The Main Challenges of Early Stage Startups And How to Conquer Them
The Main Challenges at Seed Companies, And How to Conquer Them: Startup Challenges
Getting started with your venture is really exciting, as it involves work that you enjoy. Sure, you’ll be going through an adventure that you’re passionate about. However, it is not always easy to keep up with its challenges and overcome the hurdles in your journey.
It is right to think that funding a business may be, by far, the biggest challenge.
Yes! That is true. According to research, only 4 out of 100 are able to survive in the first 10 years of their beginning. Why? Because they are unable to pay the bills.
But funding is not the only problem. It is perhaps the amalgamation of 4 elements of doing right by your business. First, coming up with the right business idea that does the job of convincing the investors to invest to solve the second problem, i.e., funding. Once you’ve secured the funding, it boils down to getting the right team to work with you. Lastly, it is the product you’re taking to the market!
There are businesses that fail because they are far ahead in the market, entering with a solution that doesn’t really solve any existing problems. Or there are also those that are just solving an existing problem better than the competition, but the solution isn’t exactly “new”.
So instead of just following up with why businesses exactly fail, let’s begin with the challenges they need to overcome to become market leaders.
Challenge 1: Proposition
A value proposition is a statement that clearly identifies the benefits of products and services of a company that will be delivered to its customers. A well-crafted value proposition can set a different tone for your product or service in the marketplace and give your business a cutting edge over the competitors.
What problems are you solving? Do you have experience with the problem? They are all easy questions to ask when it comes to creating your business pitch. However, they are not necessarily easy to answer.
When it comes to setting the right foot forward in business, leading with your value proposition is a critical step. Being able to communicate to the market what you are doing, why you’re doing and how you’re doing it, along with what it is that you do, is a structure you should follow.
A value proposition statement is an opportunity to tell the customers why they should buy your product or service. It tells your customers that your company can meet their needs and best solve their problems.
However, it is not just the problem or solution that is included in it. If the problem exists, you must do your research to know the total addressable market. How many people suffer from the problem? Along with your route to revenue. Although these final points are usually considered important for VC conversations, as a founder of your business, having answers to these questions is critical to set the right messaging right internally and externally.
Challenge 2: Securing Funds
“An entrepreneur without funding is a musician without an instrument” – Robert A. Rice Jr.
The quote above says it right! No matter how innovative and unique an idea you have, it is tough to execute it without having sufficient funds. From a supermarket to on-demand delivery or Software as a Service product, funding is essential, be it a small startup or a big name in the industry.
In the business landscape today, securing funds is becoming even more challenging. Since the economic downturn caused by the pandemic, convincing investors to invest in your small business with only a business idea and no track record has become a hard nut to crack.
However, choosing the right funding option is critical at the beginning. Around 57% of young entrepreneurs setting foot in the market for the first time use their savings to launch their first official venture. In addition to personal savings, 19% invest from friends or family, and 13% obtain it from credit cards to start a business.
Self-funding is not the only option here. New founders also opt for angel investors as they start growing and increasing funding towards product development, marketing, and simply expanding the team. Since the capital raised at this stage is slightly higher than the self-funding round, angel investors will also expect a compelling and well-researched pitch.
At this point, you must wonder why venture capital investors are not mentioned. Well, the fact is less than a percent of small businesses are actually able to raise venture capital!
VC firms rarely invest in small businesses. The bitter truth is stories of wildly successful investor-backed startups and aspirational shows such as the popular “shark tank” have fueled dreams of venture capital for new entrepreneurs. It is true that VC firms have actually helped young entrepreneurs achieve growth, but it is an incredibly small percentage. Kauffman Foundations found that just 0.6% of businesses actually raise VC due to the industry’s focus on companies with potential for “high growth”.
Choosing the right mode of funding can be overwhelming, especially for a startup taking a step into the business world. So, make sure you have the right sales pitch to get started with securing funds for your venture.
Challenge 3: People
Behind every successful business is a team of the right people.
As cheesy as it may sound, you, alongside your team, can make things happen. Without a team, it is impossible to run a business. At the Seed stage of the business, an experienced team is imperative. By experience, it doesn’t mean people having 20+ years of experience, but the experience of the problem you are solving and people on board who understand the vision and can move the needle.
However, finding employees who tick all the boxes can be tricky. It is tempting to hire someone for short term because you have a stack of work waiting to get done. But this can lead to costs later as you’ll need to re-advertise the post if you took on the wrong person.
On the other hand, considering you are a startup, experienced individuals or experts will be skeptical about joining your business or quickly shift to a better-paying job at a different company. Come to think of it, hiring someone for a short term for the sake of getting the job done or filling a position is not in the best interest of a business starting from the ground.
Here, you can simply opt for outsourcing services while saving the cost of hiring an in-house expert. Doing this gives you an opportunity to grow while hunting for the right candidate to hire for long term. The fact is, being a startup, experts or experienced candidates might not be interested in working for you long-term. Keeping this in mind, it is better to work with experts outsourced for jobs like software development.
Don’t know which is better? Read In-House Vs Outsourcing Software Development to find more about it.
A better option than outsourcing freelancers is to augment your team by hiring resources from another organization to augment your internal team of experts. This not only saves costs on hiring experts for the team but also gives you the work that you need.
Challenge 4: Product Development
When starting out, simply having an idea won’t cut it. Broadly speaking, the idea of product development is the entire process of creating a product, launching it in the market, and continually iterating to bring improvement and everything in between.
The challenge here is to manage product time to market. It is critical to launch the MVP (minimal viable product) with fewer features. Rather the simplest form of the original idea of the product to show the customers and get their feedback.
Doing this will help you to understand the needs of the customers better while iterating the product according to the feedback received from the customers. You can test every feature launched in the market with time and make changes to it according to the customer’s feedback.
This is also the time when you are creating awareness about the product and how it is best at fixing the problems that potential customers are facing. At the same time, you are processing a design that is converting a visitor into a customer in the quickest and most effective way possible.
The Wrap Up
There are many challenges that fall under the four major challenges mentioned above. However, taking a view of your business through these lenses will help you identify, understand and define the challenges you face running your business.