Startups offer several inherent advantages that bigger, more established businesses typically lack. Unlike corporations, which tend to get stuck in structure and bureaucracy, startups tend to have more flexibility and creativity when developing business plans and making big decisions. In many ways, new companies have less to lose and more reason to risk — which can pay off.
However, the majority of new companies fall prey to certain pitfalls and fail to succeed long-term. Research shows that nearly 70% of startups scale-up too early, increasing their risk of collapse. About 90% of new companies never make it past the five-year mark. While far from impossible, it’s extremely important to do one’s due diligence before starting any venture.
This means not just knowing your product but also the market. It also means fully understanding and then preparing for the common challenges founders face when building a company from scratch.
Here are five keys to keep in mind…
1. Create (and follow) a business model. For a business to be successful, the employees must first properly understand their work and the goals of the company. In other words, everyone must be on the same page.
For a team to work together efficiently and productively, therefore, a system or process is required. Ideally, such a plan lets the team know how to address problems or respond to situations, such as how to adequately:
- Get feedback from customers
- Address challenges
- Add product features
- Allocate funds
- Streamlined methods
Developing industry processes is typically done in the early days of a startup. It can be a tedious, time-consuming task. But with a strategic plan in place, it can increase workplace morale and decrease downtime.
One way to establish this plan is to hold regular meetings with stakeholders and, together, build a playbook of the steps required to complete the process. As more projects are developed, expect more procedures or processes to be added to the playbook. Additionally, whenever there is a change to a process, it has to be shared in a reasonable amount of time with the rest of the team.
2. Weigh the funds. Nearly every startup struggles with finances. Cash flow issues can delay the rollout of products or services. It can also prevent founders from making the necessary steps to grow their business — from hiring staff to purchasing tools and equipment, conducting marketing, and investing in technology that can streamline business processes.
Fortunately, there are options for loans, credit, and sometimes grants. Entrepreneurs can solicit venture capital investors, apply to local angel investor groups, request a small business grant, or start a crowdfunding campaign. Sometimes it’s also necessary to negotiate with customers (e.g., royalty payments) to complete product developments.
The golden rule: before beginning a business, know how to get it off the ground — financially speaking.
3. Build a strategic team. Engineering founders know that their success primarily depends on their teammates. Therefore, hiring strategically and securing the “right” people are critical components of creating a successful startup. Delays in hiring can lead to several problems, including lost time and product development hours. Time is money, after all.
However, building a startup team is easier said than done. Experts recommend the following strategies:
- Determine exactly what’s required to get the job done well, and don’t settle for less.
- Create an attractive yet realistic employee benefits program.
One other strategy: know your team and yourself. For example, a founding engineer may have the skills and knowledge to develop excellent tech products. But he or she may lack the business skills necessary to operate, respond to customers, seek investors, or balance the checking account. A successful startup is comprised of a myriad of skill sets, which may have to come from several different people.
Product expertise is not enough to succeed. It is essential to find the right people to fill in the critical roles necessary to run a company and make it successful. Understanding your business management strategy is the crucial starting point in addressing your needs for skill sets. Engineering startups need to identify the essential roles, from product developers to software designers, data scientists, marketing specialists, and even content managers.
4. Know when to scale. As a business advances and its products or services are more in demand, there’s often an urgent need to “scale-up” to handle the growth. Rare is a business owner who wants to miss out on the opportunity to grow and earn more. And one good feature of startups is that they are typically small companies, so scaling up is often simple.
Before jumping in, however, it is important to weigh the risks. Scaling up often involves hiring more employees, moving to a larger office space, tapping new markets to maintain the growth curve, and more. All these are labor-intensive and require significant investments. Careful planning is critical to keep up with the speedy growth of your business.
5. Know what’s needed where. When a startup does scale-up, typically the staff will be affected. Roles tend to get more complex and the demand for certain skill sets increases. It is common for team members to have multiple roles, particularly when a startup is new and at first unable to afford the roles necessary for an ideal fit.
Hiring new staff, especially for short-term projects, may not be viable initially. But if specialized skills are necessary, it might make sense to find the funds. It’s extremely important to know your staff and recognize the skills and knowledge necessary to perform specific tasks.
And remember: it’s not enough for employees to know their roles. It is also essential for everyone in an engineering startup to understand the long-term goals of their organization. Knowing about the company’s vision and mission gives your team a sense of direction and an opportunity to make a significant contribution to your business.