Having worked in the Center for Entrepreneurship of the Chinese University of Hong Kong, I have had a lot of opportunities to see start-ups in action.
They face 10 big challenges.
(1) Founders of start-ups misunderstand the market or customer demand. Some spend a lot of time creating a product the market does not need or already has satisfactory incumbents. However, in some cases, successful products fail to impress the market in the early stage, such as FedEx or the selfie stick.
(2) Start-ups struggle to make ends meet due to their limited size. Some products fail to reach a substantial market size due to limited access to distribution channels. As a result, the unit cost stays high. Founders have to think carefully if they are willing to take the risk to produce large volumes at lower cost or start with a small volume to test the waters.
(3) Long delays in launching a product or service have been stuck in “constant improvement”. Some founders merely focus on the production process but have no strategy for bringing the product to market. They should determine the basic elements of the product which would not only bring revenue and also get feedback from market.
(4) Uncertainty about market acceptance of innovative products. Taste varies from person to person. It’s very hard to predict if the market will buy into innovation. Whether the company should take a safer approach to cater to the mass market or just roll with the ideas can be a difficult choice.
(5) Short-term cash-flow is another common issue. Most start-ups do not generate stable income in the early stage but they face fixed overheads such as rent and payroll. In this case, some founders may be forced to take on projects to mitigate cash-flow pressure. However, that could delay the process of bringing a new product to market.
(6) Co-founders have sharp differences over company strategy. In most cases, as co-founders usually have equal shares or influence in the company, disputes could seriously damage the company.
(7) The company loses the game if there is intensifying competition or powerful competitors. Founders should carefully select the target market in the beginning and take into account any direct competitor.
(8) Customer confidence. Start-ups that provide services with long-term after-sales service or those that ask customers to use cloud services may have to face probing questions such as “will your company still exist tomorrow?”
(9) It’s very difficult to find lawyers and angel investors who understand the exact needs of start-ups. Large corporates are only interested in an acquisition opportunity rather than a supporting role. And the government has also failed to offer sufficient help for these firms.
(10) Large sums of money are needed to make a start-up work. Founders need to spend a lot of time preparing business plans and approaching potential investors. The process could take several months, even half a year. Only good-quality start-ups will survive this process.
This article appeared in the Hong Kong Economic Journal on Jan. 22.
Translation by Julie Zhu
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