Risks and Problems You’ll Face When Starting a Business

Risks and Problems You'll Face When Starting a Business

Launching a new business and wondering what you might be up against? Here, we shared some risks and problems you’ll face when starting a business.

Starting a business comes with a lot of risks.

Understanding them ensures you don’t join the 10 percent of startups that fail in their first year or the 90 percent that fail in the long run. 

Also, research shows that first-time founders only have an 18 percent chance of success, while those of previously successful businesses have 30 percent. So succeeding with your first startup doesn’t guarantee success for the next one.

So, we have compiled some of your business’s problems to make it easier for you.

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Top 9 Risks You’ll Face When Starting a Business

Here are some of the problems you’ll face as a startup founder:

1. Managing Cash Flow

Prudent cash flow management is crucial for startups.

Recent studies show that 82 percent of newly founded small firms become unsustainable during the first five years due to weak cash flow.

 Failure to raise cash when firms need it (either through debt/equity financing or raising sales revenues) or failure to reduce unnecessary spending are the two primary causes of improper cash flow management.

Several reasons why businesses lack the required start-up capital include:

  1. Rejected loan requests
  2. Establishing quickly with limited personal resources
  3. Poor financial planning
  4. Unexpected expenses, etcetera.

Also, the inability to prioritize and properly allocate financial resources is another reason startups struggle with their finances. They could cause:

  1. High labor costs
  2. Debt from constantly seeking financing options
  3. Unnecessary spending
  4. Loss of assets
  5. Business failure

Also, a lack of capital to support marketing initiatives or inventory turnover causes small businesses to experience operational difficulties. 

Pro Tip: Read 4 Super-Smart Instant Funding Options to Grow Your Business Fast.

2. Finding a Suitable Niche

Another risk of launching a new small business is finding its specialty and showcasing its worth to satisfy market demands. In a recent study by CB Insights, the second most notable cause of the business collapse was failing to identify a profitable niche.

It’s common for marketing research results to include some subjective component. 

So small businesses must pay attention to their customers’ major needs and concerns to help position themselves to satisfy those needs and desires while swiftly providing them with evidence of their relevance.

Both actions are essential to reduce this particular risk.

Pro Tip: Failing to discover a suitable niche might result in poorly optimized services and is often a result of disregarding or misinterpreting customers’ opinions. So, always

3. Handling Competition

Starting a business means you’ll have many competitors to deal with.

Besides those in your niche, you’ll also have to face businesses offering related services like airline and train companies if you’re into mass transit, shrinking your market share even further. But competition is not all bad.

It helps you differentiate and become better at what you do.

To beat the competition:

  • Seek patent protection for their intellectual property to shield it from rivals.
  • Improve customer service
  • Align brand image with customers’ interests and values
  • Differentiate your offering
  • Use data to personalize your offering
  • Explore unconventional marketing channels like Quora, Pinterest
  • Dominate organic searches with SEO content marketing services 

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Risks and Problems You'll Face When Starting a Business 1

4. Market Expansion

Subsequent years will bring about continuous growth in the global economy. Therefore, small firms should consider expanding into new areas to boost their reach and sell more.

While there are dangers involved with the market expansion of new small enterprises, like dealing with channel conflicts and having to acquire unfamiliar cultural practices and comply with new regulatory frameworks,

The expansion also brings new workloads, which may overwhelm your workforce.

Pro Tip: Plan for sales channel conflicts before exploring new markets or distribution channels.

5. Operational Challenges

Like the aforementioned risks, operational issues in the workplace are a constant concern for small business owners. 

Operational management examines how you run your company, including its effectiveness and how well you utilize your time there. 

New small enterprises are constantly in danger of losing to established players and wasting time on processes that can now be automated.

Most of these firms are reluctant to embrace modernization. For instance, research shows that only 25 percent of small organizations can claim to have automated operations in at least one business unit, compared to 40 percent of major corporations.

Most of these small firms fear that automation might cost them a fortune.

Fortunately, several choices are available to companies that can boost productivity while being affordable and simple to adopt. 

For instance, inventory management software can automate orders, forecast optimal stock levels, and send emails. They can also sync with fulfillment centers to help relieve logistical issues, enabling the business to focus on more pressing issues.

And they don’t cost an arm and a leg.

Pro Tip: 35+ absolutely must-have business tools to grow your online business fast.

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6. Business Scaling Issues

Scalability is essential for enterprises since they need a lot of sales to stay in business.

Scaling a business entails laying the groundwork for your company’s development. It implies being able to develop unhindered. For effective scaling, planning, financial backing, and the appropriate partners, employees, systems, and processes are necessary. 

If your market size limits your ability to grow your income, consider how you might broaden your offerings of goods and services while preserving current revenue streams.

Pro Tip: By diversifying your firm, you may avoid spending excessively on one product or service and keep your current clients while growing to attract new ones.

7. Failing Sales Funnel

You need to ensure you’re consistently making sales, even after you’ve got your client’s interest and they understand your worth. 

Without it, emerging small enterprises run the danger of becoming complacent. If you discover that your conversation rate is poor, you’re not alone: A study indicates that the average cart abandonment rate is above 80 percent.

Sadly, most e-commerce companies lack the advantage of a well-trained sales force that can personalize sales processes for each new client. However, they can leverage chatbots, email automation, and content marketing to guide them to conversion

Cart abandonment rates can significantly increase because of seemingly unimportant elements like the number of steps required to complete a purchase or how you inform your customers about deliveries. 

Pro Tip: If you’re experiencing high website traffic or product views but low purchases, consider streamlining your process or clarifying what clients may expect from subsequent actions. 

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8. Entrepreneurial Fatigue

Starting a business is demanding and stressful. 

To avoid experiencing entrepreneurial burnout before their new small business becomes established, new small business owners must prioritize the sustainability of their efforts in expanding their enterprise.

About 72 percent of business executives have mental health problems because of excessive, ongoing stress. Fortunately, recognizing the warning signals might help you release some tension.

Without a level head, managing a small firm successfully is impossible. 

Pro Tips: Try to carve out time for yourself and develop discipline around how much sleep you need if you find that you’re becoming irritated, exhausted, or forgetful.

9. Unforeseen Circumstances

Unforeseen circumstances are one of the biggest startup risks.

They result from unexpected situations you can’t control. For example, a national ban on some goods and services will see several companies shut down because they’ll lose their primary source of profit and might not have the means to switch to a different market.

Other unforeseen circumstances include;

  • Employee resignation
  • Unexpected lawsuits
  • Personal health issues
  • Natural disasters, etcetera.

Pro Tip: identify uncontrollable circumstances your business will likely face and create a contingency plan for each. Also, have an exit plan for the business.

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Wrapping it Up

We have seen some of the top risks startups face. Following the tips in this resource can help you navigate them effortlessly and grow your small business. Some of them are self-inflicted, so you might want to be careful while running your business.

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