You may have already overcome one of the biggest challenges of starting a new business. You formulated an idea and got it off the ground. But now comes the even harder part — seeing it through. There’s no telling what will happen or what obstacles your team will face. To keep the momentum going, you need to prepare them for anything.
Undoubtedly, a startup’s initial two to five years can be a rocky road. You might be on your way to breaking even, but you must keep a steady eye on your cash flow. Competitors you didn’t even think of suddenly come onto the scene. And a new product you thought would take off suddenly bombs.
These are only a few examples of what could put a wrench in your plans. But if you prepare yourself and your team for anything, you can make it through. Below, we’ll share how to get ready for some of the common challenges that could come your startup’s way.
Seek Sage Advice
Despite having theories and solid market research on your side, experience can teach you more than all of it. As a fresh-faced entrepreneur, you could have plenty of knowledge. But some of it may apply to something other than the unique dynamics that will arise from your business model and market. Plus, it’s not easy to trust your instincts in new situations.
It’s also a real possibility your initial instincts will be slightly off base. For instance, you might think raising more capital is the only way to grow your business. You spend most of your time trying to find investors and secure financing. Consequently, you overlook other growth aspects, such as developing solutions that don’t fade away with changing customer needs.
You could also overlook alternative systems to achieving sustainable growth, including lean operations. Consulting with experts in person or reading relevant small business books can provide the necessary wisdom. You might lack experience. Even so, you can get on the fast track by learning how others have successfully navigated common startup difficulties.
Put Your Business and Yourself on a Strong Legal Footing
Between 36% to 53% of small businesses face lawsuits each year. Approximately 43% get litigation threats annually. About 90% of companies will deal with a lawsuit at some point. Disputes over intellectual property, liability, and HR decisions are a few possibilities. While it’s not inevitable your company will get served, the statistics show it’s a good idea to assume you will.
As the business’s owner, it’s also critical to recognize how you might personally put yourself on the line. Choosing the correct legal structure for your company can separate your personal assets from those of the business. Operating as a limited liability company, filing articles of incorporation, and establishing a distinct legal entity are ways to protect yourself.
If your company does get sued, this line of separation can prevent assets like your home from becoming targets. Otherwise, the financial value of your personal belongings could be at risk if someone wins a suit against your business. It’s also fair to assume your company needs to hire counsel or at least have somewhere to turn for legal advice. Take the necessary steps to protect your ideas, avoid conflicts of interest, and create guardrails for professional partnerships.
Practice Risk Management
You can usually get through an obstacle course if you go in with your eyes wide open. Trying to make it to the finish line with a blindfold will almost always guarantee you’ll trip up. Probably more than once.
The risks a company will encounter are like the different portions of an obstacle course. You can size some up in seconds and get around them without much effort. Others make you wonder how you’ll ever get to the other side. The latter kind will require a bit more planning and strategic thought to overcome. The practice of risk management acknowledges all types of threats, from the small to the large ones.
Identifying what could happen is the first step. To do this, you need a solid understanding of the state of your industry, market, and business model. What risks will your company need to manage if they happen? And how should you address each one, given the degree of likelihood you will have to handle them? You’ll want to develop a roadmap for mitigating the what-ifs but remain flexible enough to adapt to the unpredictable.
Calculate Cash Flow
Reality sometimes doesn’t match predictions. You can estimate the year you’ll break even and turn profitable to get investors on board. However, estimated profits won’t keep your company’s lights on. Cash flow in the here and now is necessary to avoid financial problems.
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You’ll depend on your monthly cash flow to pay your expenses, including everything from payroll to product development. Like a personal budget, you’ll run out of steam if you’re constantly in the red. Monitoring how much is flowing in and out can help you course-correct. Keeping close tabs will help you manage your cash flow so it doesn’t become the reason your business shuts its doors.
Planning for the unexpected is part of smart cash flow management. What would you do if sales suddenly slowed to a trickle? How about if your top supplier immediately increased costs by 20%? Calculating how your growth plans, economic cycles, and worse-case scenarios will impact cash flows is imperative. Otherwise, you could come up short.
In most fast-moving startups, immediate circumstances are what tend to get the most attention. Chances are, there will be more than one fire to put out. However, focusing only on the present can leave your team flat-footed.
For instance, what would happen if someone offered to buy your startup five years from now? Would you sell, or would you turn them down? Knowing what you plan to do and achieve with your company long-term prepares your team for changing circumstances. They also get a clear picture of what they’re getting into.
Knowing your long-term exit strategy sets expectations and charts the course for your company. Some founders want to keep the business in the family, handing it down after retirement. Others might eye an acquisition within three years. Mapping out your long-term goals will help you assemble the team you need to accomplish them.
For instance, someone who wants a steady career opportunity may not fit the second scenario. The pace of your company and its performance expectations will also look different under a three-year timeline. Challenges and risks may be heightened, and you’ll want a team with the skills and mindsets to effectively manage them.
The Unknown Factor
As your startup gains ground, you’ll need to be ready to deal with the expected and unexpected. Thoroughly understanding your business model, industry, and market dynamics can help you anticipate what might happen next. But more than likely, there will be some situations you never saw coming and aren’t 100% sure how to handle. Relying on expert advice, mitigating risks, managing cash flow, and planning for the horizon can help your team succeed.