The challenges faced by entrepreneurs can vary widely. It depends on what business they are going to run and how much resources they have. Identifying and coming up with a viable business idea is an entrepreneur’s first challenge. Other challenges could be related to choosing the right location, raising capital, and managing operations and business finances.
In general, challenges also vary over the lifespan of a business. The challenges faced when starting a business can be different when growing a business. And, this article will focus on the challenges entrepreneurs face when starting a new small business.
Identify viable business opportunities
Screening and selecting viable business ideas is a vital part of starting a business. Moreover, it can determine future success.
Entrepreneurs often find various business ideas from their daily problems. There may be many available. However, not all of them are worth running.
For example, entrepreneurs find business ideas from their hobbies, skills, or personal experiences. Another source is from previous work experience. Small-budget research and attending franchise fairs can also be potential sources for business ideas. In fact, some entrepreneurs may come across the idea by chance.
Although there are many business ideas and market opportunities, not all of them are worth working on. And, entrepreneurs must find the most potential to generate high profits in the long run.
Say you have some potential ideas for starting a business. You still have to sort them out because it’s impossible to run them all. For example, you should answer questions like do they have enough market demand available? Are they profitable to work within the long term? What about the competition?
And, often, the experience can tell the difference between a young entrepreneur and a mature entrepreneur. For example, beginners may take longer than mature entrepreneurs to assess how viable a business idea is because they have less experience.
Insufficient capital
After deciding on a viable idea to run, entrepreneurs need capital to finance various business operations. They have to buy raw materials, fixed assets, rent production sites and recruit employees. It all costs money.
The challenge faced by entrepreneurs is limited capital. Some small entrepreneurs rely on money out of their pockets. Or, they get it from family or relative contributions. Others rely on online channels to raise capital through crowdfunding.
Then, another alternative is to find investors to fund the business. In this case, entrepreneurs must make a proposal and a business plan to attract investors willing to invest their money in them. And convincing investors is not an easy task.
- Typically, investors will consider the entrepreneur’s track record and how viable the business idea is, for example, long-term growth and profitability. The potential return is also the next consideration because investing in a new business carries a high risk.
Some successful entrepreneurs raise capital at a low cost. But others don’t. They often fail for several reasons such as:
- Bad business idea. For example, it is profitable in the short term but not in the long term.
- Bad business plan. Thus, the proposed proposal failed to convince potential investors. They are reluctant to provide capital.
- Has no track record. This makes it challenging to judge whether the entrepreneur can actually operate the business successfully or not.
- Inadequate knowledge. Some entrepreneurs may depend on personal money and bank loans because they do not know other alternatives. Lack of knowledge can lead to insufficient or expensive capital.
Money management
To keep the company running, entrepreneurs must make sure they have enough money to cover all expenses. So, they have to closely monitor their cash before the business can actually generate revenue and profits. Then, they have to make sure it comes out to a completely justifiable expense.
Failure to do so could run the company out of cash for future operations. And it can lead to business failure.
Find a suitable location
Location not only has a big impact on success but also on cost and competition. For example, renting a restaurant business located in a city center can attract many customers, increasing the company’s chances of generating sales. But, it will also consume large fixed costs such as rental fees. In addition, the competition will also be high because many competitors are targeting the same customers in the same location.
Due to high fixed costs, many startup entrepreneurs operate from home as a starting point. This is because it can save rental costs. Meanwhile, to market their products, they can rely on online channels. Then, when they have generated sufficient regular revenue, they can rent a more strategic location.
Threat of competition
New businesses have low, competitive capacity. This is because they have more limited resources than other established businesses. In addition, they have less market knowledge.
Thus, competitive pressures are always a problem for new businesses unless they are first movers and offer a completely new and unprecedented product.
One way to survive is to observe competitors and find the market and product gaps. I mean, new businesses look for loopholes, so they don’t compete directly with established competitors. For example, they identified it by asking the following questions:
- Do competitors’ products and prices match market demand and satisfy consumers?
- Do they reach all customers?
- Are there some underserved markets?
By mapping them out, new businesses can find gaps for market opportunities. They then design the product and choose the right market segment without having to deal directly with competitors.
Build customer base
Another challenge entrepreneurs face when starting a small business is building a customer base. It affects how quickly they can generate regular income.
In growing the customer base, entrepreneurs must attract customers as quickly as possible, for example, by setting promotional prices and advertising products. Then, if successful, they can slowly establish a business position in the market. And, once they have a customer base, they can generate regular income to cover various expenses.
But, building a customer base is a tough challenge for the following reasons:
- Existing companies can adopt an aggressive strategy if they feel threatened. It can cause a new business to fail because it has a low competitive capacity.
- Customers are reluctant to take risks by switching to new products. They prefer existing products because they have felt the benefits.
- Potential customers are few. Most have used products similar to those offered by new businesses.
Then, how successful new businesses are at building a customer base depends on how successful they encourage customers to repurchase the product. In other words, they have to make customers loyal to them to do so. If successful, the money will continue to flow to them.
There are several ways to create customer loyalty, including by offering:
- Superior after-sales service.
- Effective customer complaint handling service.
- Added new features to the product.
Gathering the right team
Entrepreneurs do not work alone to start, operate and grow a business. They need a team. And, ideally, their skills complement each other. That way, business operations can run successfully.
Finding the right team is the next tough challenge entrepreneurs face. They must find the right people, support their vision and goals and be willing to make sacrifices by being a part of their journey.
Why is willing to sacrifice important? Some people may not be willing to join a new business. Working in a new business is at high risk of losing their job. That’s because of the high failure rate of new businesses.
For such reasons, many people prefer to work in established companies. They don’t want to leave their status quo. And, leaving a comfortable position to pursue something uncertain requires sacrifice.
Fatigue
Jobs in new businesses are often not well distributed. In addition, few employees, lack of experience, and inadequate equipment also cause other problems. Another challenge is complex work.
With the obstacles above, entrepreneurs must be able to overcome them. They and their staff often have to multitask. They must master several different aspects, from research, product development, marketing to customer service. And, it can be a strenuous and exhausting job.
The next challenge for entrepreneurs is to keep their teams motivated and cohesive. Such a complex job gives rise to so much burnout, it leaves the team unmotivated. In addition, conflicts also often arise.
Psychological pressure due to loss
Reaching the break-even point takes a long time, let alone to make a profit. Continuous losses can demotivate startup entrepreneurs and their staff. This condition requires entrepreneurs to motivate not only themselves but also the team.
There are possible solutions to deal with such losses. For example, on the cost side, they mapped business processes to find where they could save costs.
Then, on the revenue side, they also have to find answers to how to increase revenue, for example, lowering the selling price slightly to attract higher buying volume.
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