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 and overall best practices. Here’s the comprehensive list.
It sounds very obvious, but you know what I am talking about here. You have that fabulous idea, something that you really think could work, and yet you aren’t that sure. You see the flaws, and you got a job and a family, etc, and you don’t feel like you should put your current lifestyle at risk (even if you hate it).
Even if you decide to get your business started, you won’t quit your job or you will finish your degree. And I am not saying that you can’t do both. It is perfectly fine to be cautious if your circumstances require it, but you must be sure that you are making a calculated decision, not one based on fear.
When Mark Zuckerberg drop out of Harvard, he believed that Facebook would take off. But that move was just his first way prove his faith in his company. He also turned down several millionaire proposals to buy Facebook made by major corporations, including Google, The Washington Post, Yahoo, AOL, and Viacom.
And you know what they said: if you don’t trust in your business 100%, who will?
According to Vusi Kweyama, “My mentor used to draw these different circles and they would represent different aspects of my life. We would look at where and how far they connected. For example, I would look at the connection between my studies and my social justice projects. Then we would work out how does one contribute to the other?
Then it’s about examining what I need to do to make sure each aspect complements another in my life. This is important, it’s important to sit down and step outside of your ideas. Look at your life from an outside perspective, think about what you need to do to achieve what you want. We live in a fast paced world that does not allow time for reflection, so take a moment and sit and think.”
I won’t lie to you and say that all companies that are now big players started with a detailed business plan and a 20-years vision. But they all have some kind of plan even if it was never written down.
Their founders knew what they want to do and how they were going to achieve it. And yet, they were prepared to take action and reinvent their business as soon as they notice that the plan wasn’t working as expected.
Fred DeLuca and Peter Buck, for instance, had a goal to open 32 stores in 10 years. But they realized that they couldn’t make it happen by themselves and adopted the franchising model that made possible Subway to be present in 111 countries with almost 45,000 restaurants nowadays.
According to Neil Patel, “To have multiple business mentors. I started off my journey with one mentor — but as I got deeper into being an entrepreneur I realized I needed to learn many other aspects of business. Management, finance and negotiations were some major gaps that I had to fill. I reached out to business people that I knew and they guided me along the way.”
You can’t sell what you don’t understand. It should be the motto of anyone considering to become an entrepreneur. But, unfortunately, many people think that, if they are just the retailer or the middleman, they don’t need to know every single detail of what they are offering to the public.
But the thing is that you need to understand not only your product but every single part of the process, administrative and financial operations included. Otherwise, you won’t be able to plan correctly or to delegate tasks. You might end up spending in what you don’t need as well, and your customer service will be a mess.
Markus Frind, the founder of PlentyOffish, had just a very faint idea on how to create a dating website when he started it. He was introduced by a friend to an online dating site but got annoyed by the fact he had to pay to read messages received and see who had liked him, among other features set as premium only.
So he decided to learn and create his online dating site from scratch and all by himself. As a result, he created a massive service, and PlentyOfFish was recently sold to Match Group for $575 million in cash – but he still retained the ownership of the company.
According to Oli Monks, “There’s a few for different situations. One of them is to do with people you work with. I’ve been in a couple of difficult situations at various startups before and I always remember some advice my Dad gave me.
He said: ‘Oli you can’t work with vampires.’ It took me ages to work out what he meant. But he was spot on, he was referring to the fact that a relationship, and a business, can’t be just ‘take, take, take’; there’s got to be some give. You don’t want to work with people like that or be involved in a business that just takes.”
Your target audience is the key to your company. It is them that you want to pamper and make sure that will buy your product or service and come back for more. So it is crucial that you spend as much time as possible trying to understand what your public wants and expect from your business.
YouTube was basically created from scratch based on their audience’s need. Chad Hurley, Jawed Karim, and Steve Chen were up to create a video-dating website called “Tune In, Hook Up”, but nobody actually uploaded any video there. So they decided to revamp the site and let people upload any kind of video they wanted. And the rest of it is history.
According to Ryan Irving, “Someone once told me not to have a plan B at the beginning. I think it’s good advice. Anybody who has a plan B doesn’t believe enough in plan A. If you don’t believe in what you’re doing, you’re not going to succeed. Don’t dilute plan A, put all your effort into it and you might just succeed.”
