Challenges faced by New Start Ups

Prof. Hemant Anil Malviya

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Assistant Professor, MMS
Department, Alamuri Ratanmala Institute of Engineering and Technology,

Mumbai, Maharashtra, India

 

ABSTRACT

 

A
seed sown requires fertilizer right from the time of digging the mud creating a
nutshell in the womb to its uprising, along with water at appropriate quantity,
so that the seed turns into the sprouts and finally sees the sun in open air to
touch the sky. But it’s not so as word to word that’s written down. The seed
has to face test of growth, when it’s been digged, when it’s been fertilized,
when it’s been watered and finally when it breaths the air. So is the case when
a business idea gets popped in head of an individual and he decides for a new start
up.

Ideas
in an individuals’ mind, need the same nurturing at all stages in its journey
to make it happen, and create a difference. Individuals with such different
ideas are generally known as Entrepreneurs; a person who give birth to ideas
and make them happen in form of new startups, have to face a numerous obstacles,
difficulties and challenges to fructify their creativity. It’s their sheer
dedication and passion which makes such start ups work.

In
this paper we would try to discuss those challenges which are been faced by the
entrepreneurs in their new startups, those factors which are the reason for
failure for some, and reason of motivation for others, motivation because a new
startup is a dream, which a entrepreneur is passionate to begin to prove
himself and mark the stage in the world. Also we would also discuss how to
eliminate these factors and continue to struggle and bring the difference by an
idea generated for others.

 

INTRODUCTION

Who
is an entrepreneur?

An
entrepreneur is an ambitious individual who crafts his efforts, establishes an
organisation which may be part of small scale with predetermination for all risks
and rewards from the same. The entrepreneur is
commonly seen as an innovator, a source of new ideas, goods, services and
business/or procedures. (1)

 

What is a start up?

Start
up is a brain child of an entrepreneur that has just started to breathe in the
world of business. Start up are generally financed and operated by a handful of
people or single handedly governed. The main function of a start up is to offer
a product or service which is currently not offered in the market, or if
present can be modified and represented in a new form, which would be easier to
use, with a different configuration, shape, look and which would be better than
the current one (2).

 

Start up is an activity which tries to bridge the gap between
the existing market offering and changing demands of a market. It can be also
called as an opportunistic move where one approaches with new concepts and tries
to make monetary gains out of it. It doesn’t only start a new product or
service, but marks a new beginning which is been followed by others. In the
initial stage start ups enjoys a kind of monopoly, which then changes after the
others follow or come up with some other modified product or services.

 

 

 

 

 

CHALLENGES FACED
BY START UPS

 

But the process of start up to reach its height needs to go
through lot many challenges, which are faced and handled by the entrepreneur.
These challenges can be categorized into many kind, some of them are listed
below for our understanding:

 

1)     
Process
Awareness: Entrepreneur
who go for Start Ups are majorly new to business world, and do not know about
how to go ahead with the process part, with market understanding, with paper
work to be done. There are many questions which simultaneously run in the mind
of the person with start ups. Start ups have to go through initial hurdles, which
can be attended with certain question helping in providing the solution at
right time as such:

a)     
What to do with the Idea?

Start ups are in
big dilemma, while understanding what can be done with the idea generated. The
biggest challenge is to understand what to be done with the idea. As a start
up, should it be begin now, is it ready, whom it should approach with the thoughts,
how should it start.

 

b)     
How to make it happen?

The challenge of
making the start up happen is a dream come true for its entrepreneur. But he
doesn’t know how to make it happen, until and unless someone guides him, shows
him directions or make him aware about exact way of starting a start up.

 

c)     
What are the regulations for it?

Since start up
is a legal entity, entrepreneur should be aware of all the paper work, that’s
required to establish a start up. Is there any kind of reforms, some special
schemes, various departments involved in the process? Since start up is
generally new ideas, they need to register the same with concern authorities.
It may require applying for intellectual property rights of the products or
services offered by the start up. It’s important as start up are based on new
offering , so to get the right value of the concept and at the same time to
protect it from been used by someone else by any means.

 

Here we can
understand that an start up needs a well know to how personality to handle it.
The entrepreneur can do this, but in case if he or she is not competent enough
or through with the procedure, the best thing would be to hire a qualified
consultant to handle the affairs of start up for all such concern. Yes, it will
add a cost to the project, but with proper far sightness that would be
recovered in due course of time.

 

2)     
Family and
Society: For any start up, the family and society plays an important
role. It shapes and provides a framework within which a start up decides to
operate. Not only the theme itself but also the entrepreneur has to face the
challenges and answer their questions as it is this society which the offerings
of the startup are presented to.

