In our previous blog, How to start a business in the tech space,  we listed out the steps that one needs to follow to start their own business.

But even after carrying out the steps meticulously, success is not guaranteed. Challenges faced by startups are many and many startups do not overcome these challenges.

Data suggests that as many as 90% startups fail during the first five years of operation. The grit of the founders, newness of business and possible availability of funds sees most business (90% of them) sail through the first year, but the failure rates keep increasing, leaving only 10% surviving for more than 5 years.

Many think that not being able to raise funds is the only reason for the failure of startups. While it is one of the reasons, it is interesting to note that 75% startups fail even after they have raised money (as per startuptalky)

Here is our attempt to analyse some of the reasons behind the same – some simple and some more complex.

So, lets consider that a business has done studies and launched their product. What are the challenges faced by startups?

Challenges faced by startups #1 – No demand – “I am sure there are many people who want this”

The most basic reason for failure is that there is no demand for the product. So either there was no research conducted before launching the product or the research was done incorrectly – it looked like there is a sizeable market for the product or service, but there is actually a very limited demand for it. Possibly the people chosen were not the correct sample or did not give the correct feedback leading to such a situation.

Challenges faced by startups #2 – No growth in sales – “I have tried everything but I am not getting new customers”

Once the product is launched, it sees some traction. Family, friends, relatives, people in the professional circles of the founders buy the product. But after the first few months, the sales begin to dwindle. Two things happen – new customers are not buying the product and there are very little repeat purchases. People who have used the product either did not find it upto the mark or the utility of the product is over. Finding new customers requires both efforts and money – spends on marketing – digital, PR, offline marketing, influencer marketing, affiliate marketing, participating in trade shows and seminars, establishing alternate channels for sales – only digital or physcial vs phygital, expanding to new markets, product development / enhancement, etc.

Challenges faced by startups #3 – Product market fit – “By making some tweaks to the product, it will sell”

After the initial sales, there are no mechanisms to gather feedback. Whether the market and customers are looking for different features in the product or are they looking for a different pricing model for a service? Once the sales start to slow down, in absence of feedback, founders make tweaks to their offering without realising whether those tweaks actually solve the problem – is the product fitting into the market segment that they are trying to sell to. It could result in more wasted effort and resources without much result.

Challenges faced by startups #4 – Lack of funds – “I had enough money but now I do not have any remaining”

Cashflows is what keeps the business going. One basic mistake that startup founders commit is that they do not create the business case accurately – they underestimate the costs and overestimate the revenues. This leads to a situation that if the cash reserve were to last for a year, it might get exhausted in six months. 

Fundraising also is at an all time high to inject “enthusiasm” in the startup ecosystem. But, judicious use of money is critical for any business – where does money spent give the best “bang for the buck”. The answers could lie is anything from range extensions to a particular marketing channel. This testing ideally should happen with small amounts of money before one decides to go all out behind a particular strategy / channel.

Challenges faced by startups #5 – Focusing on short term – “I will keep selling and one day I will become huge”

While it is not entirely wrong and positive cash flows are critical to business, it is also equally important to focus efforts on brand building. One can keep running trade offers or discounts on website to get sales in the short term, but this again leads to burning cash. Brand building activities are investments today to make sure the spends are far lower in the future. You would want customers asking for your product (for you product to have a “pull”) rather than you forcing it on the channel (“pushing” your product on customers). 

Challenges faced by startups #6 – Shift in the market – “The new things will not impact my business”

It is always prudent to keep scanning the market for newer threats – either competitors or, more recently, changes to technology and preference. We all know how quickly pagers got wiped off once mobile phones were introduced or how big and leading companies could not keep up with changing customer preference for smart phones and touch screens and lost their business to others. Similarly, changes to media consumption could render all media spends far less effective or any policy change by a platform could make doing business very expensive. It is critical to be cognisant of all such changes that could impact the business and have a mitigation plan for such risks.

Challenges faced by startups #7 – Lack of skills – “I know everything about business”

While the founders might have identified a problem and solved it, it is important to have the right strategy to take the product to market correctly and grow. What often founders miss out on are compliances – legal and regulatory. Laws in most countries specify what kind information should be printed on a label for example, or what kind of data privacy norms does one need to follow. Any casual approach with any compliance could lead to heavy fines or even closure of the business. The best thing to do is to have co-founders or core team members with complimenting skills – from skills related to the core product to marketing to finance to compliance – having all bases covered is always a good start.

Challenges faced by startups #8 – Macro factors – “I am immune to whatever happens outside my industry”

While something as big as COVID can disrupt any business, even cyclic phenomenon like economic slowdowns impact some industries. Larger organisations, especially with high involvement purchase products, like consumer durables, might cut on advertising spends during a downturn. So if one has an agency for marketing and advertising, they might get impacted. Or if organisations announce a hiring freeze, recruitment agencies might see a slow down. The fear of layoffs in uncertain times might lead to lower luxury consumption in general and impact sales. These are things that are not under the control of the founders but how do they react to such situations or mitigate such risks define the success or failure of the startup.

Last and possibly the root cause of many of the factors above is the founders mindset and approach. 

Is the founder willing to fail, learn and restart? Does the founder get too bogged down by low sales day in day out or does he or she think of ways of correcting the situation? If there are some critical skills that are lacking, are they open to get new core team members on board? Are they willing to delegate operational tasks to their teams and free up their bandwidth for strategic tasks? Are they flexible and adaptable enough when it comes to a change in market conditions? How quickly can they pivot during a black swan event? 

The questions can go on. And it is impossible for one person to be able to manage everything on our their own. Even to remain motivated for solo-preneurs could prove to be big a challenge.

The way one reacts in a situation is a derivative of a whole host of things – upbringing, values, financial situation, educational background and so on . Even something as small as the people one spends time everyday can have a huge influence on the mindset.

Is there way to tackle this particular challenge since it is “engrained” in an individual? This is where the role of coach or a mentor shines. Either to work with an individual for a particular problem, a short term challenge or work with them and groom them to be as well rounded as possible – from a mental ability point of view and not skills per se. Often underestimated as a “business partner”, a coach can help steer through difficult situations, keep individuals motivated and ensure they approach a problem with the correct mindset. 

So while the challenges faced by startups are many, it is important to keep wading through these challenges in order to become a successful entrepreneur. If you need any support on any of your challenges, make sure to look at our services.