An entrepreneur will need funds to start a business, whether in the form of investor loans, their own savings, or family funds. The founder will have to put his own “skin in the game”. Failure to plan accurately could mean that the entrepreneur risks bankruptcy and the investors get nothing.
An impressive business plan will attract investors. However, we live in a dynamic and rapidly changing world where strategies can quickly become obsolete. Changes in the market or business environment can mean that a chosen strategy is not the right one, and a company can struggle to meet its benchmarks and key performance indicators (KPIs).
New technologies are constantly emerging, especially in the era of the Fourth Industrial Revolution. Some of these shifts are characterized as “paradigm shifts” or “disruptive” technologies. To be competitive, a start-up may need to invest heavily in new systems and processes, which could drastically affect bottom lines.
The ups and downs in the economy and new market trends pose a risk to startups, and a certain product may be popular one year, but not the next. For example, if the economy collapses, people are less inclined to buy luxury or non-essentials. If a competitor launches a similar product at a lower price, the competitor could steal market share.
An entrepreneur must always be aware of his competitors. If there are no competitors, it could indicate that there is no demand for a product. If there are a few larger competitors, the market might be saturated or the company might find it difficult to compete. In addition, entrepreneurs who have new ideas and innovations must protect intellectual property by seeking patents to protect themselves from competitors.
A company’s reputation is paramount, and this can be especially true when a new business is launched and customers have preconceived expectations. If a startup disappoints consumers at the very beginning, it may never gain traction. Social media plays an important role in business reputation and word of mouth marketing. A negative tweet or message from an unhappy customer can lead to huge loss of income.
The US Bureau of Labor Statistics found that among small businesses that started in 2014, 80% are in their second year (2015), 70% are in their third year (2016), 62% reached year four (2017) and 56% reached year five (2018). Entrepreneurs should expect to make a few mistakes, some of which will be costly. However, with the right planning, funding and flexibility, businesses have a better chance of success.