You've just thought of a brilliant new business idea. Your friends and relatives believe it has the potential to be huge. You do your research and assemble a small yet capable team, even a startup consultant. You grab the investors by making convincing pitches to secure some external funding. Then you introduce your concept with zeal, promise, and a strategy.
However, you feel things are not in your favor after analyzing the 18 months' balance sheet. Startup rates have seen a decline in all industries over the years due to some regulatory hurdles. The steady reduction over those three years suggests that the absence of startups is a long-term trend rather than a cyclical phenomenon. Furthermore, the constant decline in startup rates across various industries suggests a broad-based trend rather than a sector-specific trend.
According to research, around 21.5 percent of companies fail in their launch year. About 30% in year two, while 50% of companies fail in their fifth year and 70% see failure after a decade. All of the uncertainties pose a real challenge for any business owner, that's why we researched which industries are the most difficult for startups.
The word startup is used for a company in its initial stages of operation. It can be a joint venture of two or more entrepreneurs believing there is demand for their product or service. The business owners have to face high initial costs and have limited revenue options. So they start seeking funding sources to get through the initial phase.
These are ventures to introduce a single product or service to the customer base. Startups usually don't have a structured business model and run out of initial capital investment. So startup founders pump the money in the first phase. Later, when the funds are exhausted, they need to look for internal and external funding.
Some influential venture capitalists of Silicon Valley provide external funding, but the criteria are hard to fulfill. Another source of funding can be using seed capital to initiate the development of a new business idea or a business plan. The vision, mission statement, goals, and marketing strategies are all defined in the plan. At the same time, demand is analyzed through market research and an understanding of which industries are the most difficult for startups.
However, the seed funding can only cover the proposal cost. Therefore, business owners need venture capitalists for additional financing.
Once you have found a strong footing, you need to look into other factors to create successful startups and start a full-fledged operation.
The business location is a crucial element specifically for a startup, as it needs to be noticed to attract clientele. Unless you have an online business, you need to consider a central location that attracts potential customers to your store.
You need to decide which type of structure suits you to start your business, such as:
As discussed above, funding sources can be friends and relatives or venture capitalists. Another source can be crowdfunding. All you need is an online page, and people will start donating money if you can create a company reputation. You can also apply for microloans to help manage your startup costs.
Did you know around 50 million startups are launched yearly? This makes a daily average of 137,000 emerging startups. Although startups offer learning opportunities, encourage innovation, and offer workplace benefits. They bring along a set of challenges to deal with, such as:
With so many startups emerging every day, the competition becomes fierce. It is even higher for online businesses. Whether you have a B2B or a B2C business, both are quite hard to sustain amidst the competition. It's crucial you identify which industries are the most difficult for startups. You might need to discuss the industry competitiveness with a startup consultant to ensure you have the appropriate assessment when you analyze the competitiveness.
The first year of any startup is full of winning hopes. But as the years pass by, the unrealistic expectations start blurring out. Now sustainability becomes the key to success. You need to keep your resources, potential growth factors, and market analysis in mind.
Having a strong team culture requires businesses to hire the correct candidates for the job. However, hiring like-minded individuals to improve business productivity is challenging for startups.
Most startup ventures rely on investors to manage a positive cash flow. So in case of a cash influx, these companies tend to feel the pressure.
Although creating a partnership can reap higher dividends, finding reliable and trustworthy partners is a big challenge for startups. The stakes are particularly higher for a tech company. Therefore, you should partner with firms enjoying a good market reputation. Understanding which industries are the most difficult for startups can help you identify how prosperous your partnership could be.
Gaining customer loyalty is not an easy task, specifically for startups. First, they need to build trust and credibility. Your online presence and positive word-of-mouth can get you customer loyalty. Creating a customer experience is mandatory but challenging.
In this digital age, cyber crimes can affect a business's reputation. Notably, online businesses are more prone to getting compromised. In addition, it is difficult to protect sensitive information from unauthorized access.
According to startup statistics, there could be many reasons for startup failure; 90% of startups fail due to funds running out, bad partnerships, inadequate marketing, and a lack of market research. Let's look into the reasons startups fail in detail.
