10 Common Startup Business Challenges and How to Overcome Them

There’s always a reason why businesses fail, and more so for startups—even if they came armed with a superb idea. In most cases, they could not make it because of a lack of preparation, with the whole gamut of operations getting run into the ground by ill-equipped individuals.

According to the latest United States Bureau of Labor Statistics data, up to 90% of startups fail, with 10% as the average failure rate across almost all industries. Moreover, first-time startup founders have a success rate of only 18%.^[1]

The prospect of failure is a considerable drawback when starting a small business. But it shouldn’t discourage aspiring entrepreneurs who want to follow their dreams and venture independently. To boost the likelihood of success, identify and prepare for the most common startup business challenges.

10 Startup Business Challenges to Prepare for and Overcome

Having a startup business comes with its unique experiences and challenges. Here are 10 of the most common challenges facing a startup business and how you can address them.

👉 Building a Solid Team

Recruitment is one of the biggest challenges facing a startup business, so you must be careful in hiring decisions. Often, startup business owners would employ friends, friends of friends, or even relatives.

It can be a good business decision if they’re qualified for the role. But if not, you’ll spend much time and energy on training, adjusting your workflow processes, or correcting mistakes.

How to Address This Startup Business Challenge

A workforce consisting of a competitive, passionate, responsible, and talented pool of individuals is the most basic foundation of a successful startup company.

Your immediate goal is to hire and train people capable of taking more significant roles and running the show with you as the business grows.

Offer a more attractive compensation package to attract more qualified, competent, and motivated people. To bolster your team’s performance, all members should undergo training. This will make them more efficient in critical thinking, problem-solving, communication, collaboration, creativity, and innovation.

It may be challenging to motivate people or make employees stay. But knowing what drives them can be an excellent start.

👉 Cash Flow Problems

Your startup’s capital is the money needed to produce goods and services. It’s required to purchase assets and maintain the operations of your business. Your cash flow will fund your product development, office space, workforce salary, and marketing.

It’s also one of the biggest challenges in business startup costs unless you’re lucky to have investors with no issues sending money your way.

According to the 2020 Philippine Startup survey by PwC Philippines, the majority or 77% of startup founders said capital requirements were the biggest challenge they faced when they were setting up their business.^[2]

Photo: PwC Philippines, 2020 Philippine Startup Survey

You may be off to a good start if you have enough capital. But that doesn’t mean you’re off the hook. It’s your job to manage the time and money needed for your startup to progress without running out of it.

How to Address This Startup Business Challenge

Whether they're cashflow problems caused by bookkeeping errors, overspending, high overhead costs, or not receiving payments, you must understand the costs you will incur and decide on what you truly need to run your startup.

Keep your overhead costs to a minimum and make only the necessary purchases as your startup business grows. Avail of special rates or discounts (if any) from your vendors to keep your costs down.

If you don’t have the bandwidth to work on the numbers, get a professional bookkeeper. This way, you can leave the guesswork behind when the numbers don’t add up.

More importantly, make it easier for your customers to pay and for you to get paid. You can do this by accepting prepaid orders or asking for deposits or partial payments. Send your invoices on time and stay on top of them so you don’t encourage late payments.

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👉 Scaling Up

Startup business owners aspire to succeed, but they must overcome many hurdles to make that happen. But even if they succeed, some often lack an adequate plan for scaling up. As a result, they drown in their attempts to cope with the changes and increasing consumer demand.

How to Address This Startup Business Challenge

Know how to scale your business successfully. You’ll need to handle a larger customer base without substantially increasing the needed resources and earn higher revenue at lower investments.

A business running smoothly is not always a sign to scale up. Study your product demand and the atmosphere of your marketplace before you do. This also applies to making new hires or expanding your management team―only do so when needed.

Moreover, watch out for any cash burns (the rate at which your company spends its available cash). Keep your financial records up to date and reduce unnecessary spending.

👉 Tight Competition

Unless you’ve invented a product that’s the first of its kind, chances are you have competition in an already crowded marketplace. But the rewards are great if your startup business can find its niche and set itself apart from competitors.

How to Address This Startup Business Challenge

No matter how successful your startup business is, remember that there will always be new businesses that can do what you do better and at a more affordable price.

Instead of competing, why not look for ways to enhance or improve your products or services? Figure out how you can complement your products and competitors. This way, you can focus on your business and turn your startup’s weaknesses into strengths. Moreover, you don’t waste energy, space, and money on unnecessary battles.

👉 Poor Management

According to Harvard Business School professor Noam Wasserman, 65% of high-potential startups fail due to co-founders' conflicts.^[3]

Startups cannot afford to be under ineffective management. Don’t think that you and your business partners will always be on the same page and that there will never be any disagreements or conflicts. A team that worked well together in the early stages may nevertheless find itself in trouble as the startup grows or faces challenges.

