Getting started: Challenges faced by early-stage businesses

Here, Ian James highlights some of the common challenges which early stage businesses across all sectors face.

There’s no doubt that more people are starting businesses than ever before. I think this is partly due to the desire to work more flexibly but also because they have been inspired by TV programmes such as Dragons’ Den. However, there is so much more to being an entrepreneur than simply having a great business idea – and most entrepreneurs do not have experience in all aspects of running a business, let alone getting a business off the ground. They may be great technologists or have excellent marketing skills but, on the whole, they need external guidance in order to complement their skills and maximise the potential of their business idea.

Luckily, there’s never been a better time to start a business. There’s more support than ever for entrepreneurs – from networking groups and online resources through to business incubators and mentoring.

I’m lucky enough in my day-to-day role to work closely with a wide range of entrepreneurs, at various stages of early business growth. As part of my role at a Guildford-based incubator I meet with each new business owner at least once a month and am available ad hoc to discuss any pressing issues facing the company. I don’t tell them how to run their business or whether they are doing the right or wrong thing. My role is to encourage them to consider all aspects of their business, and at times I ask probing questions in order to deepen their thinking, and sometimes to challenge them on their progress and growth plans. I think they like the discipline of having time to step back from their day-to-day tactical role and think about more strategic issues, which will help them to drive their business forward. Questions I ask might include: ‘What is your monthly expenditure or ‘burn rate’ and do you need to start looking at funding options?’; ‘How will you build your initial customer base?’; ‘What are your biggest challenges in the short term/long term and how do you plan to address them?’

Eight business areas to address for success

This morning, I had a more in-depth meeting with a new member. Over two hours we examined eight key business areas that a start-up should address in order to be successful, according to the SETsquared incubator’s ‘Balanced Start-up’ model, and I recorded their status in each of these areas. We covered topics such as their customer value proposition, their sales strategy and basic but important administrative areas such as whether they have job descriptions in place for employees.

When it came to talking about finances, it became apparent that the business owner had no financial overview of the company. He simply checked his bank statements as a basic way of measuring the company’s financial status. This is a common approach among early-stage businesses but a more sophisticated approach is needed once a business is generating revenue and has multiple clients. I arranged for this particular business owner to attend a business finance clinic this week with one of our affiliate companies from the financial industry. It may be that, at this early stage, a simple spreadsheet record of revenue and cash flow is sufficient, but I don’t think any young business can expect to plan for rapid growth without a more analytical overview of the key financial metrics behind their business.

Perhaps the most common stumbling block we see among early-stage businesses, however, is a failure to secure a significant market for their product or service. I don’t think people realise what a difficult or lengthy process this can be. Since joining the incubator last year I’ve come across many tech-based companies where the founder is an engineer who has conceived or built an innovative product without first investigating whether anyone would be interested in buying it. We always recommend an iterative process of testing an idea with a few target customers, understanding what works, eliminating or changing what doesn’t, until a solution emerges that addresses a big enough market to generate a healthy and sustainable return.

One of our members in the Fintech sector has spent the last 12 months meeting with potential partners and clients to test the idea for his new product and to discuss the complications and regulations. Having done this he now feels confident to start creating the product. He has become so embedded in the market, with great contacts and interest among potential buyers that I believe he has a great chance of success.

The need to pivot

Another member company, Playwaze, had an idea for an online community website to enable people to register for sports clubs. Rather than building the full site straight away, the owner spent time discussing the site concept with key partners as well his SETsquared Surrey mentor and Entrepreneur in Residence. During this process, it emerged that, rather than targeting a consumer audience, the site would be far more effective if it was a B2B product, with sports clubs and sports organisations as the prime target customers. It turns out that our entrepreneur had identified a clear market opportunity but he had to adapt his initial assumptions considerably following market feedback and the advice he received. This can be tough for an entrepreneur to accept, but he has since been able to attract funding and the company has recently secured its first National Governing Body partnership with Parkour UK and is in advanced discussions with a number of others.

There’s a huge value in being out in the market before you have a product to sell. It’s surprising how many entrepreneurs are ‘purists’ – they want a perfect, fully-finished product before they even approach potential customers. But without initial customer feedback on the idea, there is a huge risk that the company will spend an inordinate amount of time and money developing a product that will almost certainly have to be altered and adapted in order to gain market traction.

My advice to entrepreneurs is that you might think you know what customers want but you’re probably wrong, and even if you’re right you have to gather evidence. We encourage our incubator companies to follow the ‘Lean Start-up’ approach: make the simplest, most basic working product you can (called the Minimum Viable Product, or MVP) and go out and test it on some target customers. They will quickly tell you if you are on the right track, or what features are missing. Do this at every stage of development and an entrepreneur can save months of wasted effort producing the wrong thing.

Ian James is entrepreneur in residence at SETsquared Surrey.

Further reading on challenges

Ben Lobel

Delphine Hintz

Ben Lobel was the editor of from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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