The Challenge for Small Business Start-Ups

Challenge for Start-Ups
Apr 28 2016

We see a lot of young companies and start-ups, especially financial technology firms. Every CEO is adamant that their business model is on the fast-track, headed for rapid growth, often at the expense of the incumbents. They are generally cash-strapped but surely that’s not a problem if investors will quickly buy-in to their innovative and nimble approach?

The Big Picture

Here’s the problem. Most start-ups significantly overstate their revenue forecasts and underestimate the cash burn and/or time it takes to close funding rounds. We see this close-up and personal, helping many firms position their business to prospective investors and partners. If you think it’s going to take three to six months to close a funding round, think again. Our experience is that few funding rounds get completed in less than six months. Many take a year or more, especially pre-revenue raises.

So what?

With cash at a premium, start-ups face the entrepreneur’s dilemma; should I invest my scarce resources in building my brand, or do I hoard cash while I build out my tech solution? I don’t think the answer is either. The initial focus of any new business is in establishing strong relationships with its prospective client base. Management should be on the road, the telephone, email or whatever it takes to understand the true pain points of the market they are trying to serve. Without these relationships and with them, an understanding of genuine demand, they are wasting their time. How can you size the marketplace? Being harsh, how can you even have started your business?

Less theoretically, while raising cash in the fintech space might seem easy if you look at the investment dollars sunk into the sector in recent years, it’s not. There are hundreds, if not thousands, of firms seeking capital. For venture capital and other investment firms, it is a question of numbers and credibility. A VC will not invest in a business which is not run by savvy management that truly understands the scale of opportunity and what it will take to bite into market share. So if providing those answers is not a priority for you, I’d suggest you to think again.

Building a Brand

Let’s assume that you understand the market environment, have a strong business model and have hired a great team. Let’s also say that you have raised a few million dollars from friendly sources to get the company going. After all, most financial start-ups abide by the “other people’s money” principle, but that’s an axe I’ll wield in another blog. You are financially stable, the idea is excellent and you have the resources to deliver the technology solution. Now you’ve reached the starting line; no more.

The most important challenge for a new business once the basics are dealt with is generating sales. But any salesperson will tell you that it isn’t easy to get meetings with prospective clients that haven’t heard of your new company. Sure, you’ll land a few opportunities with friends from the industry and second-tier firms that are curious to extract intelligence from you, but kicking the doors open requires more than this. It requires a calling card, a reason why someone will listen to you.

That’s why the positioning and messaging of a brand is so important. If I don’t understand why your product could be of any value to me, it isn’t.

Establishing a brand presence requires being seen in the marketplace. Being recognized by enough people that some will give you a chance to pitch – or even listen to the client! To get there means investing early in public relations and/or marketing. For those that think this investment is discretionary and can wait until there are enough sales, you’re missing the point. Sales, marketing and communications are three legs of a stool, without which you’ll struggle to stay upright. So next time a marketing or PR agency contacts you when you are pre-revenue, think carefully before you refuse to answer their email or phone call. It could be one of the bigger mistakes you make as an entrepreneur.

To learn about start-up challenges and solutions, contact us today and follow our experts on Twitter.

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