 

a)     
Family Culture

      Family of the
entrepreneur, need to support the start up. A start up can never be successful
until and      unless its people support
it. Generally the situation is never much in favour of any start up, if a
entrepreneur is from a business family, the family would like to continue its
traditional business and would not like to risk for a new venture. At the same
time a first time start up person would hardly get his family supporting for
its cause. Therefore any start up has to face the family challenge before
facing the market.

 

b)     
Society Acceptance

      The start up as
discussed earlier, should be in line of framework, in which the society
operates. The offerings should enhance the livelihood of the people of the
society and make their life easier than before. This is the first step for any
start ups as its social responsibilities. Once the society accepts the token of
offering by the start up, it can think of expansion. Therefore it is a must
that start ups should face the challenge of society accepting its offering and
making it successful.

Hence it can be understood that family and society plays a vital role in
any start up and therefore cannot be neglected. These challenges are one which
helps in bringing ethics in the start ups. The basic of startups       from them and needs to be satisfied.

 

3)      Scanning the Macro environment: Any start up
faces the challenge of understanding the operating environment thoroughly in
and out. It helps in making proper or correct decisions while formulating the
policies and procedures. It helps in making proper calculations for better
operating of business. It helps in knowing the market and its consumer demand,
which in return guides in preparing the product offering accordingly. The major
operating environment to be studied is demographic environment, economic
environment, natural environment, political-legal environment.

 

a.     
Demographic Environment

The first macro
environment challenge that a startup has to face is the population of the land
because these, very population makes the market. Start up should be keenly,
study size and growth of population, age distribution, ethnic mix, educational
levels, household patterns, and regional characteristics. If such studies are
not made by the start up these factors may be misunderstood and the offering by
the startup may not be judge properly and accepted by the population.

 

b.     
Economic Development

Economic
environment is a challenge that relates with the purchasing power of the
population. Start up requires purchasing power as well as people. The available
purchasing power depends on current income, prices, saving, debt and credit
availability. Start up must pay close attention to major trends in income, and
consumer spending pattern. This will guide to position the product in right
income group to extract maximum profit for the future development.

 

c.      
Natural Environment

The
deterioration of the natural environment is a major challenge for start up.
Start up needs to be aware of the threats associated with four trends in the
natural environment. These four trends are raw material, water, energy,
pollution levels and so changing role of government. The supply of raw material
is a hurdle with which no production will take place and so is with water and
energy. Also is the cost associated with them, which although amounts
negligible but is ever rising in nature and scares to produce.

 

d.     
Political- Legal Environment

Start up is
strongly challenged by developments in political and legal environment. This
environment is composed of law government agencies, government policies and
pressure groups that influence and limit various organisation and individuals.
Sometime there laws also create new opportunities for business, sometimes shuts
the door for business. A start up thus must have a good a good working
knowledge of the major laws protecting competition, consumer and society.

 

4)      New Product Development: New Product Development is the core
part of a start up. It is this product which will make or break the start up.
If the product offering is well developed, organized budgeted and overviewed,
the result obtained would be excellent, at par with the demands of the customer
in market. These challenges are unavailable as these challenges of new product
development will decide future of the start up.

 

 

a)      Shortage of important
ideas in certain areas: There may be few
ways left to improve some basic features of the product offering.

 

b)      Fragmented
Markets. : Start ups have
to aim their new product offering at a smaller market    segment, smaller regional areas and this can
mean lower sales and profits for each sale.

c)      Cost of
Development: A start up has
to develop multiple ideas to find just one worthy of development and so often
faces high research and development, manufacturing and marketing cost.

 

d)     
Capital Shortages: Some start up
with good ideas sometime cannot raise the funds needed to research and launch
them. This scarcity loses the opportunity of obtaining a new product offering.

 

e)     
Development Time Required: Start ups
generally work under pressure of bringing the new product in the market in the
earliest possible time frame. It is because so that if one start up doesn’t do
it, may be another start up would launch same kind of offering  and take away the entire efforts as well as
the opportunity to serve the society and earn revenue.

 

f)       Shorter Product
Life Cycle: When a new
product is successful, rivals are quick to be inspired from it and bring their
offerings in the market. These new offerings may be improvised over the startup
product and thus would lead to shorter product life cycle for the same.

 

g)     
Budgeting for New Product Development

h)     
Cost of Development

 

 

 

5)      Financial Management: Finance is the backbone for the
financial strength of a start up. Funds are required to purchase fixed assests,
such as land and building, plant and machinery, furniture and fixture etc.  Daily expenses, like payment of wages and
salaries to workers, purchase of raw material, tax liabilities arising out of
the process of conversion of raw material into finished goods. The funds
required for investment in their assests, which are permanent in nature and are
for a long period and their repayment schedule is also even set accordingly for
a longer period. Thus financial challenges faced by a startup can be divided
among Investment Decision, Financing Decision and Liquidity Decision.

