Last week, I wrote a post about start-ups. I discussed the difference between start-ups and small businesses and what traits make start-ups uniques. You can read it here. This article is a sequel to the introductory post.

Today, in this blog post, I want to discuss the various problems that start-ups face and elaborate on the possible solutions. The most common problems that start-ups face are raising capital, or failure of business model, poor human resource management and many other unforeseen challenges. But let me take you through these challenges in a sequential manner.

Developing the Vision and the Business Idea – The success of any start-up rest on, to a large extent, the right selection of the product and/or service to be offered by the entrepreneur to his/her customers and the market(s), the entrepreneur is proposing to serve. We call this activity – Opportunity Sensing & Project Selection (OSPS). To effectively carry out the OSPS exercise, an entrepreneur must scan his/her external business environment thoroughly to spot and exploit suitable opportunities. An entrepreneur must possess the ability to see what others cannot see. While others see problems, an entrepreneur should see opportunities. An entrepreneur can also connect with various consultants and advisors, dealers, state level and central financial institutions, various government departments (which work for promoting industrial development in the country), various trade fairs and exhibitions for obtaining new business ideas. 

Raising Funds for the Start-up – After deciding upon the business idea, the next challenge an entrepreneur faces when starting a business from scratch, is that of raising funds. Trying to convince investors about something that does not exist is certainly a challenge – but then there is an advantage with the entrepreneur – he/she knows everything about his/her project from the idea stage to detailed planning. And therefore – the entrepreneur can use all his/her knowledge about various aspects of the venture to convince prospective investors, venture capitalists, angel investors, banks, and others to raise required capital (both debt and equity) for the business. 

Marketing and Sales related Problems – This is a major problem area for so many start-ups. Entrepreneurs should conduct desk research (from various secondary sources) as also structured market surveys during their business planning stage to have adequate knowledge about demand-supply gaps. All-out efforts must be directed to capture projected market demand for the product in various market segments. Suitable studies on customer needs and wants, buying behaviours and preferences should also be conducted. Only after such studies – entrepreneurs should decide about their product and market offerings. Entrepreneurs should also work on their marketing plan and strategies suitably to decide on their marketing mix – particularly about pricing, promotional, and advertising strategies.  

Business Model Failure – This is one of the most common causes of failure in the start-up world. Entrepreneurs are generally quite confident about their strategy to acquire customers. They assume that because they will build an interesting website, product, or service, that customers will rush to their door. That may happen with the first few customers, but after that, it rapidly becomes an expensive task to attract, win, and retain customers. To take care of such complications – an entrepreneur should stay in regular touch with competent advisors/consultants – who can offer necessary professional help in striking the much-needed balance in three crucial functional areas – operations, marketing, and strategy. An insider and/or a mentor can also effectively do this role. 

Poor Management Team – Another common problem that causes start-ups to fail is a weak management team. Weak management teams make mistakes in multiple areas – like building a product that no one wants to buy, poor marketing management, ineffective customer relationship management, and others. Such poor management teams also do not perform well in undertaking planning functions, exercising controls, and strategy formulation and execution. To avoid such problems – the main entrepreneur should focus upon building effective teams at strategic, tactical, and operational levels. Besides, they should also provide for proper learning, growth, and training opportunities for employees.

Liquidity or Cash Crunch – Another major reason that start-ups fail is that they run out of cash. A key job of the CEO is to understand how much cash is left and whether that will carry the company to a milestone that can lead to successful financing, or cash flow positive. The only way to manage liquidity is effective working capital management in consultation with your bankers and the Chartered Accountant.

Product Development Problems – Another reason that companies fail is that they fail to develop a product that meets the market need. Most of the time the first product that a start-up brings to the market does not meet the market requirement. The root cause of this problem lies in the business planning stage when the product was developed for the first time. Ideally, a product should be developed by a multi-disciplinary team comprising marketing, market research, operations, finance, purchase, and R&D members – with full support from the top management.

Finding Good Employees – Business owners know how difficult it is to find a hardworking, trustworthy employee. Most employees want to work less and get paid more. Finding a good employee who will be passionate about delivering his or her services is quite difficult. Finding good employees is a minor task compared to the business challenge of forging your hired employees into a team. 

"The competition to hire the best will increase in the years ahead. Companies that give extra flexibility to their employees will have the edge in this area."

Bill Gates

Dealing with Competition – Competition is yet another crucial challenge that start-up entrepreneurs face when they are starting a business. Most individuals see competition as bad, but competition is a good challenge. It is a benchmark for creativity, the main engine that stimulates innovation and production of quality products at the right prices. Without competition, there will be no innovation and without innovation, the world will be stagnant. Competition keeps us on our toes and drives us to constantly improve our products and services. Competition can make our business lose its relevance in the eye of our customers and therefore – we must always be on guard.

Lack of Research & Development Facility – We all know that it is a time for innovation and creativity. Any business can fail if no efforts are being made to constantly innovate. The start-ups lack financial viability and face cash crunch always, therefore, they find it difficult to take up R&D activities.

Unforeseen Business Challenges

The following grid lists some of the unpredictable challenges that can crop up for startups:

Unexpected Legal Suits Inconsistent Government Policies Unexpected Employee Turnover
Bad Debts from Customers UNFORESEEN BUSINESS CHALLENGES Natural Calamities
Loss of Market Share (to competitors) Working Capital and Inventory Problems Unforeseen Increase in Business Expenses

Mitigation Strategies

Here are some things that an entrepreneur can deploy to mitigate difficult situations in business:

Defining and understanding the problem correctly. State all the facts and major issues involved. If need be – carry out the SWOT Analysis to understand the situation completely.

There are a few things that you can do nothing about. They are not problems; they are merely facts of life. Often, what appears to be a problem is an oppor­tunity in disguise. 

Do root cause analysis. Find out the root cause of the problem – rather than treating a symptom. If the root cause is not understood, the problem will occur again, perhaps with different symptoms.

Develop Options. The more possible solutions you develop, the more likely you will come up with the right one. The quality of the solution seems to be directly proportional to the number of options (possible solutions) considered in problem-solving.

Decide on a solution. Do not delay your decision. Postponing any decision-making will never ensure that you have made a good decision. Once you have made your decision – decide on a course of action. Be firm in your action and go ahead.

Instead of getting offended or embarrassed when your product does not do well or someone badmouths your brand in an attempt to elevate their own, look at the problem as a direct route to connect with your customers or competition. If your customers are unhappy, correct the problem.

Involve all members of your organization in process simplification, adherence to lean manufacturing, and quality assurance programs. They should also be trained to practice effective cost and expenditure control. 

I hope you found this article informative and insightful. Let me know what you think in the comments below!

References