All businesses face challenges. But for startups, things are a little harder. You’re dealing with limited resources and inexperience, alongside fierce competition and market dynamics.
It’s not surprising that the pressure is too much for some startups, with only 39.4% of UK businesses founded in 2018 still trading by 2022.
This might seem concerning, but don’t worry – you can avoid their fate by learning about unexpected startup challenges and how to overcome them.
7 key startup challenges and how to overcome them
Preparation is key to handling challenges. With that in mind, here are some of the hurdles you’ll face, and the best ways to handle them.
Challenge 1: Securing funding
Your startup must prove that it’s financially viable to secure funding. If you can’t present a solid business plan with evidence of a marketable product, potential investors will be put off. Plus, it can be tricky to decide which type of funding is best for you.
How to overcome it:
When you pitch to investors, create an exciting presentation that shows you have the potential to generate high returns on their investment. Include a detailed business plan and a financial narrative report that contains more than just quantitative data.
Research the funding sources available, including government grants, crowdfunding, angel investors, and venture capital firms. Seek valuable advice from industry experts and mentors, who can also introduce you to potential sources of funding.
Challenge 2: Lack of expertise and skills
As a startup founder, you have enthusiasm and entrepreneurship—but you might not have the necessary expertise in areas like marketing and financial management. Hiring talent can be costly, and you can’t compete with large enterprises on salary.
How to overcome it:
Outline key criteria for new hires, and try to recruit people with diverse skills who share your vision and values. You may be able to offer incentives like flexible working, professional development, or equity in the company.
As well as posting on online job boards, use your network to help you find the right talent. If you need to fill gaps temporarily, you could use freelancers or work with an agency.
Don’t forget to invest in employee training even after you’ve built your team. Nowadays, experts can leverage any good e-learning platform to create online courses for public consumption. Just look for the courses that will equip your employees with the other skills they might need to help you grow your business.
Challenge 3: Managing cash flow
If money is leaving your startup faster than it’s coming in, you have a problem. Maybe you have unpredictable income, maybe you’ve underestimated your costs—either way, poor cash flow management makes it difficult to pay expenses and to plan for the future.
How to overcome it:
It’s crucial to understand your cash flow properly, so you’ll need to plan, monitor, and analyse your incomings and outgoings with FP&A software tools. Be proactive in ending out invoices, and reduce your expenses wherever possible. This may involve negotiating terms with vendors, diversifying revenue streams and seeking additional funding. Make sure you have a contingency plan such as an emergency fund, but don’t rely on credit.
Challenge 4: Marketing and customer relationships
If sales aren’t as high as you’d like, you could be targeting the wrong people in the wrong places. But even if you’ve got your targeting right, it’s not just about drawing them in. It’s critical to foster brand loyalty, or you’ll spend too much on customer acquisition.
How to overcome it:
Ongoing research helps you to understand the needs and pain points of your target audience. You can then focus on digital marketing channels that don’t require you to spend that much, using SEO to ensure your messaging remains relevant.
Differentiate yourself by offering unique products or an exceptional customer experience, and retain customers through loyalty programs or incentives. Make sure to respond quickly to customer feedback, showing that you’re actively listening and improving.
Once you have the budget, you can start investing in strategies like influencer marketing. There are many marketing guides you can check out online if you don’t know where to start.
Challenge 5: Keeping up with competitors
A crowded market is tough for small businesses—especially when bigger competitors have an established presence and more resources. Meanwhile, newer startups are snapping at your heels. In the US alone, 5.2 million new businesses were formed in 2024. This kind of competition can drag you into a damaging price war.
How to overcome it:
The key is to define and communicate your unique value proposition; what makes you stand out from the crowd. You can do this with innovative products, or by positioning your startup in a niche market where there’s not so much competition.
Stay informed about what your competitors are up to, as well as looking out for new trends and gaps you can fill. Consider partnering with a complementary business, which helps both parties to reach more customers and share resources.
Challenge 6: Handling growth
If your startup is a success then you may find the business growing quickly. This might seem like the opposite of a problem, but if you haven’t planned properly for growth, you’ll struggle to handle the increase in customers and orders while maintaining quality.
How to overcome it:
Create a growth plan and a scalable business model that enables expansion without compromising on the things that made you successful. Find ways to improve efficiency through technology, such as researching VoIP benefits and opportunities for automation.
Be willing to adapt and pivot your whole business strategy if necessary. Put a plan in place for managing such changes and their potential risks. Keep yourself informed about market fluctuations and industry developments that could affect growth.
Challenge 7: Navigating the legal stuff
Like any other business, your startup must comply with laws and regulations around employment, taxation, and workplace safety. Otherwise, you could face heavy fines, legal action, and damage to your reputation.
How to overcome it:
As well as keeping up to date with legal requirements, it’s best to take advice from an attorney or business advisor. You’ll need to maintain official documentation to prove compliance. Proper contract management is key to avoiding legal issues down the line.
Several regulations pertain to data security and privacy, so it’s important to choose software that will keep sensitive information safe. Security training should be mandatory for all employees.
Make sure you also have an incident response plan you can implement in the event of a data breach. In your plan, you’ll need to specify how to report the breach to the authorities and other relevant parties, to comply with existing privacy regulations.
Final thoughts
Running a startup comes with many challenges, but you can overcome them with careful research, planning, and support. Our top tips are:
- Seek advice from mentors and experts
- Build a team of people who share your vision
- Understand your target audience
- Be prepared for growth
- Manage your finances efficiently.
By doing these things and using each challenge as a learning opportunity, you can turn your startup into a thriving business.
