By Kyrillos Akritides
The early stages of new ventures might be the most challenging times. Every quarter of a year, around 300,000 companies are launched in the USA. The problem is that only 90% of them will survive.
Why do startups fail? Well, there can be a big number of reasons. In some cases, the problem is the lack of experience among founders. In other situations, they are, on the contrary, too ambitious and unrealistic, though very inspired by their innovative ideas.
Let’s delve deeper into this topic and discuss the five main hurdles for startups in their early stages.
The Main Difficulties Startups Face
Underestimating Legal and Regulatory Requirements
Founders sometimes neglect a very important part of their business — the legal/regulatory side. But it can become a very expensive mistake. For example, the chosen jurisdiction can potentially influence future investor attraction and financial results. Some regions are more or less favorable to investors, and this can refer, in particular, to taxes. Jurisdictions can create competitive advantage by creating special regimes (sandboxes), better regulations, protection of IP, etc., or, on the contrary, create disadvantages by introducing unnecessary barriers. That’s why founders should be very careful and choose wisely.
Even if this isn’t always critically important at the first steps of creating a startup, the consequences of the decision can create some problems later on.
Balancing Short-Term Wins with Long-Term Vision
Founders often struggle to balance short-term goals with long-term vision. Startups can often feel the pressure to achieve immediate results. Eventually, this may end with unnecessary corner-cutting and overlooking important steps.
To develop harmoniously, each stage must have clear short-term goals that align with the long-term objectives. Founders who stick to this simple principle later conduct better product tests, implement the right improvements, and make more informed decisions.
Inability to Effectively Scale Operations
This problem partially flows from the previous issue. Founders who love their startup idea want everything to happen at once. But many times it’s impossible — it can be too ambitious and unhealthy for the project. Research also shows that businesses that scale early are more likely to fail compared to those that scale later.
Scaling too early or inefficiently is a common problem, often due to a lack of operational experience. Rushing growth without strong processes can stretch resources too thin and hurt quality. It’s better to grow slowly but be more persistent than to jump up too high and be blinded by success.
Inadequate Financial Planning and Cash Flow Management
Founders often are over-optimistic about how quickly financial results can be achieved, leading to mismanagement of cash flow and lack of financial discipline. A common case in almost any startup is the management of marketing costs. By nature, marketing requires discipline and knowledge, and a lack of both can burn funds way beyond budgeted figures. This only strengthens the often blind faith in the correctness of the course. In the end, such negligence can bring the project to a crisis or even to death.
How to Approach Those Threats?
- Consult Experts. A professional opinion or, even better, a right strategic partner/investor can be a safer approach to success.
- Stay Focused. Clear KPIs can help keep the team stuck with long-term goals and avoid the temptation to chase short-term wins.
- Prioritize Sustainable Growth. Investors always appreciate it. To do so, build processes and make sure your business resists external problems before expanding the team. Scale cautiously and avoid over-hiring, especially in non-core business areas. Care about your team and monitor the burn rate closely; consider outsourcing for non-key functions to avoid overusing your company’s resources.
- Create Realistic Financial Projections to Avoid Surprises. In terms of financial planning, many businesses ignore this step, which can lead to financial instability and future bankruptcies. Ideally, founders should rely on their own resources first before rushing to seek external funding, ensuring the company remains self-sufficient in the early stages and beyond.
Be Ready to Solve Problems
Founders and their teams have to be ready to prioritize a customer-centric approach and solve real problems with their products. The first time around, it’s common to misstep. However, this can even be beneficial. Maturity will come over time, after either good or bad experiences.
As a founder, do not approach the mistakes or challenges in a negative way. From our experience, we frequently see failures, but the ability to turn them in the right direction always creates new levels of competency and confidence in the team. The learning process will never end, even if your company is a stable and mature one.
Trying to minimize mistakes, founders may seek mentorship and build a professional network that can complement their excitement but with pragmatism and a practical understanding of everyday issues. These could be funds, investors, or industry advisors who will help founders think realistically.
Do not also forget that every decision has its consequences. To exclude negative ones, test and validate at least key assumptions when possible. The results can come to the surface not immediately but, for example, after scaling — so be patient.
Kyrillos Akritides
