According to statistics, 9 out of 10 startups fail, primarily facing a lack of funding. In 2022, the number of reasons for failure has increased greatly, and given that not every business has yet coped with the consequences of the pandemic, the time promises to be difficult for all of us. Even big players like Amazon face these problems with their shares now falling below the pre-pandemic level, let alone small companies that have not yet taken a firm position in the market.

In this article, we would like to analyze the main challenges this year brings to startups and share our thoughts on how to build a business in such conditions.

Changes in consumer behavior

The pandemic has changed consumers’ beliefs and priorities — in terms of how they spend money and interact with the brands. As people increasingly buy online, they expect online shops to have different payment methods and fast door-to-door delivery for every kind of goods.

Home delivery of live plants is a great example of this trend. Plants are difficult to transport but consumers still want to get them right to their doorstep. Someone will say that such a demand is too much, but Bloom & Wild company decided to satisfy it and won, having achieved rapid growth.

Also, consumers have become more open to monthly subscriptions, and the number of subscriptions is increasing by 90% year-on-year. The subscription model allows brands to create strong and sustainable relationships with consumers — services such as Netflix and Spotify show this perfectly.

According to the IBM study, 77% of consumers want brands to be environmentally responsible. They pay attention to how the brand’s products affect the environment, and how ethical they are.

Such rapid changes in trends and technologies force entrepreneurs to make decisions faster and stay ahead of competitors in finding solutions.

Cyber attacks

Any entrepreneur who wants to start a company in 2022 cannot afford to neglect cybersecurity. Recently, small businesses and startups have become the main targets for hackers. In August of this year alone, 112 security breach incidents were identified, and 97,456,345 records were compromised.

Startups often invest a lot of time in developing features, marketing, and researching, but they don’t care to secure what they create. This puts them at risk of disclosing the company’s confidential information.

Cybersecurity is especially important in applications that store sensitive data like bank card numbers and information about the users. Startups need to make sure that their customers’ data is well protected and encrypted. Sometimes entrepreneurs need to make their product compliant with different regulations like GDPR, HCISPP, or others.

To learn more about factors to consider when developing mobile and web applications, read our stories and articles.

Inflation

According to a Quickbooks Small Business Insights survey, inflation is a big concern for 97% of small businesses in 2022. This year the inflation rate reached the highest level in the past 40 years — in July, it was about 8.9%, and it continues to go up. Consumer prices also increased up to 8.5% compared to the previous year.

Of course, these conditions are not perfect for many businesses. Inflation affects startups’ financing and supplies and complicates the scaling process. In addition, employees may ask for salary increases because inflation affects them as well.

In such difficult economic conditions, entrepreneurs need to focus on their startups’ fundamental tasks. Namely, on creating value for clients — the startup should offer a product that solves the client’s problem. When prices rise, customers evaluate the product and decide whether it’s worth the money or not. To stay on the market, the product should be relevant to people, then they will spend money on it while saving on other things. Also, you should focus on existing customers, rather than trying to attract new ones. You need to make sure that customers stay with you, instead of looking for cheaper analogues of your product from competitors.

Problems with funding

As we’ve already mentioned, lack of funding is the number one on the list of startup risks, and this problem is still relevant. Investments in startup businesses decreased in the first five months of 2022 compared to last year. In May, the volume of global venture financing amounted to 39 billion US dollars, which is 20% less compared to the same month of 2021.

Even majors like Facebook and Uber are already cutting jobs and freezing hiring. According to the researchers, the founders need to increase gross profit as soon as possible, reduce costs, and limit the hiring of staff. Sustainable growth is now more important than ever, so it’s better to focus on what is already working well, rather than trying to expand the company quickly.

In fact, investors want to get some kind of guarantee that the capital they invest in a startup can pay off. Entrepreneurs need to show them the value of the product and the stability of the company in the market.

Supply chain challenges

It’s no secret that there is a supply chain crisis right now, and of course it affects business. It started last year, but now it’s only getting stronger — 45% of businesses have experienced supplier delays, whereas in the first week of 2021 it was only 26.7%. The zero-Covid policy in China, the war in Ukraine, and sanctions against Russia lead to new overloads. Transportation routes need to be reorganized, that’s why the transportation time increases.