 

a)     
Financial Decision

 It is the most important
challenge faced by an entrepreneur. Where the funds are going to come from?
What would be the cost of the same? Is there any bank which can fund for the
startup? Should the startup go with private funding? All the questions need to
answered and are suppose to guide the entrepreneur with source of fund the cost
of fund i.e. the interest for the borrowing fund. Also it will guide for
capital structure, which is a mix of debt and equity capital. A debt is a fixed
interest bearing sourcing and equity to variable interest.

 

b)     
Investment Decision

 Investment decision is a challenge concerned
with the identification of assests which requires investment. Assests are
classified as long term assests, which are expected to create value for a long
period of time, and short term which can be converted into cash in less than a
year. The mix of both assets determines the risk profile of the startup. It
also determines the cost of capital incurred by the firm (not the borrowing
cost but operating). A startup should be more worried about its short term
assets also know as working capital. As shortage of working capital may
increase the risk profile and start up will not be able to meet its current
liabilities appropriately. And if held more than required, it would negatively
impact the profitability of the start up. This also denotes that positively
startup is not likely to default on its repayment and hence it can avoid the
risk of insolvency. This challenge is continuous in nature and need to readjust
periodically.

 

 

 

6)      Micro Environment: The environment in which the start up would be surrounded for
its day to day activities are the micro elements or factors known as micro
environment of that particular start up. These elements consist of supplier of
raw material, market intermediary, the competitors and these factors are
responsible for the start ups ability to develop product offering that satisfy
the consumer needs.

 

 

a)     
Suppliers

Challenges are
faced from the supplier, when it tend to be powerful and are able to raise the
prices and or reduce the quantity supplied regularly. At such time when the
supplier products (which is raw material for the start up) is important input
for the start up offering, the cost of switching the supplier becomes too high
for start up. It is thus very important to maintain good relations with the
supplier. Also do not depend on single supplier if possible.

 

b)     
Market Intermediaries

Market
Intermediaries consist of all those agencies which make it possible to pass on
the startup offering to the end user to enjoy its benefits. Designing of an
effective distribution channel for improved sales and profit is another
challenge for any start up. One needs to study various methods of distribution
to cater large number of targeted customer at low distribution cost. These will
vary accordingly to the segment or industry of the startup is belonging to.

 

c)     
Competitors Analysis

Although a start
up brings in an innovative idea or product offering, but still it has to keep a
close watch on its competitors, because this are the ones who can ruin the
startup business by bring an product alike it or more innovative than it.
Competitors are thus always a challenge or threat an startup faces although it
comes with something new offering.

 

7)      Human Resource: Entrepreneur starts the start up, but it’s not the
entrepreneur alone who works for the start up. As an organisation start up is
made up of people. Without people, start up cannot exist. Among various factor
of production, human resource is the most important factor. Expect human
resource all other resource depreciates with time. To accumulate the right size
and kind of manpower and get the desired productivity is a challenge in itself
for every start up. It’s this manpower, who is going to make the startup
successful by their dedication, efforts and output.

 

a)     
Hiring Manpower

Startup has to
put efforts in hiring right kind of skilled persons who are to promote the
growth of it. Not just hiring, but challenge is also to retain them for long
term through effective planning and fair policies of promotion. These enable to
build a talented team of loyal and devotee employee for the start up.

 

b)     
Optimum Productivity

Deriving the
best of our manpower is a cumbersome process. It’s like, “Rome was not built in
a day.”Startup has to enrich its employees by developing and improving skills
and competency required for their said job profile, by correcting their
attitude, giving them proper training, conducting reviews on it and finally by
their performance appraisal.

 

c)     
Maintaining Working Environment

Ensuring that
healthy relationship are maintained among team members and work is assigned
properly by giving them a proper working atmosphere and also creating
opportunities for employees so that they can develop their caliber. It also has
to utilize the manpower effectively by conserving their physical and mental
health.

 

8)     
Marketing
Management: Marketing management is an art and science of choosing target
market, acquiring customer in it and growing the customer through creating,
delivering and communicating superior customer value. Startup does the
identification of consumer need and wants and thus ends up with its offering,
but with the changing market environment, the taste and preference of the
customer changes. Start up need to consider these apart from providing them
with its offering. Marketing management thus challenges for creating customer,
managing marketing mix and increasing sales for the startups.

 

 

 

a)      Creating Customer

Creating
customer is the most difficult challenge of all. AS if customers are not
available whom and how are start up going to earn their bread and butter. Thus
analysis of consumer behaviour becomes inevitable to identify the consumer
buying pattern, this will result in fulfilling consumer needs in the best
possible way making it easier for startup and its offerings acceptance in the
market by the targeted consumer.

 

b)      Managing Marketing mix

c)      Increasing Product Sales

 

1)  
https://www.investopedia.com/terms/e/entrepreneur.asp    

2)  
https://www.investopedia.com/ask/answers/12/what-is-a-startup.asp

 

 

 

 

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