What are the major challenges entrepreneurs face when starting a small business from scratch? How do successful entrepreneurs and drop out billionaires handle and solve problems in business? Must an entrepreneur face these business challenges when starting a business?
“Starting a business is like jumping out of an airplane without a parachute. In mid air, the entrepreneur begins building a parachute and hopes it opens before hitting the ground.” – Rich Dad
If any of the above questions is currently running through your entrepreneurial mind, then I will advice you read on as I trash out the top 10 challenges you will face when starting a business from scratch.
“Without the element of uncertainty, the bringing off of even, the greatest business triumph would be dull, routine and eminently unsatisfying.” – J. Paul Getty
If you are an entrepreneur, then I believe you will be familiar with the challenges associated with the entrepreneurial process of building a business from scratch. But if not, and you dream of becoming one someday; then I think you will find this article worthwhile.
“A business has to be involving, it has to be fun and it has to exercise your creative instincts.” – Richard Branson
I am writing this piece to enable aspiring entrepreneurs prepare in advance for challenges involved with the entrepreneurial process. Please it’s never my intention to discourage or scare you from going into business; In fact, I intend to achieve the opposite. I want you to venture into the business world and start your own business with a feeling of confidence.
“He that is prepared has half won the battle.” – Chinese Proverb
“The biggest challenge you have is to challenge your own self doubt and your laziness. It is your self doubt and your laziness that defines and limit who you are.” – Rich Dad
10 Challenges of Starting a Business from Scratch
1. Developing the Vision and Business Idea
“To have a great idea, have a lot of them.” – Thomas Edison
Developing a business idea is usually the first challenge faced by every entrepreneur when starting a business from scratch. Finding the right business opportunity or creatively developing an idea is certainly not an easy task. I call “Envisioning the idea” the first true task of an entrepreneur. As an entrepreneur, you must possess the ability to see what others cannot see. While others see problems, you must see opportunities.
“There is far more opportunity than there is ability.” – Thomas Edison
But seeing opportunities is just the beginning. The main business challenge is going to be your ability to forge that opportunity into a business idea. I see this as a business challenge because the process of transforming problems into business opportunities is like trying to turn lead into gold. I call it the entrepreneurial process of “Creating Value out of nothing”; a process that brings innovative products into existence. Below is an illustration of how the process goes.
- Identifying a problem > Seeing an opportunity in the problem > Coming up with a solution > Forging the opportunity into a business idea > Integrating your solution into a business plan
“A good businessman must have nose for business the same way a journalist has nose for news. Once your eyes, ears, nose, heart and brain are trained on business, you sniff business opportunities everywhere. In places where people see a lot of obstacles, I see a lot of opportunities. At times, there is something instinctive in me that tell me a business opportunity exist even at a place where others see nothing. That is what makes me different, maybe unique. A good businessman sees where others don’t see. What I see, you may not see. You cannot see because that is the secret of the business… the entire world is a big market waiting for anybody who knows the rules of the game.” – Orji Uzor Kalu
Developing a vision is definitely a business challenge because an entrepreneur must sometimes assume the role of a sorcerer. Let me explain in detail. Most individuals are comfortable with the present way of doing things but it is the duty of an entrepreneur to envision and forecast the future. An entrepreneur must always be ahead of his time or else he will lose his relevance. It is the duty of an entrepreneur to bring into present what is yet to be. It is also the duty of an entrepreneur to bring solutions to other people’s problems. Let me give you some practical illustrations:
“If you want to be rich, you need to develop your vision. You must be standing on the edge of time gazing into the future.” – Rich Dad
a) In the late 70s and early 80s, while IBM saw increase in demand for their mainframe computers, Steve Jobs envisioned a personal computer in every home and Bill Gates envisioned the need for easy to use software for personal computers. That single vision made Bill Gates the richest man in the world and Steve Jobs the most famous business person of the 21st century.
“Business is going to change in the next ten years than it has in the last fifty years.” – Bill Gates
b) The Wright brothers envisioned a flying machine but they were massively opposed because the thought of humans flying was perceived as impossible. Today, the Airplane is a reality.
c) Back in those days when cars were custom made and exclusively for the rich, Henry Ford envisioned affordable cars for the masses. That single vision made Henry Ford one of the richest men in history.
“You are nuts and you should be proud of it. Stick with what you believe in.” – Trip Hawkins
I believe with these few examples, my point is clear. Developing the vision and idea is the first true task and challenge of being an entrepreneur.
2. Raising Capital for your Startup
After developing your idea, the next challenge you are going to face when starting a business from scratch is that of raising capital. As an entrepreneur, you are the only one that knows business your idea to the core. You are the only one that knows the story of your future.
“Capital can do nothing without brains to direct it.” – J. Ogden Armour
Trying to convince investors about something that doesn’t exist is definitely a challenge. Trying to make them understand that you are trustworthy and equal to the task is not child’s play especially when you are building your first business.
