Anticipate Your Company's Biggest Hurdles

By preparing for obstacles such as low cash reserves, high customer acquisition costs, and burnout, your business can improve it's chance of surviving

By Karen E. Klein

In your experience, what are the 10 most challenging things a business faces in its first through fifth years? —C.J.G., Baltimore

Interesting question. We posed it to small business sources from startup entrepreneurs, to marketing experts, to tax specialists. Here is a compilation of their thoughts, with five challenges for startups and five for growing enterprises:

1. Getting and vetting a business idea. "I always wanted to start a business, but it’s hard to find a problem that is worth the time and effort to solve," says David Greenberg, a New York attorney and chief executive of Updater.com, an online service for managing postal mail. The light bulb moment happened when he moved and found automated change-of-address processes lacking. "Since millions of people move each year and no good solution existed, I felt I had discovered a problem worth solving," he says. Your idea should be somehow different than your competitor’s idea, says Bruce Freeman, co-author of Birthing the Elephant. "If you’re not bigger, better, faster, or delivering a better bang for the buck, it’s not worth doing." Once you get a great idea, prove your concept, including prototyping, market research, and focus groups. "Don’t write a business plan in your basement, or you’ll have to rewrite it over and over again. Go out and test your idea, talk to your family and friends, and then your target market," says Dan Nathanson, an entrepreneurship lecturer at the UCLA Anderson School of Business.

2. Focusing and persevering. "It is hard to maintain confidence that your concept will succeed. You will second-guess yourself more than once, but if you really believe in it, you will push ahead," says Kristy Lewis, founder of Quinn Popcorn, a natural microwave-popcorn product that’s being launched this summer. "Be prepared to sacrifice time, energy, and mental capacity—you’ll never be as prepared as you think you are," she says. Startup entrepreneurs usually have great vision but must limit themselves to the practical. Rather than go in a dozen different directions, focus on one or two things your company can do well from the outset, then expand as you build trust with customers and partners. Take the time to study the industry you’re entering; Greenberg spent 15 months researching full time. Taking an entrepreneurial training course can also go a long way toward building your confidence, says Roberto Barragan, president and CEO of the Valley Economic Development Center in Los Angeles. The more you understand how businesses run, especially on a financial level, the better chance you’ll succeed.

3. Raising capital. Most startups are self-funded, bootstrapped through the founders’ savings or credit, or through private investment. "You’ve got to get to know local independent bankers who can lead you to angel investors," says Jeff Williams, founder and CEO of Bizstarters, a Chicago business startup consultancy. "After searching in four cities, we got an outside investment 11 years ago through a referral from a small neighborhood bank." You may have to get creative to keep your company afloat: Lewis has used the Kickstarter site to raise cash.

4. Managing cash flow. Undercapitalized, underplanned startups can be derailed quickly by unanticipated expenses, says Robert O. Ball III, CEO of OfficeArrow, an Atlanta business that runs an online community for entrepreneurs. He lists the cost of customer acquisition, paying retail for supplies until you can qualify for vendor discounts, and fluctuating revenue as the biggest cash flow challenges for startups. "In the early days, when you don’t have built-up reserves, it doesn’t take much of a swing on the revenue or expense side to put you in a bind," Ball says. Put accounting software in place to help you manage cash flow or bring in a bookkeeper to help.