One of the most obvious reasons for startup failure is the business owner running out of cash. Once the initial capital has been invested, nothing is left to keep the operations going. The problem becomes bigger with the inability to get investors' interest or secure financing.
Startup failure post-mortems reveal that most startups fail due to not providing solutions to the market's needs. In other words, they might be entering a niche in which the demand and supply metrics are not in their favor. You need to develop a business idea that will reach out to the masses and give them something they are looking for.
Keeping an eye on the competitor is imperative to know his next move. One reason startups fail is that they do not take their competitor seriously. No matter how unique your idea is, once it is in the market and is validated, your competitor will capitalize on the opportunity. Almost 20% of startup failures are due to ignorance towards competitors.
The most obvious flaw in a business model can be seen when it generates higher costs than the revenue from customers. Even if the model has high-value propositions, the business fails when the overhead cost is higher.
The music industry startup failure post-mortems indicate the non-existence of a good business model as one of the main reasons for startup failure.
Even the simplest business idea can end up facing legal challenges such as:
Some of the most profitable businesses pivot due to legal obligations. Conversely, the failure to operate in compliance with laws gives reasons for startup failure.
Pricing is one of the reasons startups fail. But unfortunately, most startup failure post-mortems showed that they failed to understand that the product price should be on the higher-end to cover the cost of production and on the lower-end to attract the correct target market.
The ideal pricing strategy for startups includes three types of pricing to avoid failure, such as:
Some other reasons startups fail are due to not prepared for unforeseen expenses. Which industries are the most difficult for startups in terms of fund raising should be considered. Startup costs include pre-opening costs and post-opening costs. The pre-opening costs are further categorized into the business plan, research expenses, borrowing costs, and purchasing technology expenses. The post-opening startup costs include marketing, advertising, and employee hiring costs.
Not having the right team working towards a common goal impacts the productivity of startups. Therefore, companies should hire the correct workforce with the skills and experience to diligently get the tasks done.
Timing plays a vital role in the success of a startup. Startup failure post-mortems agree that a great product does not guarantee success. Social media platforms can be taken as examples, and if Instagram had been launched way before the era of digitization, it would not have been a success. Striking too early might not be welcomed as the need has not yet been created for a particular product or service. However, striking too late will let you miss the opportunity.
All businesses, including startups, should deliver what they promise. If your product or service is not up to the mark, it will take the company and its reputation down. Startups may fail if they compromise on service or product quality. You cannot ignore the consumer's needs while designing a product or offering a service.
One of the major reasons startups fail is a dispute with a co-founder. However, acrimony isn't restricted to the founders, and when things go wrong with a board or investor, things may quickly turn ugly.
The term "pivoting" is well-known in the startup sector. When your initial business model fails (which occurs all too frequently), the CEO and team pivot toplan B. When pivoting is not done with enough supporting data and a carefree manner, it tends to go bad. Some turns are unsuitable in the initial stages, such as shifting focus from customers and small companies to large businesses.
To build a successful business, entrepreneurs usually get overworked and exhausted, thus losing their work-life balance. Start-up burnout is real, and most founders work 60-100 hours a week. Burnout is one of the reasons for startup failure. Almost 5% of startups had to shut down because of lack of passion and burnout.
Barriers to entry are economical and business terms that describe variables that restrict or obstruct entrants from entering a market, limiting competition. Barriers include high startup costs, regulatory restrictions, or other barriers that make it difficult for new rivals to enter a market. Existing businesses gain from entry barriers to protect their market share, revenue, and profit potential.
Most American startups are facing the following barriers:
High customer switching costs are entry barriers since new entrants struggle to persuade prospective customers to spend the extra money required to change or switch.
Companies try to use high switching costs to keep customers from switching brands.
Companies with products serving a niche and having little competition will maximize revenues by imposing high customer switching costs.
Licensing is a barrier to entry that many companies face. This is especially true if they are trying to enter the medical market. There are a lot of regulations and requirements that need to be met before any company can even get started. However, once a company has been licensed, it has access to a large customer base and sells its products.
