may not agree.
It will save you a lot of grief in the long run. And who knows, you may even be able to perfect your idea to something that is wanted by the market, through thorough market research and customer testing.
What Can You Do?
– Carry out in-depth market research to see if your product is wanted
– See if there is already research carried out, this will save you a lot of time
– Look to solve customers’ problems, not something that’s ‘nice to have’.
– All plans need to tweak and change, so don’t spend a long time drawing them up. Test it to market right away.
– Get people to pay for earlier versions of it. Often people love the idea of a product until it comes time to pay for it. A real acid test for any product is getting money in the bank for it.
2. Lack of Direction
Many founders often miss the mark and chase their idea of the entrepreneur life, instead of being realistic.
One of the essential things when beginning your startup is to remember what is necessary. Don’t get caught up in what you think an entrepreneur life needs to be. So your coffee meetings, networking’s and conferences can all come in second to the most important thing- your users and your product!
What to Learn From This?
Determination, grit and persistence is the recipe for startup success. Entrepreneur.com found that a lack of perseverance was the third most common reason for startup failure. You need clear goals and a clear strategy to get on target.
What Can You Do?
So at this beginning phase, focus on developing your product and talking to your users. At this point, there is no need to waste your limited time with other endeavours that look current, trendy and busy. Instead, put your focus into what matters.
3. Funding
Securing funding for your startup is one of the most challenging parts of the journey. Not only do you need to convince investors that your idea is innovative, but also that your business model is secure and scalable too.
What To Learn From This?
Without the right research, startups fail to find enough or proper funding to get them started.
What Can You Do?
Write a business plan that gives investors a clear understanding of financial objectives. What can they expect in return for investing in you? Writing economic assumptions are a challenge in themselves. Your entire business plan should be adequately funded and realistically priced to the very last detail. It needs to be detail specific and realistic while showing expected returns over time.
Finding (and asking for) the right amount of investment is crucial too. You don’t want to be asking for too much as you may not be able to keep up and manage the rapid growth and scaling up that will take place. Investors will not want to give you more money than you need. Financiers will expect to see your ‘hockey-stick’ finance graph come close to zero before increasing sharply. If you are 50,000 above the bottom line, then they will offer you 50,000 less than your ask (if you’re lucky enough to receive an offer).
4. Growth (Acquiring More Customers)
That brings us on nicely to our next point. Once your product, user profile and funding is established, possibly THE most important thing you need to focus on is acquiring more customers.
You could have a fantastic product, in an easily addressable market but with no growth in sales and acquiring customers; you’re not going to succeed.
What to Learn From This?
Customer acquisition needs to be the top priority. We have written an article on digital customer acquisition which may help here >
Lead generation can take a lot of time, which is why it is critical to invest your time and resources into the best way to get your product out to users. And that is marketing your product effectively.
What Can You do?
Focus on a Digital Marketing strategy.
“The mass adoption of the internet into everyday life is the single biggest event that has affected marketing over the last three decades” – DigitalMarketingInstitute
Technology has transformed the way businesses acquire customers. With such a lucrative and active online marketplace, companies who are not digitally present are aiming for extinction. That’s why gaining a digital marketing strategy is crucial to getting new customers.
Here is a great infographic to illustrate this >
Business adopting new digital marketing models through using a combination of blogging, social media, web design and SEO are coming out on top.
Take a look at retailer Boohoo.com. Despite the retail sector having the lowest sales in the UK for a decade, Boohoo has reported a 44% overall growth in Q4 2018. What is their secret? Their digital marketing strategy.
For more information on how you can create a comprehensive digital customer acquisition strategy, see our past post here >
5. Lack of Expertise (Knowledge and Skills)
One of the most valuable roles of a successful founder is having the knowledge and skills to carry the company in the right direction. Too many founders drive their startups into the ground, thinking they are above the hard work, and relying heavily on hiring others to cover the actual work.
What To Learn From This?
Not having the required technical skills and knowledge will impact on your startup growth. The more you can do yourself; the less you need to hire. A key to early startup success is keeping in-check company expenses. If you do need to hire an expert to reach the quality your product needs, then do it realistically. Can you afford the developer with years of experience in an accomplished company? Or can you code yourself to develop the product?
What Can You Do?
Can you get mentor help with the experience, knowledge and skills that you can trust? Endeavor Insights found that 33% of founders from tech firms who had successful mentors became top performers.
Check out our previous post on where you can source top mentoring for startups.
6. Competition
Many startups fail as they never bother to check out their competition. A fifth of startups come up with ideas that are already successfully established in the market.
You need to be able to adapt to changes in the market and think about what you can offer that your competitors can’t.
What To Learn From This?
You need to complete an in-depth competitor analysis on your product.
What Can You Do?
Find out what your competitors are doing right, what they are doing wrong and their unique USP. From there, you can create your USP, gaining a unique place in the market.
7. Hiring
Almost a quarter of startup fails are due to hiring the wrong people.
The most significant difficulties with hiring for startups are:
1. The lack of finances to hire the ‘right’ people and
2. Startups are not recruiting the right people to fit the culture.
What To Learn From This?
Limited Finances
A familiar conundrum founders face is the feeling of not being able to hire the best for their companies due to competing salaries in more established, larger companies. Competition and wages make attracting the right talent difficult.
Not Hiring the Right People
It’s essential to hire the right people who understand the startup lifestyle, and who are motivated and excited to join this unpredictable journey with you. Employees need to know that a startup culture is not working 9-5 hours. The mission is a rollercoaster with highs and lows. They need to be prepared and maintain motivation to keep up the hard work even through hard times.
You can’t afford to be losing team members who can’t handle the startup life.
What Can You Do?
There are many government schemes where you can hire apprentices or work experience, graduates. These recent graduates will have the skills at little cost to your business. Often there are Government or private schemes that subsidise their salary.
Students will also have the flexibility and enthusiasm that works well with a startup culture. As they often have little responsibility (such as lack of family and mortgage to pay) for the unpredictably of job security.
Over to you
Through this post, we’ve identified many of the challenges for startups. You should now be better equipped to face and tackle the upcoming hurdles for your startup journey, but this is just the beginning.
Starting a business is hard. But, with the right support, guidance and direction, you can make it a success.
Begin Your Startup Journey Here
If you’re interested in creating a technology startup, then our incubator, The Alacrity Foundation may be precisely what you need.
Alacrity is a unique 15-month programme that provides graduates with practical business training, software skills and mentoring from a network of over 70 experienced mentors. The end goal is to develop entrepreneurs to launch their own UK based technology companies.
Not only do you get the education and skills, but upon successful completion of the programme, the Foundation gifts graduate member’s with ownership of a startup company.
As we established, without firm financial foundations, it can be near impossible for a new business to flourish. The Foundation works with an investment fund that gives our Alacrity graduate companies access to up to £250,000 of seed funding upon completion of the 15-month programme. Oh, and did we mention you also get paid throughout the process? For more information on the programme, see the link here.
More Help From Us At WCIC
We at the WCIC (Wesley Clover Innovation Centre) provide on-demand skills, knowledgeable support and work directly with startup teams to build an anti-fragile organisation.
Our graduated teams from the Alacrity Foundation get stronger over time. By learning from shared problems, failures, surprises, and successes, we all work within the Wesley Clover Innovation Centre and broader Wesley Clover and global Alacrity ecosystem.
For more information on what we do to help startups see here