And if you want that makes things happen, make sure that you avoid unnecessary expenses. It is easy to get excited about so many things that you can buy and build a fancy office in your garage, or fall into several recurrent bills, from accountancy to applications.
The idea here is that you invest only in what is essential in the beginning and that you add whatever else you need over the time (and when you actually need them). And outsource what you can, in the beginning, finding a list of writing services and virtual assistants that will make your life much easier.
According to Tom Panaggio, “Hire people who are smarter than you. At first I thought this was a condescending remark but in reality it is the golden rule of management. As a business leader you need to surround yourself with the very best and if you are it then your team will always be beholden to you. That only creates a stagnant company afraid to innovate, change or keep pursuing excellence. Plus what happens to a company if the leader gets hit by a bus? If the leader is the driving force and he is gone the company dies and everything you worked for is of no value.”
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.
It’s tempting when launching a startup, to take money from any source that is willing to give it to you. Unfortunately, by doing so, many founders have landed in the unfortunate position dealing with an investor who doesn’t share their vision or who tries to exert influence in unhelpful ways.
This is especially true if part of the investment contract includes giving the investor any level of control over day to day operations.
Passion and excitement about the product or service you have to offer the world can result in some tunnel vision. Many startups have crashed and burned because their founders were so in love with their own ideas that they refused to see the need for making adjustments. Remember that people are going to buy the things that they need, not the things you think that they need.
One of the first steps to planning a startup is to create an effective marketing plan. If that isn’t done effectively, it’s impossible to gain the initial customer base that is required to create growth and profits.
The most effective marketing efforts are those that are targeted to the group of people that has the biggest need for your product or service and that is in the best position to purchase it. If you fail to identify that group by creating an ideal customer persona, your marketing is likely to be too generic to be effective.
For most startup founders, money is tight. Because of this, it can be tempting to launch in a location where rent and other costs are lower. Unfortunately, there’s often a reason why costs are lower in an area. This might include poor infrastructure, lack of traffic, and lack of incentives from local governments.
In addition to this, many startups fail to research their targeted geographical location when it comes to predicting whether or not there is a local market for their product.
Debt is a scary enough thing when you’re earning a profit. The idea of accumulating debt when you aren’t making money can be downright panic inducing. Unfortunately, unless you are already flush with cash from other ventures, going into debt is part of launching and growing your startup.
Getting a good line of credit, and a business loan will allow you to purchase inventory, cover monthly expenses, pay slotting fees, and keep you afloat.
While there’s nothing inherently wrong with offering investors an equity stake in return for their funding, giving away too much equity can cause problems.
First of all, even if you offer it up in small increments, giving away equity is giving away control. When that control is spread over multiple investors, chaos can result if investors cannot come to an agreement about the things that need to be done to produce growth. In the meantime, you might find yourself with a startup over which you have very little control.
The idea of teaming up with friends and family members to come up with a great business concept, and then teaming up to launch a startup is a wonderful fantasy. After all, who wouldn’t want to spend their days working with people that they like? Unfortunately, the results are often not as rosy as you might think.
It can be difficult to navigate disputes when dealing with friends and family. It can also cause a challenge when it comes to defining roles and responsibilities.
Many startups struggle or even fail because the teams behind them only score enough funding to get started. They don’t take growth, market shifts, or potential disasters into consideration. Then, when something happens they are scrambling to find the funds that they need.
Norman Arvidsson is a passionate author who was born in Sweden but then moved to the United States with his family. Now his goal is to share his experience with others through blogging. He is familiar with such areas as web dev and design, marketing, blogging, freelancing, startups, small business, self-development, and eLearning. Considers personal growth as the main goal in his life. You can contact him through his Facebook or Twitter.
Donny Gamble Jr. is founder of financial website, Personalincome.org, a published author, & investor. He is a contributor for HuffPost and other major media publications. Follow him at @donnygamblejr.
Henry McIntosh is a copywriter at the British Web Design and Digital Marketing firm Ri Web. Ri Web’s e-book will be released in January and will be free to their newsletter subscribers. Henry’s still interested in interviewing entrepreneurs from all walks of life, so feel free to contact him if you are interested.