5 Big Problems to Look Out for in Your Startup's First 3 Years
According to the latest report from the U.S. Census Bureau, the birthrate of startups and small businesses has lagged behind the death or closure rate. Four hundred thousand businesses were born against the 470,000 that shut shop, and economic strategists find this worrisome.
In those crucial early days, startups have a zillion problems to counter and overcome -- the intense competition for customer, market and venture capital money, the list goes on. And our companies are falling behind. Keep your venture from becoming one of the walking dead by staying aware of these predictable -- yet preventable -- problems that can effect its growth and development.
1. Failing support
Recent studies show that most startups and small businesses are financed by the founders’ savings. According to a report published by Gallup, 79 percent of those who started their small business (with five or fewer employees, including themselves) have drawn on personal savings to fund their dream.
This might seem healthier than taking on additional investment and loans, but if the founders don’t enjoy a good financial situation, things will get worrisome in no time.
2. Difficulty scaling up
Many small businesses and tech startups are caught by surprise when they're successful. Many have no plan in place to scale up responsibly and effectively, and others get swallowed up in attempts to raise funds.
Realize that too much money and stifling external control in early stages might rob you of the joy of nurturing your fledgling business. If you have achieved product-market fit, have a scalable product and a smart and cost-effective sales channel in place, then it’s the right time for you to scale up.
3. A weak team
A talented, passionate and responsible workforce forms the basic foundation of a successful startup. So right from day one, your aim should be to hire and train the most effective people who will be able to take on bigger roles and run the show (even when you’re away) as the business grows.
Hiring decisions need to be made with care. If you feel you don't have the time, ensure you take external help and guidance.
4. Partner incompatibility
In the early days of business, your shared passion and dreams for your company would have veiled all other minor problems or disagreements that you and your partner have.
Partner incompatibility becomes more evident as the startup grows and begins to scale up. There may be disagreements regarding the growth and expansion strategies, the way in which the products and services need to marketed or pivoted, and so on.
As founders, you are emotionally invested in the company, often to a very great extent. This forms the prefect breeding ground for conflicts. In many cases, friction arises when one partner feels that he is bearing too much of the work load or thinks that his co-founders are less involved with the company. Remember last year's famous breakups at Tinder and Rap Genius?
5. Dwindling cash
Next to people problems, money (or the lack thereof) proves to be the reason why so many startups wind down -- and not just at tech ventures. Managing cash flow is one of the most important responsibilities of an entrepreneur.
There are many fledgling businesses out there who aim to build something long term with a tangible product that will change our world for the better. Most of them don't have the luxury of millions of dollars in VC backing but survive on highly effective and foolproof cash flow management practices.