Common Startup Challenges to Overcome: Hurdles Every Entrepreneur Faces

Entrepreneurship fervour has hit the shores of Australia. The nation is home to a thriving startup ecosystem, with billion-dollar success stories like Canva, Judo Bank and Airwallex leading the charge. In such a scenario, it is natural for curious minds to brainstorm about starting their own business. So whether you are a newbie to the business world or a seasoned Master of Business Administration graduate with years of experience, you should be prepared to face some common challenges in your entrepreneurial pursuit.

1. Raising Funds

While Aussie startups raked in a cool $3.5 billion last year, it was still a far cry from other startup hotspots. While not lacking in daring innovation and vision, Australian startups need to catch up in their fundraising abilities. When you work on your business idea, keep this constraint in mind. Make very prudent estimates for capital raising and keep costs under regular scrutiny. Explore options beyond venture capital like grants, crowdfunding, revenue-based financing and angel investing. 

2. Finding Product Market Fit (PMF)

While you might have a dazzling product ready to disrupt the market, is it positioned to the right target? PMF is an elusive endgame that boggles many early-stage as well as growth-stage startups. For instance, if your company is an AI course creator, should you target educators who may use it more regularly through a subscription but would pay a smaller amount or should you chase large corporate collaborations who may have a higher one-time payout but large deal close period?  

Solving for PMF would steer your nascent company in a definitive direction providing clarity for everyone involved. It would also improve efficiencies across the board as all the stakeholders would channel their energy towards a common goal (in our AI course creator case, this could be targeting only educators).

3. Managing Cash Flow 

Business is not all about sales and generating revenue. It is also about getting the cash on time and paying your recurring expenses promptly. While your company might be flourishing with double-digit growth, it may not translate into a sustainable cash flow due to delayed payment cycles. Just ask Phil Knight, the man behind Nike. In its early days, Nike faced the double whammy of paying for goods before they were shipped and being constrained by conservative bank funding. So, despite the demand for the shoes, Knight had to move heaven and earth to secure the funding despite having 100% YOY growth. In such circumstances, you could also explore alternative sources of funding and also try to negotiate the payment terms with your suppliers.

4. Hiring The Right People

Staffing plays a rather important role in determining the success of a startup. Having the right person for the right job at the right time is hard to execute again and again. Steve Jobs was known to be a hardball when it came to selecting his team. He always tried to select the ‘A+ Players’ and keep a hold of them till the project was completed. On his return to Apple after his ouster, Jobs made ruthless cuts in personnel and started recruiting talent that he considered to be at the top of their game. While not everyone can have the persuasive powers of the Apple Co-Founder, having a distinct work culture, flexible working policy and good ESOP (Employee Stock Option Program) structure can help you woo talent of the desired calibre.

5. Dabbling In Cost Effective Marketing

Startups tend to have ambitious goals and limited budgets. In such situations, thinking out of the box is essential.  A good example of this would be the Dollar Shave Club. This fledgling startup, up against giants like Gillette, had a simple proposition of sending functional razor blades to homes for a dollar a month. In a market full of high-priced and feature-heavy products, this was a major cost disruption. 

So what did they do to market their products? They created a video that went wildly viral on the internet, generating immense word of mouth as well as sales. All of this snowballed into the company being sold to Unilever for a billion dollars. Such gutsy and innovative thinking can truly pay off in marketing. However, founders need to ensure that they stay true to their core brand values and do not stray away from their target market. 

6. Dealing With Competition 

Competition is usually good for business. It keeps everyone on their toes and forces companies to constantly innovate and rethink. However, sometimes smaller-sized companies can find it difficult to compete against established conglomerates. For instance, many successful sellers on Amazon discovered that the platform was undercutting their products by offering a cheaper alternative after a few years of rampant success. 

A similar example could be the launch of ‘Check In’ on FaceBook which killed Foursquare, a startup known for its location-based check-in service. Foursquare had built a strong user base around the concept, but Facebook's massive scale and user reach made it harder for the smaller company to compete. 

Another example of this could be the ‘Stories’ feature prevalent on social media platforms these days. Snapchat pioneered the concept, leading to massive growth in its user activity. However, when Instagram copied the feature in 2016, it took the momentum away from Snapchat and heavily reduced the growth rate. Startup founders need to be cognizant of being over-dependent on specific platforms or features. Building sustainable moats against the competition is the only solution for long-term growth.

7. Scaling Operations

As a company entrenches itself into the hearts and minds of the consumer, it begins to expand in size and scale. Ensuring that the customer experience remains the same across all the interactions with the brand can be a real challenge. Uber has faced the challenge of providing consistent customer service across the globe with cultural differences, differing customer expectations and disgruntled drivers being cited as possible reasons. Whether you are scaling up a digital product or a people-facing business operation, having standard operating procedures and a clear policy on customer experience can go a long way in warding off possible friction points. 

The dynamic nature of the business world makes start-ups a daunting prospect. However, that should not discourage you from chasing your dreams. Being a start-up founder can improve your resilience and teach you the fundamentals of many domains. The key would be to identify and battle those challenges head-on.