Difficulties Startups face
Start-ups are usually tech related companies that tend to target widely using technology as a vessel, unlike traditional companies that tend to provide a service or product to local market first, startups have a much high failure rate than normal businesses.
The reason why startups fail more, is mainly due to the nature of the entrepreneur that usually is behind the start-up, these entrepreneurs are usually young and mostly inexperience.
At the same time, when startups succeed, they have the potential to become big, very big, take for example: Google, Apple, Youtube (purchased by Google for $1.6 billion), Facebook, twitter, ebay ….
Being relatively young, start-up founders and subsequently their star-tups face a variety of difficulties and challenges:
General difficulties faced by startups:
- A small capital & lack of funding: With low or no funds to pay employees, or rent an office space, most startup founders have no choice but to run their company from their garage and do everything by themselves (if they fail in convincing others to join them for equity).
- Finding the right people for the job is not easy: Tech entrepreneurs or startup founders often do not have the skills to execute their ideas (programming, design,management, marketing, PR), and finding the right persons is very hard . It is even harder to find the right persons in the immediate region where the startup is located.
- Startups struggle with credibility: As any new business , they’ll need a year at least before people start taking them seriously, and having a young CEO/ founder doesn’t help at all.
- Competition is tough: Whatever the startup is about, it will face competition from either locally established services, or online services that offer something not very different (who might even decide to offer the exact same service, for example Facebook’s snapchat like messenger). It is a tight market where other big names have already gained a large consumer base.
- Growth is not easy: It’s tough to reach the critical mass that startups need to survive, that varies from one startup to another (can be as low as few hundreds or as high as several millions).
- Becoming profitable is tricky: Startups often have a problem reaching profitability, mainly because they need a lot of advertising to achieve growth and thus they are often spending more than what they are making.
- Dealing with Stress: Start-ups have top deal with many complex problems especially point 5 & point 6, which is more complicated than what standard small-business entrepreneur have to deal with.
- Making the right connections: Often making the right connections can lead to an investment, an article in the press or even a co-founder or partner, that’s why founders try to network as much as they can, unfortunately it’s often the wrong connections. Join Startupz.org , it will help you make the right connections.
Furthermore, European startups face some additional difficulties:
European labor laws as applied to large companies are an obstacle for start ups.
- Finding the right employee is very costly: Start ups are constantly trying out people, and due to the state-mandated severance pay packages, the concept of trying out people is very costly in Europe.
- Office space is getting more regulated: Now in Europe work is becoming so regulated that you can’t even start a company out of a garage because in many european countries you can’t legally work in your garage, while in the US many startups like HP, Apple & Google were started out of a garage.
- Less understanding for failure: While it’s not uncommon to hear in the US, of a founder of a big company succeeding only after several failed startups, and while startup failure is celebrated in the US as a learning experience, in Europe it’s less accepted, and it actually discourages most entrepreneurs from trying again (especially when they have to pay all the severance packages on top of being already bankrupt).
- Less interest in equity: Launching a startup with a small capital is very frequent in the US, where employees accept to work for equity till there’s some cash or investment … Not in the EU, it’s very rare to find Europeans will to work fully or partially for equity.
- Social charges are very high: In the EU, there are very high social charges associated to every job. While in the USA you have to add say 8% of the salary in social charges, in several European countries you’ll have to add 50% or more. In some countries an entrepreneur have to pay 50% of the median salary, as social charges for himself. If you fail to pay these social charges for yourself or your employees, because your start up is doing poorly, as the administrator or person responsible for your start up, you are personally liable and indebted for these charges should you fail to pay.