GUEST OPINION: The tech industry is broad and fast-growing, and most aspiring entrepreneurs are choosing to invest in tech. However, every startup experiences challenges during the first few years. If not well handled, these difficulties can result in business failure. Statistics suggest that the new startup failure rate is 90%, with first-time new business founders having an 18% success rate. Identifying the challenges startups are highly likely to face can help entrepreneurs devise a plan to overcome them, promoting success.
Discussed below are four common challenges faced by tech startups.
1. Raising funds
Startups need funding to get off the ground and stay afloat in the beginning when revenue is usually low. Securing financing is among the biggest barriers new businesses face. Some of the reasons startups have difficulties raising funding include:
- Untested business model: Startups don’t have an established market presence, which makes it hard to convince investors of their business model’s viability. In addition, new businesses with untested models must provide convincing proof that their endeavour can generate profitability and revenue.
- Lack of collateral: Without collateral, investors and vendors may consider the venture as high-risk, making it harder to raise funds
- Stringent funding eligibility criteria: Startups need a good credit rating to access business loans with favourable rates and terms. However, you can access a bad credit business loan, such as an RV loan with bad credit, to fund your startup, provided your business meets the provider’s minimum requirements.
Poor financial planning, lack of traction, and unclear value propositions are other reasons startups may face challenges raising funds. New businesses can raise funds through bootstrapping, crowdfunding, and more.
2. Attracting and retaining talent
Tech startups face unique barriers when it comes to attracting and retaining talent due to:
- Limited resources: New businesses usually have limited resources and constrained budgets. This financial restriction significantly hinders their ability to provide competitive salaries and all-inclusive benefits packages.
- Insufficient growth opportunities: Most job seekers prioritize career growth and advancement opportunities when assessing prospective positions. Owing to their limited resources, startups struggle to offer clearly defined career progression pathways or detailed development and training programs, making it hard to attract and keep top talent
3. Conducting market research
Inadequate market research is among the top reasons new businesses fail, as it can result in a lack of understanding of the following:
- Market trends
- Target audience
- Competition
This can lead to a service or product that doesn’t meet the market needs, causing poor sales and, eventually, business failure. Without a good understanding of market trends, target audience, and competition, new business owners might make crucial decisions based on assumptions, resulting in poor product development and low sales. Conducting market research is vital for startup success. It provides entrepreneurs with valuable information to make informed decisions and come up with techniques that will boost success chances. Market research enables startups to:
- Determine consumer needs and preferences
- Understand the competitive landscape
- Develop effective marketing techniques
- Identify market opportunities and trends
- Lower the risk of failure by making informed choices
4. Market competition
Fierce market competition is another challenge startups struggle with. They have to deal with established businesses that have been around longer and have more resources. Breaking through this tough competition isn’t easy and may lead to price wars to entice customers. Although this might lead to short-term wins, it may hurt a startup’s long-term profitability. To deal with market competition, startups should consider:
- Providing outstanding customer experiences
- Defining their unique value proposition
- Targeting a specific niche instead of the general market and more
Endnote
New tech businesses face many challenges when starting out. However, identifying the common challenges startups face, including difficulties raising funds, attracting and retaining top talent, conducting market research, and facing fierce market competition, can help entrepreneurs find effective ways to overcome them.
