Tech Startup Challenges (and How to Overcome Them)
Technology is a booming industry, attracting many aspiring entrepreneurs. It’s a broad and rapidly growing field that draws investors and venture capitalists. If you succeed, the potential rewards are enormous. However, tech entrepreneurs face unique risks. Here are seven common challenges, along with some tips for navigating them.
Challenges Your Tech Startup Will Face
Several challenges are familiar to most tech startups, so being prepared is essential.
- Constant change is a reality in tech startups. The rapid pace of technological change can throw a company off balance. As many tech entrepreneurs know, there’s immense pressure to act fast, to beat competitors to market.
“If a company isn’t nimble enough or cannot execute fast enough on an idea, the window of opportunity for your product or service may very well close before it is ready for the market,” cautioned Andrew Van Noy, CEO of DeepPower, Inc.
However, being first doesn’t guarantee victory. Being overly focused can be a problem for startups. Often, the second company to market can profit where the first struggles.
Solution: Seek ample feedback from trusted advisors before launching your idea. Van Noy suggests startups ask for feedback on their ideas, goals, and path to success. They may be consumed with their great business idea and need some realistic advice about the changing tech industry. “You may have a great business idea, but come back out of the clouds,” Van Noy advised. “Get feedback from friends and relatives on your idea and take their criticism seriously. Be realistic about how much time, money and energy it will take to make your idea come to fruition. Talk to other founders and leaders and see how long, hard and expensive it was for them. There is nothing worse than seeing entrepreneurs get their dreams and savings destroyed because they thought it would be easy.”
- Tech startups often struggle to reach their initial goals. Because technology moves so quickly, it’s possible to fail to complete your initial goals. Instead of accepting failure or pivoting business strategy, startup founders may let their operations stagnate.
“So many startups end up in ‘zombie’ states,” noted Shawn Livermore, CEO at Product Perfect. “The founders don’t want to give up and are embarrassed to concede defeat. So, they keep the dream alive but never really complete what they originally set out to do. Large companies are not worried if one of their projects never gets completed. But in a startup, not completing something means you leave the door open in your life and that’s worse than failing.”
Solution: See your idea all the way through––even if you have to start over. Completing what you start is a good rule, particularly for a tech startup. You may need to accept failure and learn from it.
“If you fail, try again, but next time, do it faster,” Livermore advised.
He explained how getting his previous company off the ground took several attempts.
“Ziptask started, failed, pivoted, started again, failed, pivoted, started again, took investment, succeeded and now is growing. It took three solid efforts by an extremely determined group to get to legitimate revenue.”
While tech startups may experience more unique challenges than other industries, the degree of your dedication to your business will determine your chance of success.
“The odds of any individual building a market-leading company from scratch [are] minute,” explained Jeremy Colless, managing partner and CEO at Artesian. “Being delusional will not get you there. Skill, persistence and a bit of time and luck are needed.”
- Tech startups face partnership challenges. Partnering with another company could be a great way to grow. However, the stakes are higher for tech startups, whose operations can be easily ruined by chasing trends.
“The technologies that are mainstream today may be eliminated over the next few years,” explained Chris Miles, CEO of Miles IT. “I have seen many companies develop entire product lines and build services and solutions based completely on emerging or popular technologies. When those [fads] go away, everything dissolves. Then what? You have to make sound and smart decisions.”
Solution: Establish collaboration rules clearly before committing. Choose companies to work with that have a good chance of longevity. Conversely, large companies can steal and replicate ideas at a lower cost.
“When you are building a business, it is important to focus on instituting policies that help you mitigate risks,” Miles cautioned. “As an entrepreneur, you always take risks. But with policies in place to guide decisions, you are not throwing the dice and hoping for the best.”
Tip Writing a business partnership agreement can alleviate many partnership pitfalls. These agreements act as road maps for navigating difficult decisions or resolving disputes.
- Tech startups face hiring challenges. Especially for tech startups, hiring and recruitment can be difficult. Many companies hire too many employees too soon. Even with investor money, overextending resources can quickly become a problem.
“Tech startups are fast-growing and attract massive amounts of funding, but it’s hard to accommodate that growth well,” explained William Zhou, senior director of product management at PowerSchool. “Tech startups are notorious for overscaling or hiring too many employees prematurely … Always hire slow and fire fast.”
A new tech business may not have enough financial resources to pay high salaries to attract the best employees.
“Cash flow is one of the biggest problems facing any startup,” noted Mat Peterson, founder of app development company Shiny Things. “Larger tech companies in Silicon Valley can pay much higher salaries than a local startup can afford.”
Solution: Attract top talent by offering opportunities for creative control. Give employees the power to lead. One of the best advantages of joining a startup is the ability to help build something from scratch. Peterson shared that, “Allowing your team to have freedom and creativity with their projects gives them a lot of satisfaction and makes them less likely to go [to a larger company].”
- Tech startups face cybersecurity risks. While all businesses rely on the internet, tech startups often have a massive online presence, leaving them vulnerable to cybersecurity incidents. In most cases, tech startups work in the business-to-business sphere. This means other companies rely on the startup to keep things running smoothly.
“Because tech businesses provide a product or service to help other business owners perform their operations, they are open to liabilities of omission, errors and other exposures,” cautioned Eunice Lim, managing director at commercial accounts for insurance company Travelers. “To overcome any possible losses, you need to make sure you understand those exposures first.”
Solution: Make cybersecurity a priority for your whole team. Comprehensive firewalls and antivirus software are a good start. Emphasize small business cybersecurity measures. For example, train employees in the proper protocol for handling important customer and credit card information. Ensure company data is only accessed through a secure, private internet connection.
Tip When choosing small business insurance for your tech startup, consider adding a cybersecurity policy to help mitigate costs and risk if you suffer a data breach.
- Tech startups face burnout challenges. Entrepreneurial burnout can be detrimental to a small business. When you’ve built a company, letting go and allowing others to help can be hard. Trying to do everything yourself can be a disaster, leading to burnout.
Solution: It’s necessary to add to your team to handle tasks. Don’t be afraid to collaborate and delegate. Be open to growing your team to add the right expertise. If you work with investors, they may bring in an experienced executive team. Even if you’re worried, work with other professionals.
- Tech startups face marketing and market research challenges. A brilliant idea alone does not guarantee success. In today’s competitive tech landscape, success relies on a combination of a solid product, effective marketing, and swift market saturation to prevent competition. Tech startups can increase their chance of success by investing early in market research and analysis.
Solution: Research your target market intensely to best market to them. Learn about their market demographics. This information will help you shape marketing strategies and price your product appropriately. Use prelaunch beta testing periods to improve user experience. Market research can also give you insight into what products and enhancements you can create that meet your customers’ needs in the future.
According to Hinge Research Institute’s High Growth Study, more than 40 percent of tech firm leaders anticipate the biggest challenge over the next three to five years to be unpredictability in the marketplace. To meet this challenge, your firm should engage in continual market research.
Tip Develop customer surveys to define audience demographics, identify areas for improvement, and help you gain a competitive advantage.