R & D is yet another barrier to entry. If a startup wants to make a product, they need to spend time and money developing it. To develop a successful product, a company needs to spend money on research and testing. Again, this takes time and money.
The biggest barrier that I have seen for many startups is a lack of capital. This can be due to several reasons, but the two most common are:
The lack of capital is perhaps the biggest barrier that startups face. To start a business, you need money to fund your startup. Unfortunately, this can be hard to come by if you don't have any connections or are unwilling to take out loans.
Another big issue that I have seen for startups is a lack of knowledge about running their businesses. When starting a company, there are many things to consider, from choosing a legal structure to finding good employees. If someone doesn't know what they're doing, they won't do everything right, which means their startup might fail.
If you want to start a business, you need know-how. You need to know what type of products you should sell, where you should sell them, and how to market yourself. If you don't know how to do these things, you won't succeed.
This is probably the hardest thing to overcome. When people first think about starting a business, they often don't realize how much work it takes to succeed. You need to spend hours researching different topics, writing down ideas, creating prototypes, etc. If you don't have the time to dedicate to this, you should reconsider whether or not you want to start a business.
Starting a business requires a lot of work. You need to learn about marketing, sales, accounting, and many other skills before you can even think about starting a company. If you don't have enough experience, you will struggle to get started.
The Bureau of Labor Statistics published that less than half of mining, oil, and gas extraction companies survive five years. Only 28.5% of businesses in this field survive for more than ten years. Furthermore, according to data from financial information business Sageworks, the oil and gas extraction industry was one amongst the least lucrative in 2018.
According to an online resource for oil and gas news and data named Rigzone, oil and gas extraction enterprises require a considerable amount of startup capital – hundreds of millions to billions of dollars. In addition, to purchase land and equipment, you'll need money. According to data from the United States Department of Labor, labor expenses are high because salaries are generally high.
The oil and gas industry has been around for decades, but many people still don't know much about it. This can lead to a lack of understanding of what's involved and how to get started. In addition, some legal issues need to be considered before entering this field.
There are high costs associated with starting any business. However, these costs are even higher in the oil and gas industry. There are equipment costs, land costs, and other expenses. These costs can make it difficult to start a small operation.
Many people who want to enter the oil and gas industry have trouble accessing capital. Banks may not consider lending money to someone who wants to invest in oil and gas.
Publishing, telecommunications, and software publishing enterprises are all part of the information sector. As of 2018, around 44% of companies founded in 2013 in this category were still in operation. However, according to the US Department of Labor, only 25% have survived ten years.
According to PIMCO, starting a business in the information industry can be difficult due to numerous obstacles to entry. Telecommunications firms, for example, require federal transmission permits, which are in short supply. Furthermore, according to PIMCO, this business is controlled by giant conglomerates, making it difficult for startups to compete.
Making a profit in this industry is even more difficult. According to Sageworks research, radio and TV broadcasting firms and newspaper and book publishers were among the least lucrative industries in 2017. In addition, labor expenditures can be rather costly.
Engineering, computer systems, legal, accounting, and scientific research are all services companies provide in this area. According to the US Department of Labor, these services require high knowledge and competence. Unfortunately, less than half of legal, scientific, and technical service firms have survived the last five years. In addition, only approximately 29% of startups live to be ten years old.
A professional services firm could be a reasonably simple venture to launch. According to the Small Business Administration, this industry has more startups than many other industries. However, since nearly as many professional, scientific, and tech services companies close each year as open, staying afloat in this field could be difficult.
According to a research foundation, one of the main issues affecting this industry is overdue accounts or not getting paid. In addition, in this industry, tax difficulties are also a difficulty.
Wholesalers are companies that sell items and raw materials to other firms. Essentially, they serve as intermediaries between producers and merchants. Unfortunately, according to the US Department of Labor, less than half of wholesale trade enterprises make it to five years, and less than one-third survive up to ten years.
Startups in the wholesale industry can be difficult for a variety of reasons. First, there is a lot of competition in the business. Retailers suffering from low sales have a hard time paying wholesale wholesalers.
Transportation is a big industry. Many different companies work hard to create innovative solutions. Some of them have already changed the way we think about transportation. Yet, despite its significance, we often don't think about making sure that the transportation system keeps working properly.