Small businesses are increasing online sales, which also aggravates the situation. Usually the goods are sent from the manufacturer to retailers, while in the case of e-commerce, the goods are delivered directly to customers. Because of this, warehouses are filled to the brim, there are not enough storage facilities, as well as workers for unloading and transporting goods. In addition, the prices for the delivery of goods have also increased.

First of all, entrepreneurs have to think through the right strategy of communication with customers. No one wants to wait a whole month for an order they could previously get in a week. But if buyers know and understand why this is happening, most likely they will stay rather than go to competitors. Being honest with your customers and warning them about delays is the only way to build reliable relationships in such conditions.

Supply problems are unlikely to end soon, so relying on a single supplier is not entirely reasonable. Look for alternative options so that if your supplier sets you up, you can quickly change them for another one.

Labor crisis

Startups are struggling to hire outstanding specialists to scale faster and make cool products. Unfortunately, not every startup business can afford to offer a competitive salary, that’s why they face skills shortages. Large companies usually hire people within the country, while startups seek to fill in the gaps by hiring employees from abroad, as this way is easier to find talented workers who are ready to work for a lower price. However, due to the pandemic, many people began to work from home, and large companies started to outsource or hire remote workers more and more often. Of course, they can pay a much higher salary than a local startup.

Competing with big players for specialists for the sake of expansion is not the best idea. First of all, you should take care of your current employees so they won’t leave. Give them more freedom and space for creativity in projects — this reduces the chances that your company will face the talent outflow. If you need rare specialists, you should arrange training within the company. For example, you need another motion designer in the team — instead of looking for a new specialist, you can teach these skills to a graphic or UI/UX designer.

Another proven method to retain employees is convincing them of the idea of the startup. If they believe that your idea can solve a relevant problem, that the timing is right, and you’re the leader who can make it happen, they will want the startup to skyrocket as much as investors. Thus, working for your company can become for them a mission rather than just a job.

Management issues

During a crisis, it’s especially important to manage the company properly. The first problem that leaders often face is micromanagement. When a person creates a business from scratch, it’s difficult to let go of their brainchild and allow others to help.

Such entrepreneurs strive to control every aspect of the startup because they are convinced that they know what is best for it. A founder of a company may be a technical genius who understands all modern technologies, but it doesn’t mean that they also understand other areas like marketing, sales, management, design, etc. And even if you are an expert in everything at once, you still need to delegate tasks and trust your team. Otherwise, such business ambitions can lead to burnout, and there will be no one to lead your team to the goal.

Ineffective marketing

Creating a startup is still half the trouble. To attract customers to buy your goods and services, you need to sell them the idea that your product is the best — that’s what marketing is for. Not all entrepreneurs understand the difference between marketing tools and can easily get carried away with new trends without making sure that they work well, particularly for their business. This can lead to them spending huge sums on advertisements which can not lead to sales.

The secret of effective marketing is to spend the marketing budget wisely. Poorly studied tactics are not worth spending money on them. You also need to constantly monitor and check these methods in order to adapt them to your needs or replace them with others.

Also, focus on your target audience and choose a marketing strategy based on what they like and don’t like. For example, there’s no point in advertising your product on TikTok if your target audience does not watch short videos regularly.

Wrapping up

To be honest, no time is perfect to start a business. There are always problems you have to deal with whether it’s inflation, a pandemic, or a geopolitical situation. Entrepreneurs need to adapt to the current circumstances in order to develop their businesses.

Our advice is to look for opportunities regardless of external circumstances. Those who prepare for the startup problems can take a better position, survive the crisis and bypass competitors. In 2008, Netflix survived the recession although they weren’t a big company at that time. They presented a new product to replace the dying video rental stores — a streaming service. Then they started collaborating with companies like Xbox so that people could watch videos using such devices. Thanks to these innovations, the number of Netflix subscriptions grew despite the recession, while other companies were trying to maintain revenue.

Thus, innovations, the use of modern technologies, collaborations, adapting to consumers, searching for new suppliers, being smart with finances, dealing with labor shortages, developing recruitment strategies, taking care of security — all this can help you cope with startup challenges and issues, and the sooner you start acting, the better.

If you need help with the design and development of digital products, we are at your service. Our team of professionals can help you create a stunning product and show its value to investors. Learn more about Ronas IT services and never hesitate to contact us.