How to Address This Startup Business Challenge

The solution lies in a managerial team that can handle everything thrown at them.

Make sure your team has the right people who share your passion and vision. This way, you can spend your time, energy, and resources on building your business instead of working on your group dynamics. When everyone feels like they are part of something bigger and have a stake in your company, they'll bring their best to the table.

👉 Lack of Mentorship

Research shows that small businesses receiving mentoring early in their development achieve higher revenues and increased business growth.^[4]

Your idea or product may be remarkable. But without guidance from an experienced individual, you might not have what it takes to move far. This is where a mentor with extensive knowledge and market experience comes in.

How to Address This Startup Business Challenge

Because the early stages can be stressful and overwhelming, a mentor can help startup business owners navigate various challenges. Receiving guidance from someone who has gone through it all as a business owner is key to your startup's growth and survival.

The wisdom and confidence you learn from a mentor can help you formulate effective strategies to clear hurdles that hinder your startup from growing. Seek successful entrepreneurs and learn how they avoided the common pitfalls and managed their companies to become top performers in their industry.

👉 Flawed Business Model

The right business model is crucial to any business. It’s what will give your business its competitive advantage. Without it, your startup business won’t be profitable, sustainable, or scalable.

Even if you have the most successful value propositions, your startup business is bound to tank if you have the wrong business model, pricing structure, and channels to reach your target customers.

How to Address This Startup Business Challenge

It’s the first thing you should have if you’re a startup business owner. But even if you do, it doesn’t always mean it’s good.

Your business model might lack plans for critical factors that may arise later, such as underestimating marketing or production timelines, miscalculating costs, or getting inaccurate data. Most companies also create their business models without thinking about the competition.

According to Clay Christensen of Harvard Business School, a business model should have four elements: a customer value proposition, a profit formula, key resources, and key processes.^[5]

The good news is that you don’t need a business degree to make a sound business plan. Aside from researching and considering the four elements mentioned above, seek the advice and assistance of business owners with real-world experience. This way, they can quickly find the flaws in your business plan and correct them ASAP.

👉 No Market Need

If your business idea solves a big problem but doesn’t serve a market need, finding investors and paying customers will still be a struggle. Either there’s no market for the gap you’re trying to fill, or your product/service does not fill that gap in the market.

Some business owners address this by marketing their products to everyone. The downside of this is not establishing a target market.

How to Address This Startup Business Challenge

Just because you like your product doesn’t mean the rest of the consumers will, too. Research your customers and competitors to determine your target market and see if your product has a market. Reach out to your ideal prospects and ask if they’d be willing to pay for your product or service.

👉 Staying Innovative and Relevant

The business world is constantly changing, and keeping up with the latest industry trends and newest technologies can be tricky. As a startup business owner, you must innovate and adapt your products or services to satisfy customers' needs. This is why staying relevant is one of the biggest startup challenges.

How to Address This Startup Business Challenge

Understand your customers’ needs so you can meet their demands. Network with industry professionals, attend conferences, and follow industry leaders online to stay updated with industry trends and spot new opportunities.

Embrace change and be open to experimenting with new ideas, creating new products, or offering new services that provide value to your customers.

👉 Burnout or Lack of Passion

Founder burnout is common, the symptoms of which include depression, anxiety, isolation, escapism, apathy, and exhaustion.^[6]It’s that feeling of being trapped and afraid to leave everyone hanging.

A startup business is a 24-hour job. It entails long hours and working on weekends, which can affect your work-life balance and lead to burnout. Working to extremes can negatively impact your business, employees, and all aspects of your life.

How to Address This Startup Business Challenge

Sadly, overworking has become like a badge of honor for some. But to avoid founder burnout, you need to start your day right. Wake up and take an hour for yourself before you jump into work.

Whether it’s listening to music, enjoying a nice breakfast, exercising, or meditating, don’t immediately rush to work mode.

Allow your brain to rest and calibrate by disconnecting from your screens and avoiding anything work-related at the end of the day.

Most importantly, eat healthy and get a good night’s sleep every single day.

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Final Thoughts

Startups face tough challenges. But your passion for building a company that offers a product or service meant to help people can be a powerful driving force to help you tackle them.

With the knowledge and technology to formulate the right strategies, you can deal with these startup business challenges and steer your fledgling company to a brighter future.

Sources:

^[1] Startup Failure Rate Statistics (2023) (Exploding Topics)
^[2] Philippine startups break boundaries 2020 Philippine Startup Survey (PwC, 2020)
^[3] Harvard Business School Professor Says 65% of Startups Fail for One Reason (Entrepreneur, 2021)
^[4]Data Shows Mentors are Vital to Small Business Success
^[5] How to Design a Winning Business Model (Harvard Business Review)
^[6] How to Stop Founder Burnout in Its Tracks (Entrepreneur, 2022)

How to Deal with the Toughest Challenges Facing a Startup Business

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