By Sophie Deering
Nobody goes into business thinking it’s going to be plain sailing. As rewarding as becoming your own boss can be, starting a business from scratch comes with many risks and challenges. What will determine the success or failure of your startup is the way these risks are managed.
Some of the biggest gambles can occur in the infancy stages of a business, whether it’s taking that initial plunge or investing in growth. While some of these risks turn out to be the best move for startups, others have potential to stop the business in its tracks. In fact, a whopping 90% of startups fail.
We’re rooting for you to defy the odds, so we have outlined some of the most common hurdles to be aware of when starting a new business, with advice on how to tackle each one head-on.
1) Failing to acquire enough funding
To get a business off the ground you need money. Whether you’ve got savings in the bank, sold assets in preparation, taken out a loan or acquired funding from external investors, committing these funds to a new business is a gamble. The risk is even greater if you’re leaving current employment to dedicate your time to the new business, as this will inevitably put a pause on your regular cash flow.
Careful planning and budgeting in the lead up to starting a business can help to prevent this from happening. Start small, so the perils aren’t too big for you to handle. For example, you could switch your regular job to part time, so you can test the waters of your new business before making a full commitment.
2) Misjudging market demand
Whether you’re offering a product or a service, you need to make sure you have a market fit. Your business simply won’t become profitable otherwise. A lack of market need is the biggest reason startups are unsuccessful, making up for 42% of failures.
A good starting point is conducting thorough market research before making any steps towards setting up a business. You want to develop a strong USP (unique selling point) based on a gap you have identified in a market – what can you offer that nobody else is offering, and how will it benefit your prospective customers?
Unfortunately, market research doesn’t always equate to reality – it’s possible that demand might not be as high as predicted – but it’ll put you in better stead then going in blind.
3) Entering an overly saturated market
It’s a crowded marketplace out there, full of businesses vying for the attention of the same consumers. Distinguishing your product from your competitors is essential for getting heard over all the other noise being made. This is no easy feat, but factors such as developing a strong USP or building an effective marketing strategy could give you the edge.
You might also want to avoid sharing any information about your product publicly until you are ready to launch, to prevent competitors from adopting these ideas as their own. Patent the USP of your product at the earliest possible time to avoid trouble.
4) Not hiring the right people
Unless you’re a one-man band, other people – a business partner or employees – are going to have a level of influence over your business at some point.
Human behavior isn’t always predictable, and every individual associated with the company comes with risks, such as additional salaries to budget for, a possible lack of trust when it comes to handling intellectual property, or disagreements over the vision or goals of the business.
To manage these risks, implement a strict recruitment process that will screen candidates appropriately. Try to ensure you only hire people who can help drive the business’ success. A diverse team with different skill sets can be critical to the success of a company.
5) Trying to grow too fast or too slowly
Quick growth is what many entrepreneurs hope for when they set up a new business. After all, growth leads to profit. Expanding the business is something that should be done with caution, however, as there are risks attached.
The knack is in the timing. Grow too quickly and you could struggle to cover staffing costs or market demand. On the other hand, if you overestimate market demand, you could find yourself failing to hit targets. Grow too slowly and you’re in danger of losing momentum or missing out to competition.
Carefully assess the profitability of your business, the state of your market, what your competitors are doing and the level of repeat custom you’re likely to get as these can all be indicative of whether or not it’s time to grow.
Entrepreneurs are risk-takers by nature, so you’ll agree that without taking calculated chances, your business may not reap the subsequent rewards. Even some of the most successful companies in the world, such as Google and Virgin, had to negotiate risks in order to get where they are today. You can read about their unique risk and reward stories in a recent article by Hiscox.
The important thing to consider is how you’re going to manage the challenges presented to you in order to drive success, not failure. By keeping the above points in mind, such as implementing strategic growth and sensible budgeting, your startup will hopefully have legs.
Sophie Deering is a freelance writer and digital marketer. Having written for numerous publications in the business, technology and marketing sphere, she has a keen interest in entrepreneurialism and the success of small businesses.