“If you want to know the value of money, go and try to borrow some.” – Benjamin Franklin
There is more to raising capital than just simply asking for money. Most investors want to invest in already established businesses with minimal risk and they want to be sure that they get returns for the risk they took. Most brilliant business ideas never scale through the venture capital stage because the entrepreneur is either not prepared or lacks what it takes to raise the needed capital. Just as my mentor, Robert Kiyosaki says:
“The world is filled with brilliant ideas and excellent products but the world lacks seasoned entrepreneurs.” – Robert Kiyosaki
To overcome the challenge of raising capital, you must develop the ability to sell your idea and vision to potential investors. When I say “sell your ideas“, I mean improving your communication skill and your manner of presentation. In the game of raising capital, you must have a good story to tell; backed by a strong business plan and good persuasion skills. You must know how to pitch angel investors and venture capitalists alike.
“The ability to sell is the number one skill in business. If you cannot sell, don’t bother thinking about becoming a business owner.” – Rich Dad
3. Assembling a Business Team
“Eagles don’t flock, you have to find them one at a time.” – Henry Ross Perot
The third business challenge you will face in the course of starting a small business from scratch is assembling the right business management team. When I talk about a team, I am not talking about regular employees. I am talking about a “strategic round table business team” that will meet regularly to brainstorm on ways to grow your business.
“Individuals don’t win in business, teams do.” – Sam Walton
The process of building a business team starts even before the issue of raising initial start-up capital arises. Remember I said that most brilliant ideas never scale through the phase of raising venture capital. Well; this is where most budding entrepreneurs miss it. Most brilliant ideas and products never get funded because the entrepreneur is trying to raise capital as an individual. A business team is a vital, yet often ignored key to raising venture capital successfully.
“Business and investing are team sports.” – Rich Dad
As an entrepreneur, you are bound to have strengths and weaknesses. That is the more reason you need a business team to cover up or compliment your weaknesses. A team is a necessity for building a successful business. Now finding a business team is just the second hurdle, transferring your passion and vision to your team is the next piece of cake.
“Teams should be able to act with the same unity of purpose and focus as a well motivated individual.” – Bill Gates
It’s your duty as an entrepreneur to make sure your team sees the future you see. They must believe in your possibilities and must also be passionate about making that possibility a reality. If they can’t grasp your vision, if they can’t see the future with you, then they are not worthy being your team.
“My model for business is the Beatles. They were four guys that kept each other’s negative tendencies in check; they balanced each other. And the total was greater than the sum of the parts. Great things in business are not done by one person; they are done by a team of people.” – Steve Jobs
Your strategic business team should comprise your banker, financial adviser, accountant, attorney or legal adviser and any other specialist that will be of tremendous impact to your business. A question on your mind right now might be “how am I going to pay this team” My answer is I don’t know. You will have to figure it out yourself or better still, you can consider bringing them on board as partners.
“Go to the wolf, consider its ways and be wise. A wolf will never hunt alone; it hunts in packs because it knows the power of team work.” – Ajaero Tony Martins
4. Finding the Right Business Location
Is finding a good location a business challenge? I don’t know but what I do know is that finding a good business location at the right price is definitely not easy. How do you get a location that has a rapidly growing population, good road network and other amenities at a good price? Well, you will have to figure out yourself.
5. Finding Good Employees
“If you own a butcher shop, don’t hire vegetarians. To hire the right people, you have to let the wrong people go.” – Rich Dad
Most writers and managers crank up the process of finding good employees as an easy task. They define the process of finding an employee as simply presenting the job description and the right employee will surface. But I think it’s more than that.
“The competition to hire the best will increase in the years ahead. Companies that give extra flexibility to their employees will have the edge in this area.” – Bill Gates
Business owners know how difficult it is to find a hardworking, trustworthy employee. Most employees want to work less and get paid more. Finding a good employee who will be passionate about delivering his or her services is quite difficult. Finding good employees is a minor task compared to the business challenge of forging your hired employees into a team. You may have great employees but if they can’t act as a team, they are worthless and will yield nothing but stagnation. A football team may have great skillful players but if they fail to play as a team, their possessed skill is useless.
“Bringing together the right information with the right people will dramatically improve a company’s ability to develop and act on strategic business opportunities.” – Bill Gates
Employees are your representatives to your customers and the outside world. They are a reflection of your business culture and ethics. If an employee of yours is bad or rude to your customers, it is going to portray a bad image for your company. So you must be careful when hiring employees. Remember the golden rule of business; “Hire slow and fire fast.”
6. Finding Good Customers
The sixth challenge you will face in the process of starting a small business from scratch is finding good customers. Note the keyword “good customers.” In the process of building a business, you will come to find out that there are good customers as well as bad customers. You must be on guard for bad customers. Good customers are really hard to find. A good customer will be loyal to your company and will be willing to forgive you if you make a mistake and apologize. A good customer will try to do the right thing that will benefit both himself and your company mutually.
“Thank God for my customers. They buy my products before they are perfected.” – Henry Ford
Bad customers will always look for loopholes in the company’s policy to exploit and make a few gains. Bad customers will always try to exploit the company’s goodwill and look for ways to rip off the company. Bad customers are responsible for bad debts. Good customers build your business and bad customers will always try to liquidate your business. Just as you fire employees, you must also be prepared to fire bad customers without hesitation. Remember the story of the customer that sued McDonald’s claiming the coffee was too hot.
