The Common Problems Start-ups Face

Developing the Vision and the Business Idea – The success of any start-up rests 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. 

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.