5 Common Startup Challenges (And How to Beat Them)

August 25th, 2024

Just about anyone who has enjoyed prolonged success with a startup will tell you two things:

Startup life is exhilarating.
Startup life is full of challenges.

Entrepreneurship is an open invitation to the unknown. A new business means a host of new experiences – many of them exciting and even fun, but many of them hurdles separating you and your goals.

Fortunately, some of those hurdles are more common than others, meaning thousands of other business owners have gone through the same thing … and thus, you can learn from their collective experience and wisdom.

If you’re looking to start a small business or just launched a new company, read on as we explore five major startup challenges and explain how to overcome them.

1. Securing Adequate Funding

One of the biggest startup challenges is amassing enough funding to get off the ground. Many entrepreneurs struggle to find investors, secure loans or otherwise find the capital they need, limiting their ability to develop products, hire staff and market their business effectively.

A few ways to get over this hurdle?

Create a solid business plan: One way to hear “yes” a lot more often is a well-crafted business plan. A business plan should clearly outline your business model, market analysis, revenue projections and how you plan to use the funds. This shows investors and lenders that they’re funding a business, not a daydream.
Explore different funding options: Don’t rely solely on one type of funding. Consider a mix of options such as venture capital, angel investors, crowdfunding and small business loans.
Bootstrap if possible: If you think you’ll be unable to secure funding from traditional sources, examine whether you can start with your own savings or funds from friends and family. This approach can give you the freedom to grow at your own pace without immediate external pressures.
Participate in startup competitions: Some organizations host competitions that provide cash prizes and exposure to potential investors. While this is certainly an unorthodox way to secure capital, entering these competitions can help you gain both funding and visibility.

2. Building a Strong Team

Any business of any size will benefit from making “the right hire,” but doing so is more crucial the fewer employees you have. It’s also more difficult given that small businesses typically have lesser resources than their larger brethren. Thus, finding the right talent — people who share your vision and are willing to take risks — is a common challenge for startup businesses.

Here’s how to rise to the occasion:

Hire for cultural fit: Look for people who align with your startup’s values and culture. Skills can be taught, but passion and cultural fit are harder to find.
Offer competitive benefits: You might not be able to offer the same salaries as established companies, but that doesn’t mean you have to wave the white flag on employee benefits and compensation. You can offer flexible working hours, work-from-home (WFH) policies, equity or other perks to attract top talent.
Leverage networking: Use your personal and professional networks to find potential team members. Referrals from trusted contacts can often lead to better hires.
Invest in training: Continuous learning opportunities can attract ambitious individuals looking to grow — so even if you can’t afford to hire the most experienced talent off the bat, you can build up the employees you do end up hiring. Offering training and professional development can also help retain talent.

3. Managing Cash Flow

Even with proper funding, managing cash flow is a challenge to even more seasoned business owners. But startup businesses often face delays in revenue, which can lead to cash shortages that make it hard to cover operational expenses.

So, how can you keep the cash flowing?

Keep overhead low: Minimize unnecessary expenses by operating lean. Use cost-effective solutions like shared office spaces, freelance workers and cloud-based tools.
Implement a cash flow management system: Regularly monitor your cash flow and create forecasts to anticipate shortages. Use accounting software to track expenses and revenues.
Negotiate payment terms: Try to negotiate favorable payment terms with clients and suppliers alike. Encouraging customers to pay upfront or promptly can help improve cash flow.
Build a cash reserve: Having a financial cushion can help you weather unexpected expenses or periods of low revenue. Aim to have at least three to six months of operating expenses saved.

Standing Out in the Market

Given that most startups are entering an existing industry, it can be difficult to gain visibility and differentiate your brand. Still, startups must find unique ways to stand out from competitors so they can attract customers.

How can you make your brand shine?

Develop a unique value proposition: Sit down and actually spend some time defining what makes your product or service unique. Focus on solving a specific problem for your target market that other companies are not addressing.
Invest in branding: A strong brand can help you establish trust and recognition. So it might not hurt to allocate some resources toward creating a strong brand identity with a memorable logo, tagline and consistent messaging.
Use digital marketing: Digital marketing can be cost-effective and highly targeted. Utilize social media, search engine optimization, content marketing and email campaigns to reach a broader audience.
Leverage customer feedback: Engage with your early customers and use their feedback to improve your product or service. Happy customers can become brand advocates and help spread the word.

Navigating Regulatory Requirements

Many industries require businesses to navigate a complex web of regulations, licenses and compliance requirements. Failure to comply can result in fines, legal issues and damage to your reputation.

It’s a daunting task, but a necessary one. A few ways to do it right:

Research requirements early: Understand any legal and regulatory requirements that are specific to your industry. This might include licenses, permits, data protection laws or employment regulations.
Seek legal advice: Hire a lawyer who specializes in startup law to help you navigate the regulatory landscape. Legal professionals can provide valuable advice on compliance and risk management.
Stay updated: Regulations can change frequently, so it’s essential to stay informed. Subscribe to industry newsletters, join professional organizations or attend seminars to keep up with the latest developments.
Implement compliance programs: Develop internal policies and procedures to ensure ongoing compliance. Regular audits and employee training can help prevent violations and identify potential issues early.

Overcome Startup Challenges

While starting a business comes with many challenges, being prepared can make a significant difference. With the right mindset and strategies, you can overcome these hurdles and turn your entrepreneurial vision into reality.

Want to give your startup the best chance for success? McManamon & Co. can help you see around these and other corners. We offer a full spectrum of business services, including accounting, tax and outsourced CFO. We also offer consulting services, where we can talk to you about beating these and other startup challenges.

If you want to learn more or get started right away, call us at 440.892.8900 or contact us online.

Tags: small business, small business accounting, small business banking, small business finances, small business financing, startups | Posted in McManamon & Co., small business