Each stage of a startup is characterized by its own unique challenges. The overall challenge of building a startup is that as the company grows, the old challenges don’t disappear, they just become more common. If all that a starting founder is thinking about is capturing a business opportunity worth pursuing, so are entrepreneurs running the world’s biggest companies looking to expand with better and newer products and services.
Business challenges are unavoidable. Entrepreneurs can avoid some business mistakes, but everyone has to overcome the challenges associated with building a business, whether it is in product, hiring, marketing, sales, or the countless areas entrepreneurs are responsible for. Here are some of the most common challenges entrepreneurs face throughout the startup journey from idea to growth.
1. Idea To Product
In this stage, your biggest objective is to find and prove a business. This comes with challenges. You prove a business when there is a market for it, customers find your solution useful, and your numbers add up, which means you can run a profitable business or have a clear direction for profitability.
At this stage, studying the competition, talking to customers, seeking guidance, working with an entrepreneurial team member and launching small versions of your product for testing and validation will provide you with the insights you need to find and prove a venture worth pursuing.
You have strong validation signals from the first stage and have gathered quantitative and qualitative evidence that your solution is needed and used. In this stage, your goal is to prove the business can grow.
There are three key metrics that every entrepreneur needs to pay close attention to at this stage and for as long as the company exists: customer acquisition cost (CAC), lifetime value of the customer (LTV) and churn rate.
First and foremost, you need a lead generation channel(s) that brings a consistent stream of potential customers. We can’t study CAC, LTV or churn without customers. Test a few channels and study your competitors to see what’s working for them.
With a steady stream of leads, you can start optimizing your key metrics. You want to lower your CAC and churn while increasing your LTV, which means it costs you less to acquire a customer and when you do, they stick with you for longer while boosting revenue for the business.
At this stage, it is important to pay attention to what the customer says and does. There are many sophisticated tools that can help you study retention. In my experience, what is more effective than any tool is speaking with the customer often. Ask every new paying user why they joined and what they expect, follow up every month or so, ask why customers canceled a subscription, etc. It is important that data and analytics are used to support your conclusion, not the other way around.
Additionally, at this stage, you may need to start looking for a growth and customer support team member. If you are growing rapidly, you may need to grow your development team as well.
In this phase, your company will aim to transition from a product with customer interest and a promising growth trajectory to a predictable revenue-generating and scaling business at healthy margins.
At this point, entrepreneurs should know the growth levers of the business, why customers use their product and what keeps them engaged (retention). These three answers, in addition to the best performing customer acquisition channel, represent your company’s growth foundation.
Staying focused is the most challenging part of this stage. You will see opportunities for expansion in many areas. You will start seeing serious interest from investors, partners and new customer segments.
The reality is, in this transition phase, no matter how much progress entrepreneurs make with one solid solution for one customer segment and with the best performing customer acquisition channel, there will always be room to drive growth by doubling down on what is working before seeking other solutions, segments and marketing channels.
Most of the time, focus will cost less and allow you to grow faster with higher predictability and less risk. With your data, focus will also help you optimize profits as you understand how to attract your ideal customer for less and keep them for longer.
Growth is not a standalone phase that startups decide to do overnight. A startup is always growing from the day it starts. Although, there comes a point when a company sees growth opportunities by fueling proven systems and processes. This could mean accelerating customer acquisition with a bigger marketing investment, increasing the average revenue generated from each customer through upsells and cross-sells, capturing new segments with new products and services, expanding into new markets, etc. As in the transition phase, the safest growth initiatives revolve around expanding what is already working.
Taking the company to the next level also comes with internal challenges. In a CNBC interview, Robert Herjavec, founder of Herjavec Group, shared his struggles and fear of failure that could result from taking bigger risks. In his case, it was about deciding to expand his company outside of Canada. This shows how the challenges that starting founders face with risk-taking are not that different for proven companies and their founders.