“You must fire bad customers just as you would fire a bad employee. If you do not get rid of your bad employees, the good employees will leave. If I do not fire bad customers, not only will my good customers leave but many of my good employees will leave as well.” – Rich Dad
7. Dealing with Competition
“In business, the competition will bite you if you keep running. If you stand still, they will swallow you.” – Victor Kiam
Competition is the next challenge you will face when starting a business. Most individuals see competition as a plague but I see competition as a good challenge. I see competition as a benchmark for creativity, the main engine that stimulates innovation and production of quality products at great prices. Without competition, there will be no innovation and without innovation, the world will be stagnant.
“If you don’t have a competitive advantage, don’t compete.” – Jack Welch
I see competition as a welcomed challenge and I want you to do the same. Competition keeps us on our toes and drives us to constantly improve our products and services. But you must be warned. Competition can make your business lose its relevance in the eye of your customers so you must always be on guard.
“The competitor to be feared is one who never bothers about you at all but goes on making his own business better all the time.” – Henry Ford
8. Unforeseen Business Challenges and Expenses
“Smooth seas seldom make good sailors.” – Anonymous
Just as a sailor prepares for unexpected storm, just as a pilot is always on the watch for unpredictable bad weather and thunderstorms, so must an entrepreneur prepared for whatever comes. Unexpected challenges can come in the form of:
- Unexpected law suits
- Inconsistent government policy
- Not being able to make payroll
- Unpaid bills and taxes
- Unexpected resignation of staff from sensitive office
- Bad debts from customers
- Loss of market share
- Dwindling working capital
- Inadequate stock or inventory
“A company’s ability to respond to an unplanned event, good or bad is a prime indicator of its ability to compete.” – Bill Gates
These business challenges, if not handled properly can ruin your plan to build a successful business. Another challenge you must expect is an unforeseen increase in business expenses. If not handled properly, it might result in constant negative cash flow and eventually; business failure.
9. Keeping Up With Industrial Changes and Trends
“In three years, every product my company makes will be obsolete. The only question is whether we will make them obsolete or somebody else will.” – Bill Gates
Change in trends is a challenge you must be prepared for when starting a small business. Trends have made and broken lot of businesses. I know a lot of profitable businesses that have been wiped out by slight industrial changes and trends. A typical example is the Dot com trend, where many established industrial based businesses were wiped out by new web based dot com companies.
“How fast a company can respond in an emergency is a measure of its corporate reflexes.” – Bill Gates
When the Dot com era began, business owners were left with only two options. Either they join the dot com train or they get crushed by the dot com train. Seasoned entrepreneurs know that trend is a friend and are always willing to swiftly adjust their business to the current trend. Keeping your eyes open to spot trends is really a challenge but the big task will be your ability to quickly use the trend to your advantage.
10. Exiting the Business
“In the world of business and investing, your exit is more important than your entry. A good thumb of rule is this; exit before you enter.” – Robert Kiyosaki
When building a business from scratch, you are going to face the challenge of determining your exit strategy. Just as the quote above states, you have to plan your exit strategy before you even start the business. Most entrepreneurs run their business without any plans to exit and even if they have an exit strategy, they find it difficult to implement it.
“Always start at the end before you begin. Professional investors always have an exit strategy before they invest. Knowing your exit strategy is an important investment fundamental.” – Rich Dad
Before starting a business, it is advisable to plan an exit. Lack of an exit plan is the primary reason why most businesses crumble after the death of the founder. An exit strategy is very important to the long term survival of a business. now how do you plan an exit strategy? There are benchmarks you can use to determine your exit from any business. Most smart entrepreneurs will use a certain benchmark as a target and once this specific target is reached, they exit the business. Examples of such benchmarks are:
- Annual sales
- Annual Turnover
- Asset Base
- Market Saturation
- Customer base, subscribers or number of users
Now when it comes to exiting a business, there are three strategies you can apply. You can choose to exit a business in any of the following ways:
a) Turning over the business to professional managers
When your business reaches a certain stage of maturity, you can exit by turning it over to professional managers. In this case, the business still belongs to you but you are not involved with its day to day affairs. You will have to give up administrative role to assume the role of a watchdog. When you exit in this manner, you will have more free time to look at other projects or retire.
b) Selling the business privately
In this case, you are exiting the business by selling it to a private investor. In the business world, it is called M&A (Mergers and Acquisitions). Exiting your business this way means that after the sale and transfer of assets is complete, you have nothing to do with the business again.
c) Taking the company public
The unique thing about this type of exit strategy is that while you are selling your business (in form of shares) to public investors, you still maintain control over the business. Please before you apply any of these exit strategy, I will advise you consult with your attorney or legal adviser. But ultimately, it’s up to you to decide the exit strategy you want to apply; but always remember “your exit is more important than your entry.”
As a final note, I want to state clearly that challenges come only to make you stronger; so don’t faint in the face of challenges. Stand tall; keep moving your business forward and I will see you at the top.