Starting Your Startup: The Risks and How to Avoid Them

starting your startup

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Starting your startup business is an exciting and empowering venture – and an extremely risky one. Only about 25% of startups successfully pay back their investors, and even those face a 53% chance of failing within five years. And technology startups have the highest failure rate, with Allmand Law’s putting it at 90%.

So does this mean you should pack up your dream and work for someone else’s company?

Of course not. While the majority of startups fail, there are still a significant number that succeed – and your company could be one of them. You just have to be smart about how you plan and implement your new venture.

Starting Your Startup

The Right Idea

To start a great business you have to have a great idea. It has to be an idea that will motivate you through the rough spots in the early stages of your business as well as one that will attract potential investors and customers.

Daniel Gulati, author of Passion & Purpose: Stories from the Best and Brightest Young Business Leaders, surveyed successful entrepreneurs about where they came up with their ideas. He found that many of these entrepreneurs were simply responding to needs in their own lives.

For example, Neil Blumenthal was frustrated by how much he was spending on eyeglasses. So he founded Warby Parker, which sells high quality glasses at lower prices and donates a pair of glasses to someone in need for every pair sold. Other potential sources of ideas include a special skill or passion that you may possess, or unmet customer needs that you might notice in your current industry.

The most marketable ideas also tend to be sizeable. While it is fine to want to pursue a niche venture, such as a local leaf blowing business, most investors want to back ideas that have the potential to reach a wide customer base. And the ideas that really take off tend to tap into current market trends.

For example the U.S. Bureau of Labor Statistics predicts that the event-planning industry will grow 44% between 2010 and 2020. So if you’ve been dreaming of starting your own event planning business, now may be the time. Here are other business ideas that have potential in 2014.

The Right Team

Let’s say you already have your million-dollar idea; the rest will take care of itself, right? Unfortunately, great ideas fail to translate into great businesses all the time. For example, there have been several attempts to launch a digital business card, an innovative idea that taps into a customer need, but as of yet no company has truly succeeded.

So, what do you need to turn your idea into a thriving business?

First off, you need to surround yourself with the right people. Most investors don’t want to back a single-founder venture, so a partner can both enhance your fledging company’s bankability and bring his or her own skills and ideas to the table. You want your partner to be someone who will provide a skillset that you lack.

For example, if you have technical skills but lack finance acumen, find someone who can handle that side of business for you.

If you don’t know someone in your network who meets your needs, then attend startup events like Technori Pitch or visit sites specifically designed to match you with potential startup partners, like Startup Weekend and TechCofounder.

But be careful who you ultimately choose. Noam Wasserman studied 10,000 founders for his book “The Founder’s Dilemma” and found that discord among co-founders causes 65% of high-potential startups to fail. You’re best bet is to work with someone you’ve worked with before, but barring that, choose someone with whom you are compatible on both a business and a personal level.

The Right Plan

You’ve got your winning idea and your enthusiastic business team, so now’s the time to reach out to investors and launch your business, right? Not so fast. You need a solid business plan before you even consider moving forward.

Ask yourself the basic questions that underpin any company. Who is your customer base? How are you going to make a profit? Many companies have collapsed after failing to focus in on a specific customer demographic.

A recent Forbes article described a company that tried to market B2C and B2B, the latter of which included ten different industries. While it may be tempting to make your potential customer base as wide as possible, this sort of wide-ranging marketing strategy will only split your focus and confuse your customers.

Similarly, you need to come up with a specific plan to make a return at least 10 times your invested capital. This applies whether or not you are investing in your own business or utilizing outside investors. A successful company is a profitable one, so make sure your great idea translates into a product or service customers will seek out and buy.

However, don’t lock yourself into these initial plans, either. The thing that distinguishes startups from their established corporate counterparts is their freedom and flexibility. If you find that one business strategy isn’t working, then switch to another one. B2B marketing isn’t working? Consider B2C. It may take several tries to figure out the path to making your idea marketable and profitable; the key is to keep trying.

While a large majority of startup ventures fail, yours doesn’t have to. With the right idea, team and plan, your business can get off to a great start.

Startup Photo via Shutterstock

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Curt Finch Curt Finch is the CEO of Journyx. Founded in 1996, Journyx automates payroll, billing and cost accounting while easing management of employee time and expenses, and provides confidence that all resources are utilized correctly and completely.

8 Reactions
  1. But failure is something that you cannot completely avoid when doing business. That’s because every business owner learns through failure. With each failure, the small business owner starts to learn how things are done and they can use everything that they are learning to succeed.