Introduction:
As we are seeing startups have been receiving increased attention in many parts of the world. In India too there has been a huge increase in the number of startups. Many startups are looking for unicorn status to gain popularity in the market. As startup ecosystem is growing rapidly in India and the government has been promoting startup culture which leads to the strengthening of the economy.
Startups are important not just because they bring new ideas and life-changing innovation but also helps in creating jobs, growing of economy, and developing remote areas of our country. This will eventually increase the quality and standard of living of people in the country.
But it is not easy to start a startup as there are many challenges a startup founder has to face. Start-up founders when initially starting their business, they are accountable for doing several activities from long working hours to executing and completing various business tasks. They are typically considered a one-man army. They need to face many risks and reduce the risks to have a minimal impact on their startup business.
According to the data, 90% of startups fail in general, 75% of VC-funded startups fail, and only 50% of startups will make it past their fifth year of business. This data can be scary for many startups enthusiast. But one can properly plan and implement their strategy to become a successful startup owner.
In this article, we will see a few major risks startups may have to face so that they can prepare for them and overcome these.
Some major risks which a startup might have to face in 2023 which includes:
1. Lack of Proper Market research:
According to a study, the number one reason for startups to fail is due to misreading market demand. The greatest of ideas or innovations can fail if extensive market research is not carried out. Market research is an integral step in successful business development.
When you skip out on market research, you miss valuable opportunities that will help your business in the long run. Successful startups know their markets, understand their competitors’ and customers’ wants and needs, and gather all the information necessary for their businesses to be competitive. They know why people buy their products and services, not just when or where.
Research should be carried out to know whether the market is already overcrowded, oversaturated, dominated by a few big players, etc. This will help in knowing what type of product/service or niche startup must focus on to excel in that business. It will also help to determine potential customers.
2. Lack of Finance:
The second largest reason why startups fail is due to running out of funding and personal money. Running a startup requires huge working capital and generally many startups are bootstrapped i.e., self-funded through the founder’s savings, and some capital is invested through family, friends, etc which impacts the company’s cash flow.
Startups must have a clear financial forecast and proper budget to make the best possible use of the funds available. Budgeting and careful financial planning must be done before entering the process of pitching your startup to investors again to secure another round of funding to support your growth is essential.
3. Inexperienced team:
Startups are usually started by inexperienced entrepreneurs who don’t have a support network from whom they can seek guidance and advice. Also, founders may have a brilliant idea but they wouldn’t have great entrepreneurship skills so it is very important for an early-stage startup to prepare a core strength team whose vision aligns with the vision of the startup for its success.
It is important to hire the right talent at the right place. Also, while hiring make sure that your team is made up of people with prior experience and success and that they check all of your boxes when it comes to the type of culture that you’re trying to establish at your startup.
4. Burnout:
Burnout is mental, emotional and physical exhaustion related specifically to the workplace as a result of persistent, long-term stress. Startups at an early stage comprise a very small team who needs to perform many roles simultaneously. All startup founders are so engaged in the vision and mission of the startups that they tend to ignore their physical, mental, and emotional health.
Common causes of burnout are the overload of responsibilities, lack of work-life balance, all work no play etc. Startups usually begin with minimal resources and eager workers who have a lot they want to achieve. Eventually, they may end up focusing too much on their work and start burning themselves out.
Startups must think carefully about what they are offering staff by way of support and in terms of boosting morale, mental health, and positivity. Everyone from leadership to new employees must be on the same page. Startups can follow different ways to prevent burnout like dividing responsibility, organising team activities and maintaining work-life balance etc.
5. Legal/ Compliance risks:
Another major risk a startup owner can face is legal or compliance risk. If there is non-compliance or anything against the government regulations a startup could be liable for huge penalties and if non-compliance is severe can face prohibition. Hence, Legal compliance should be taken care of to avoid this situation.
As startup tends to focus more on their growth, they sometimes tend to ignore legal compliance. They must make sure all compliance is being followed. To counter these startups can take the help of professionals who are already aware of the compliance to be followed and they can advise what all needs to be followed to avoid non-compliance.
6. Low market diversification:
Startups in the initial stage don’t focus on diversification they tend to scale on their local market and few of their big clients. This could be a big risk if their contract gets cancelled with those clients. Hence, it is necessary to diversify their business reach to avoid these problems.
Another major reason startups don’t diversify or take efforts to find new areas is that market research and advertising involves huge cost. In an already cash-crunch business, they hesitate to do the marketing. But in long run, this will impact their business.
It is not always necessary to incur huge advertisements instead they can start with small things like taking feedback from their existing customers on product/service quality and what additional they would love to have.
This will not only clarify the startups what is the current demand in the market and also help them to explore new markets.
Conclusion:
To conclude various major risks a startup has to face can be bifurcated as follows:
a) Business Risk
b) Technology Risk
c) Financial Risk
d) Market Risk
e) Operational Risk
f) Management Risk
g) Legal Risk and so on
Analysing those risks early and figuring a way out to overcome them is very important for startup founders. Yes, it is impossible to predict the future accurately but preventive measures and control can be set up to avoid or face those risks successfully.
Startup Eco System is constantly growing with its focus on transformation and improvement irrespective of what is happening at the macro-economic level. Every day brings opportunities for new technologies and those individuals capable of putting them to good use can lead to a successful startup.
We can assist if you’re unsure about the risks that affect your company the most or if you want to make sure you’re ready for the unexpected. To determine your risk in each of the above-mentioned areas and beyond, kindly get in touch with our team.
Authors:
Umesh Vishwakarma | Manager | Email: umesh.vishwakarma@masd.co.in
Ritik Surana | Associate Consultant | Email: ritik.surana@masd.co.in
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