Previously, we discussed four challenges a startup company may face: funding, creative destruction, innovation, and hiring, and the importance of understanding future obstacles with each. Unfortunately, many startups fail because they are not prepared to face these challenges. With the help of a qualified California startup lawyer, startups can overcome these early challenges, as well as the new challenges that will arise as the startup continues to grow and scale. The startup attorneys at Startup Company Counsel have helped many startup companies, large and small, to successfully establish and run their startup through these challenges. In this blog, Startup Company Counsel will discuss four additional challenges a startup company will likely face: managing capital, marketing, competition, and rapid growth.
- Capital Management
Possibly one of the biggest obstacles to early startup success is management of the business capital. No matter how the initial funding is raised, managing capital is key to a startup’s success. After raising the initial funding, it is important to carefully manage the “burn rate” of the initial capital to learn how fast you are spending the money. It is also important to know when to ask for more money, and how much to ask for. There are many stages and series of financing for a startup. It is important to recognize when you need to raise additional funding to continue to scale the startup. If it is not properly managed, funds will diminish and investors will stop giving additional funding. In addition, too many lenders or investors can be hazardous to the control and direction of the startup by unnecessarily diluting your equity and having a surplus of people telling you what to do with your startup. The addition of any new investor should be a decision made with great care.
Marketing for a startup comes in many forms and will be critical to whether a startup survives or not. Many things can go wrong when marketing for a startup company. For example, startups fail by not following the simple math of customer acquisition. Not only do the startups need to get their product/name out to the consumers, but they need to do it in a cost-effective manner. The cost of acquiring a customer must be less than the lifetime value (LTV) that customer brings to your business. An ideal ratio of LTV:customer acquisition cost is 3:1. Marketing budgets are important, but they must be spent in areas that have a proven return on your investment. It is important to track and record your data to understand what works for each individual startup. Tracking your marketing data is a continuing process that must be constantly evaluated and changed to make the most of the channels helping your startup’s growth.
The startup world is fiercely competitive. Having a brilliant, innovative idea is a great start, but it is only a start. Having a fully developed product or service and knowing your market are key in staying ahead of the competition. Depending on the marketing strategy, a startup can leap ahead of the competition. Leaping ahead and maintaining that lead is harder than it sounds. It is pertinent to build customer trust through the product and services the startup provides. It is also important to differentiate your company from its competitors. What do you do better than your competitors? How can you prepare to hold your market niche when competitors offer new technologies and services, or when new competitors enter the game? Having an experienced California business attorney on your side can help you and your startup earn and maintain a competitive advantage. They will also be able to advise on and retain the proper protections to secure your startup’s intellectual property to protect it from other companies.
- Rapid Growth
Because the world of startup companies is so fast-paced, many startups aren’t prepared for the rapid growth they will experience. The type of entity originally established will largely determine how the startup can grow. Ideally, operational documents created at a startup’s birth will outline change and growth procedures. A startup company needs to be prepared to handle sudden and rapid growth. It is important to have a contingency plan for an influx of new customers, orders, or services. Further, a startup company needs to be prepared for the expansion of operations and employees. It is important to have the proper employment practices in place so that a startup can quickly hire qualified employees. These are only a few examples of the many challenges of rapid growth that may arise when starting a company. Having an experienced startup lawyer from the beginning helps startups prepare for potential growth and establish procedures for when rapid growth occurs.
Contact a California Startup Business Lawyer Today
A successful startup starts from the ground up and a successful entrepreneur plans and prepares for any and all obstacles. There are numerous challenges and obstacles that a startup may face and should be prepared for. The experienced business attorneys at Startup Company Counsel can help you prepare for the challenges that new and existing startups face and help your startup’s success in this competitive market. Call us at (408) 441-7555 or use our online contact form to schedule your consultation today to help prepare for potential challenges.