In the Summer of 2021, we embarked on a study to understand the common challenges individuals face when both starting a company and running an existing small business. We used a combination of interviews and surveys to identify key themes. We not only wanted to simply identify common pain points but attempt to quantify the magnitude of those problems. Finally, we discussed proposed solutions to common pain points.
Two key themes emerged around Knowledge Gaps & Process Barriers and Personal Challenges for the individual entrepreneur.
Knowledge Gaps &
Business specific knowledge gaps and pain points that exist
Individual conditions that impeded the success of each individual
Knowledge Gaps & Process Barriers
1) It’s All about Customer Acquisition
Customer acquisition is the biggest problem for both existing companies and startups.
Acquiring customers is more of an obstacle than access to capital. However, the majority of existing entrepreneurship programs focus on access to capital through small business lending programs, venture capital, or incubator programs.
2) Inoperable Business Plans
The SBA and commercial lenders will promote the writing of business plans as a key step along the entrepreneurial journey. However, the business plan is not a useful tool that will actually help launch a successful company. A business and a startup are two very different things. It doesn’t make sense to ask an entrepreneur or startup to plan as if they were an existing business. It is a hypothetical exercise that doesn’t address all the aspects of starting and building a business from scratch. Business plans are written for businesses and a startup is not a business yet.
The results of the survey indicate that writing a business plan was not a major challenge. However, a good business plan should address market research, marketing, and customer acquisition which were all rated higher as a challenge or obstacle by participants
3) Marketing is Expensive and Time-consuming
While entrepreneurs in the study planned for marketing, the scale and costs associated with acquiring customers was surprising to entrepreneurs. Surprisingly, marketing was rated above accounting, legal, and insurance which indicates the severity of the problem for entrepreneurs.
A detailed understanding of customers is required to be effective with marketing resources (time and money). Struggling entrepreneurs often site the lack of marketing resources as the source for failing to gain traction in the marketplace.
4) Access to professional Services is a Challenge
Finding and paying for professional services is a common challenge. Often these services are local small businesses themselves that can charge high fees. Some accelerators of incubators will offer discounts on professional services in an attempt to combine purchasing power.
1) No obvious choice source for advice
The organizations that are designed to help support entrepreneurs and small business owners were not the top rated sources for advice. Many respondents rely on their personal and professional network including competitors and peers in the market.
2) Fear of Failing and Access to Capital are Equal
Entrepreneurs rated the fear of failing as high as access to capital. However, many initiatives government initiatives and small business lending programs focus on access to capital and neglect the human emotional aspects of running a business. 35% of Americans who perceive an opportunity to start a business do not start a business because of a fear of failure. Additionally, Many business owners and startups do not have the resources to finance a business out of their own pocket. Providing for a family and prioritizing personal finances is a priority, which prevents a lot of people from taking the initial leap of faith and starting their own venture.
3) Not all entrepreneurs consider owning a franchise as an option
Entrepreneurs are more likely to be successful buying an existing business or franchise with existing customers and established processes. Based on individual risk factors and financial circumstances, more entrepreneurs could benefit from starting out as a franchisee or buying an existing business.
4) Gig workers are not more likely to be entrepreneurs
According to the Bureau of Labor Statistics, 36% of US workers are earning income as a gig-worker compared to only 24% of survey respondents. Characteristics of a gig-worker may not be the same for those who decide to start their own business. However, the growing gig economy and disruptions in the workforce from Covid may still have unintended consequences.
5) Existing entrepreneurs are emotionally prepared
This study surveyed individuals who started at least one company which may explain the majority of participants indicating that they were prepared. However, 28% still were emotionally not prepared.
Further research into individuals who considered starting a business but never followed through would reveal greater insights.
In order to increase the number of people starting a business, programs must include support to help individuals overcome the emotional aspects of starting a business.
6) Entrepreneurs are open to profit sharing
As previously discovered, access to capital is one of the most common challenges entrepreneurs face. Marketing and other professional services are often too expensive for a cash strapped business and a loan or more investment for professional services is not a viable option.
Current payment models prevent entrepreneurs and small businesses access to professional marketing and other services that would help a young company grow.
Monthly fees are easier to budget and do not have as great an impact on the balance sheet as a lump sum payment. A shift from existing lump sum models to a profit sharing model not only aligns the incentives, but also creates an opportunity to access to more customers.
2) Respondents are open to new solutions
The overwhelming majority of entrepreneurs would consider a new platform that helps walk through the process of starting a business. Staring are business can seem like an ambiguous and daunting challenge. However, key aspects of the process can be broken down into consumable modules on a platform.
For a copy of the complete study, please contact us!