We often hear about startups that were something like an overnight success. They go from struggling startup to multimillion dollar organization in a space of just one or two years.
But far more common are the startups that struggle to get out of the starting gate. Many never make it, and end up on the scrap heap of the tens of thousands of businesses that don’t survive the first year.
But there are concrete reasons why your startup might continue to struggle well beyond the first year of operation. And fortunately, there’s usually plenty that you can do that will get your business going on the right course.
But before you can do that, you have to know what the most critical problems are. Here are five of them.
The ability of any business to survive and thrive is tied to its cash flow. Simply put, no cash flow, no business!
While that’s expected to be a slow process shortly after startup, if it continues to be a problem much past the initial launch, the business will struggle until the situation is corrected – or until the venture fails.
Cash flow is often a problem from the very start. There was a famous line from the 1989 movie Field of Dreams – “If you build it, they will come.”
That line has gained some traction in the years since, but the thinking is completely wrong when it comes to a business startup.
If you haven’t test marketed your product or service before formally rolling out your business, you will have no idea if the business can even work beforehand.
In order for a business to be successful, there has to be a demonstrated market for the product or service they will be providing.
Test marketing is a process of launching your venture on a very limited basis. The idea is to test the advanced theories about your product’s viability.
If market testing has proven the existence of a customer base that is willing to pay for your product or service, then the likelihood of success will be much higher. It will then be a matter of scaling up your operations when the business is formally launched.
The alternative however will be to launch your business at full throttle, while trying to identify and sell to a certain market segment. This is unlikely to work.
Other times, cash flow problems are the result of a weak marketing program. Ideally, both the marketing program and your primary products or services should be test marketed simultaneously, and before the formal launch of your business.
Even still, one of the inherent problems with marketing is that it can be high cost in the early stages of your business, and not at all supported by the revenue that it generates.
The only way to deal with that problem is to have a sufficient amount of capital available to fund your marketing operations – under the assumption that they have proven successful during test marketing – until they are able to produce the kinds of return on investment needed in the form of a solid cash flow.
When it comes to operating expenses for a business startup, employing a healthy amount of minimalism should be the order of the day. However, that’s not exactly how things work in the case of many startups.
Another famous saying is “If you want to make money, you have to spend money.” While there’s more than a grain of truth to that saying, you should never get carried away with it when it comes to startup operation. Keeping your expenses to an absolute minimum is an important strategy for ensuring the survivability of the business.
Optimally, your startup expenses should be only the bare-bones minimum that you need to get the doors open. You should avoid premium office space, desirable-but-not-absolutely-necessary services, staffing, and purchases of equipment and furniture.
The emphasis should be to direct capital into the marketing of your product or service, and to be preserve cash for future growth.
The idea isn’t so much to hit the ground running when your business starts, but rather to grow into the business as the cash flow expands and justifies a higher budget.
If you are paying too much for rent, salaries, debt service, and equipment leases, you may have created a structural overhead that your startup cannot support.
A better strategy is to look into office space sharing (or even launching your business from home), hiring outside contractors on an as needed basis, rather than employees, purchasing furniture and equipment secondhand, and avoiding debt at all costs.
Often the reason why a startup continues to struggle is because the product or service that it’s offering lacks a unique selling point (a.k.a., USP). Unfortunately, if this is a problem with your product or service, it’s often insurmountable.
In order to fill a profitable niche in the market, your product must either be better than the competition, or just as good, but less expensive. It’s a matter of competing on either quality or price. If you can’t prevail on either front, then your product or service lacks a USP, and is nothing more than a “me too” product or service.
Unless you’re able to either improve the quality of your product, to make it better than what is available elsewhere, or you’re able to find a way to provide it for less than the competition, your future prospects are dim. You may even have to go back to the drawing board, and create a whole new product or service based on a compelling USP.
You won’t succeed without it!
This is very much a hit or miss aspect of a startup. Because your business is new, you might not know what processes or systems that you even need. Their absence can leave gaping holes in your business plan, and it doesn’t go unnoticed by your customers and clients.
For example, maybe you lack a coherent accounts receivable function. That could leave you in a position where there is a significant time lag between the delivery of your products or services, and the time that you actually collect payment for them.
As a startup, you will have little choice but to either study related business organizations, and see what processes and systems they have in place, or you may have to consider going directly to your clients and asking them what it is you need to do to improve your business.
You’ll have to address this problem as early in the startup process as possible. Small problems in a startup have a way of becoming chronic problems as the business matures.
At that point, implementing new processes and systems can become either prohibitively expensive or completely disruptive – or both.
As an entrepreneur, you undoubtedly bring certain skills and talents to your business. But it’s unlikely that you have every skill that’s needed to make your startup a success.
For example, maybe you are the creative genius or the marketing force behind the company. But you may lack in administrative skills, customer service or direct sales ability. You will have to hire people who have whatever skills that you lack, in order for your business to be a full service provider.
That’s a tall order for an upstart business. As we’ve already discussed, cash flow is almost always a problem in a new businesses.
That doesn’t leave much room to hire a full staff that can provide all of the services and skills that are needed to make your company work. This is particularly true if your employees will require full-time employment, along with full range of employer-provided benefits.
An alternative, at least during the startup phase, is to either subcontract parts of your business to outside providers, or to hire people on a contract basis. This will enable you to keep payroll to an absolute minimum.
Since you’ll only be paying for services on an as needed basis, you’ll be able to hold off hiring permanent employees until you are financially in a position to do so.
Obviously, neither is a perfect arrangement. If you sub certain parts of your business out to outside providers, your business may not have that seamless quality that customers and clients may expect.
And contract employees may be unwilling to work either on a part-time basis, or with a schedule and income that can vary wildly. Still, either or a combination of both, maybe just the bridge that you need to get the special skills for your business that you don’t have, at least until you’re in a position to hire regular employees.
If you’re getting a sense that running a startup is a major juggling act, then you’re on the right path. The difference between a successful startup – and a business failure – is often the ability of the owner to get all sides of the business up and running at approximately the same time. It’s a challenge, but it’s what you have to overcome if your startup is to become a success.