According to the US Department of Labor, only about half of transportation and warehousing businesses survive for years, and only one-third survive for ten. This is because the transportation industry covers passenger and cargo transportation, whereas the warehousing industry includes commodities storage. Transportation and warehouse business failures helps us research which industries are the most difficult for startups.
There are several fees associated with launching a transportation company. There are insurance charges, registration fees, taxes, gasoline, maintenance, and so on, in addition to the vehicles, you must purchase. In addition, according to the NFIB Research Foundation, employment restrictions, environmental standards, and frequency of lawsuits are all issues for this industry.
Healthcare and pharmaceutical companies have a somewhat greater five-year survival rate than the national average. However, less than half of the healthcare businesses last longer than five years. Only about 43% make it to ten years, and even fewer make it to twenty.
Licensing requirements vary from state to state and country to country. In some states, growers are not allowed to possess any amount of marijuana without first obtaining a license. Other states require only licensed cultivators. Finally, some countries have no licensing requirement at all.
Patent protection is granted to those who develop a product deemed innovative enough to warrant patent protection. However, this does not necessarily mean that the patented product will receive approval from the FDA.
Consumer electronics, specialist electronics for other sectors, and component elements such as semiconductors are all part of the electronics industry. However, each industry component has its own set of entry barriers. These obstacles make it more expensive or difficult for new businesses to enter the market while protecting current businesses from competition. Because of these impediments and the ensuing lack of competition, established businesses may charge higher prices, limiting demand.
Many people face the first barrier when entering the electronics industry: licensing. The government requires certain licenses before starting a business. This can vary from state to state, but some examples include having a sales tax permit, registering your business name, and paying fees to local authorities.
Another common barrier is capital. Many people do not have enough money to start their own company. Fortunately, this is where banks come into play. Banks are willing to provide loans to those who want to start a business. However, they require collateral (such as inventory) and personal guarantees from owners. They also charge interest rates based on risk.
Education is yet another barrier that people face when entering the electronics industry. Several schools offer programs to teach students about electronics. Some of these programs are offered online, while others are offered at community colleges and universities.
The financial services industry has a particularly complex connection with competition and entry obstacles. This is due to two main considerations. One issue is banks' and other financial intermediaries' perceptions of economic stability or volatility drivers. Another problem is that many policymakers believe that "excessive competition" in financial services is harmful to overall sector efficiency.
According to Gensler, even for established players who are slower to adopt technology, the internet, mobile, and artificial intelligence will drive innovation in the next five to eight years. Therefore, if you want a successful startup and innovate, you need to rely on artificial intelligence and social media platforms in addition to meeting the legal requirements for your startup.
Licensing is a major barrier to entry into the financial services industry. To operate legally, companies need to obtain licenses from various government agencies. This can take months or even years and requires substantial capital investment.
The regulatory environment surrounding the financial services industry is extremely complex. Many different regulations apply depending on where the company operates. These include banking laws, securities laws, anti-money laundering laws, consumer protection laws, etc.
To enter the financial services industry, a business needs to have significant capital reserves. For example, many banks require at least USD 10 million in equity before lending money.
The predicted reaction of incumbents in the sector to a new entrant impacts the possibility or threat of a new rival entering the market. Many factors point to the possibility of reprisal for entry, such as competitors, established businesses having financial resources, and distribution channel leverage to out-compete your startup.
Although growth in some industries is slow, the future of serviced marketplaces based on customer experience is bright. Ensuring you know which industries are the most difficult for startups can benefit your success or failure.
However, with the right amount of capital and a skilled team in place, the challenges faced by most industries for startups can be reduced.
Startup companies should duly focus on their startup success, which a thorough analysis of market size can achieve, labor costs, CB insights, regulatory landscape review to derive actionable insights. In addition to market size, the category market share helps a startup founder to create successful companies.
Ronald Osborne is an experienced business coach. With over ten years of experience, an MBA specializing in Finance, and several multimillion-dollar contracts. Ronald has been able to help large telecommunication companies, law firms, trade businesses, and everyday business owners improve their business and take it to the next level.
