10% of startups fail in the first year. 90% of startups fail in the first five years. While the rewards for having a successful startup have the potential to be huge, the chances of a fresh startup getting to that point are slim. Startups face a constant uphill struggle against circumstances that are often out of their control.
As founder of Prism, a company formed to help startups find venture capital funding, Ari Stiegler has seen it all. In fact, he faced many of the same challenges when he founded his own startup, TutorMe, which he sold to an NYSE-listed company.
Every single day, Ari Stiegler is telling startups that their business is going to face a lot of challenges and the business may not make it through to the other side. However, with the right source of funding, dealing with these challenges can be easier.
Let’s look at some of the challenges that a fresh startup may have to deal with.
There is rarely a unique idea out there. We can promise you that no matter what idea you have come up with, there is another company out there either planning to do the same thing or already does. Some may even be doing things better than you.
Competition is a giant killer for any new startup. Even if a business comes up with a fresh idea that ends up being a rousing success, it won’t be long before the market is crowded with plenty of companies trying to ‘beat’ that idea. Only the strongest survive.
Think of firms like MySpace, for instance. At one point, MySpace dominated social media. All the cool kids had a MySpace account. When Facebook and Twitter came along? MySpace was dead in months.
Good, well-marketed tech products can beat out the competition. It is tough, though. It also takes a lot of luck and a lot of cash.
Tech Moves Quickly
The tech world is moving at a rapid pace. You could have a stunning idea for the current tech market, but it may not be such a fantastic idea next year. An idea raking in millions of dollars this year may make nothing next year because people see it as ‘old news.’
Ari Stiegler has witnessed many companies that believe they have the latest and greatest tech product. They do, at the time it was imagined. However, nobody wanted it when they brought it to the market. It was useless.
This challenge can be overcome by adapting the tech for the changing world, which will also be necessary when a business seeks long-term success. However, there is only so much that can be accomplished like this. Sometimes, products will just die.
Businesses are built on the backs of staff. Even experienced co-founders need to bring in people with expertise. The problem is that startups often need help finding the staff they need.
The other problem is that most startups don’t have a lot of cash. The best staff members want to be paid handsome sums of money. This means that many startups can struggle to attract these staff members. Some may come based on the promise of shares and on the strength of a brilliant idea, but it is still a struggle.
Of course, many startups solve this problem by bringing in cash from venture capital firms.
Conflict in the Company
Most startups have a couple of co-founders. These co-founders may have an equal share in the business in the early days. The problem is that even though people often have the same goals for the business (success), people often disagree on the best ways to get the business to that point.
There will be a lot of arguments in a startup. Ari Stiegler has seen friends broken up and family relationships destroyed because these arguments got out of hand.
This issue can, sometimes, be solved by clearly designating the main decision-maker in the company. Although, things may still struggle to pan out properly.
Startup finances are tight, and many startup founders don’t know the best way to spend their money. Many companies have had brilliant ideas, only to invest in the wrong places, and their business crumbles before it really gets going.
This problem isn’t really fixed by bringing in more cash, either. If there is a fundamental problem with the way the financial side of the business is managed, that cash will eventually be blown through. This is why many people opt for venture capital. This often helps bring in people who want to ensure that money is spent properly.
Many people go into their startup with the idea of becoming rich. This rarely happens. Companies may even have a small amount of success and then start spending like they are the next big thing. These companies can still fail.
When a founder has unrealistic expectations for their business, they often budget poorly. They stretch their business too thin and don’t produce a workable product. Many may not even research the market because they assume that success is guaranteed. How could it not be with such a good idea?
New startup founders often need somebody to guide them in the right direction. This person can reel them in and keep their decisions based on the ‘now’ rather than what may happen.
Lack of a Market For The Product
Startups have a great idea, but they don’t research the market properly. They think tons and tons of people want their product, but they don’t. You will be surprised at how many startups don’t even know about market research. They spend blindly and take the approach of ‘work now, decide whether it is worth it later.’
If you have ever seen the show Shark Tank (or Dragon’s Den in other markets), then you will see this in action. People are always on the show touting how great their product is, and then they are brought down to earth. You can have the greatest idea ever, but if nobody wants it, it won’t make money.
Gaining the Trust of Customers
New companies need to be more trustworthy, particularly in the tech world. Startup founders love to make their idea seem great, but new companies asking for cash often seem like a scam. This is why many successful startups sought venture capital from top investors. Not only did they get the cash needed to take their business to the next level, but they ended up with a name attached to their product which is much more trustworthy, making gaining the trust of potential customers easier.
Money Can Solve Some Issues
Just like in life, money will not solve every challenge a startup faces. Some challenges may be unsurmountable, and the business may have to call it quits. For example, startups may struggle to find a market for the product or be negatively impacted by the death of certain pieces of tech. However, more issues can be solved than you may think.
For example, cash can help find the right staff to work on a project. Cash from venture capital firms often comes hand in hand with networking opportunities and expertise. Both of which can lead to more business and better decision-making.
While already struggling firms may struggle to find venture capital for their business, new startups that want to protect themselves a little better against the challenges their business could face can seek venture capital now. It may not be for everybody. Venture capital never is.
But those interested in the potential success of their business may want to look into more about what Ari Stiegler does with Prism. Many startups have been able to source funding from there.
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