Starting a new tech company is the dream of many engineers, product managers, and senior executives. The idea of leaving a corporate job and creating an innovative new product or solution is inspiring. Starting a new company, in many ways, has never been easier. Virtual work environments eliminate the need to find and lease space, collaboration tools allow founders to be anywhere in the world, and tools like Zoom and LinkedIn eliminate much of the need for travel to make sales calls.
On the other hand, starting, growing, and selling a company is incredibly challenging. Until you have traveled the road, it is impossible to know what you are getting into. Even for veteran entrepreneurs, there will be new and different challenges.
Co-founders and initial hires are a critical part of the support team for any entrepreneur. Each team has its own unique strengths, and these strengths form the foundation on which the company will be built. Even with a team, very few, if any early-stage startups have the full set of skills to start, grow, and scale a business. Another challenge for startups is the fact that the approaches that led to success in large enterprises rarely translate into success at startups.
The biggest challenge for startup founders is navigating highly competitive markets with limited resources. They compete with incumbents with deep pockets, more mature solutions, and an established customer base. At the same time, they must find a way to get noticed in a noisy environment while managing limited cash and growing expenses.
Additional challenges startup CEOs and founders must face include:
- Competition: The tech industry is fiercely competitive. Winning against established players requires a compelling value proposition. Breaking through the noise and gaining visibility in a crowded marketplace is a significant challenge. New tech companies must differentiate themselves by offering unique value propositions or disruptive solutions that solve real problems. Founders must have a deep understanding of the target market to develop solutions that solve important customer problems. A great product alone is not enough. Companies must find a way to position themselves competitively and gain customer attention.
- Limited cash: Getting funding can be even more challenging than launching a product and gaining a few initial customers. Angel investors and venture capitalists look for a founding team with a history of success, solid business plans, compelling market analysis, and growing momentum for the business. Even once a company has succeeded in raising funds, building a product, growing a team and getting noticed in the market without overspending is a challenge.
- Recruiting talent: Attracting top talent is a critical, and challenging, task for any company, especially startups. Luring staff from larger enterprises is often difficult as not everyone likes the high risk/high reward world of startups. Even well-funded startups often fail, and the security of a corporate job is difficult to compete with. Retaining employees is also a challenge, especially as most startups take longer to break through than most founders expect. Stock options go a long way to create a shared goal of a successful exit and a major future reward, but founders must create a positive and rewarding work environment to attack and retain employees.
- Continuing to innovate and scale: Even if a startup has succeeded in finding a market niche and gaining initial customers, you still need to innovate. Other startups will notice your success and follow you into new markets. They have the advantage of evaluating what is and isn’t working for you. Established providers won’t just roll over and let you take away market share. They have much greater resources and will notice if they are losing market share and will respond. Technology evolves at a rapid pace and startups must continue to innovate. Furthermore, scaling a tech startup presents challenges in scaling the company’s infrastructures and operations. If you are successful and grow quickly, you will face additional challenges to meet the growing demand.
Despite these challenges, a host of new startups enter the market each year. Why, because despite the challenges, startups have several distinct advantages over larger corporations.
- Ability to innovate: Startups are not limited by conventional thinking, existing corporate strategy, a heavy workload on legacy projects, or the need to convince an existing management team to take a new direction. They control their own destiny and can be creative. This environment attracts creative individuals and has resulted in many groundbreaking new technologies.
- Able to take greater risks: Established corporations, by nature, are risk adverse. Risk management is engrained in the mindset of executives and the culture of the organization. This is necessary to enable them to deliver critical products and services, employ thousands of people, and meet hard to achieve financial goals. Startups have little to lose and can take much greater risks.
- Flexibility: Startups can quickly pivot, changing their business model, strategy, target customers, and even the product or services they are delivering. They don’t have to deal with technical debt, existing customers who rely on their current products, or processes that limit change. Startups can adapt as they learn.
- No revenue stream to protect: Maintaining existing revenue streams is a critical priority for established companies, and they will go to great lengths to protect it. New solutions with great potential are often ignored because the company is focusing on exiting revenue and customers.
- Low overhead: Startups are lean, and the low overhead allows them to be flexible on pricing and to build a successful business with lower cost business models.
While the current economic climate poses challenges for all companies, the startup ecosystem continues to thrive. Venture capitals are investing in promising companies, businesses are looking to buy new and innovative products and services. Corporate buyers continue to look for innovative startups they can acquire to drive growth. This is because startups can do things that established companies either cannot or will not do.
If you are thinking of leaving your corporate job and starting your own company, there are great opportunities ahead. Like all worthwhile endeavors in life, starting, growing, and selling a company is incredibly challenging, but can also be extremely rewarding.