Q&A: Top Challenges for Startups and Growing SMBs

You’ve just returned from a trip to your local tax commissioner’s office where you registered a new business. With all the paperwork now in order, your startup is ready to join the marketplace!

Alas, registering a new business is an important legal formality, but it’s not the same as actually starting a new business. Starting a new business involves answering many important questions about launch timing and the competitive landscape. It requires an understanding of which obstacles might stand in the company’s way and planning for which technologies will help overcome them.

Whether your company is pre-launch, post-launch, planning for growth or having trouble scaling, you probably have questions about strategy.

In this report, we analyze data from the U.S. Small Business Administration and from Gartner’s recent Top Technology Trends for SMBs1 survey to answer a variety of questions facing entrepreneurs and young startups alike.

: Is it a bad idea to start a new company in an economic downturn?

ANSWER:
It certainly feels like it’d be a bad idea, right? The data, however, suggests it makes little difference at all.

gif related to setting up a new company in economic downturn

Ready! Set! G—

The U.S. Small Business Administration (SBA)—with help from the Bureau of Labor Statistics (BLS)—has studied the topic in depth. The results should reassure any cold-footed entrepreneur or young business.

The SBA’s business survival study asserts that “[a] negative economy has little effect on a given business’s survival.”

The chart below illustrates this nicely. It’s important to note that the U.S. economy was expanding and growing in both 1995 and 2005; but was retracting or recovering in 2000 and 2010. You can see how the survival rates for businesses are largely unchanged, regardless of the timing of their launch:

Survival rate graph for startup businesses

There are two valuable lessons here:

  • The survival rate of small businesses is independent of the larger macroeconomic climate. This means that you don’t need to spend effort trying to time your launch to national economic trends.
  • Data should trump intuition and assumptions when it comes to making business strategy decisions. As this example clearly shows, assumptions don’t always align with reality.

: Apart from restaurants, which types of new businesses have low survival rates?

ANSWER:
Actually, the conventional wisdom about restaurants is wrong. Remember what we said about assumptions?

Gordon Ramsay restaurant gif

Rumors about the challenges of opening a restaurant may have been greatly exaggerated

Ever hear that statistic about new restaurants—the one that claims that 90 percent fail within the first year? Turns out it’s completely false! In fact, as shown in the SBA’s chart below, restaurants on average have a higher success rate than businesses in other industries:

cumulative survival rates for U.S. businesses by birth

The bottom line here is that restaurants show no greater propensity to fail than other types of business. While that should be reassuring to any budding restaurateurs, there’s a larger lesson there that’s worth repeating:

  • Conventional wisdom is often wrong. When evaluating a new business idea, never substitute data-backed market research with conventional wisdom, no matter how often you’ve heard it repeated.

: What are the biggest obstacles faced by startups and growing SMBs?

ANSWER:
While the obstacles vary depending on a company’s stage of growth, companies across the board identify technology selection as a primary challenge.

The discussion in the first section was intended to put to rest any concerns about timing a startup’s launch. As the data showed, those concerns are overblown.

But which concerns are worthy of consideration? What are the real obstacles faced by young, real-world businesses? To answer this we’ll turn to Gartner’s 2017 Top Technology Trends for SMBs survey and get some insight straight from the horse’s mouth.

This survey was given to 699 U.S.-based SMBs with more than 10 employees and an annual revenue of less than $100 million. One question asked, “Which of these do you see as the biggest challenge to achieving your business goals?” Responses, split into small and midsize business groups, were as follows:

Largest Obstacles to Success: Small Vs. Midsize Businesses

business obstacles bar graph

Question: Thinking about the next 1-2 years, what constraints do you anticipate your organization might face in striving to achieve its business goals? Source: Gartner 2017

The smaller businesses (in blue) indicate hiring the right people as the primary obstacle to growth and success, whereas larger businesses identify technology selection as their largest obstacle. Both of these data points can be useful for any business expecting and planning for growth.

With a slight interpretive twist, we can make the above data set a bit more revealing. The following chart shows which obstacles become more significant as the company itself moves up the size spectrum from small to midsize.

Challenges Exacerbated by Growth

SMB challenges due to growth

This broader interpretation of the data reveals some lessons for startups and other growth-focused companies. Namely, that:

  • As a company grows from small to midsize, the challenge of “hiring the right people” does not significantly increase.
  • But oppositely, as a company grows from small to midsize, “using the right technologies” becomes increasingly challenging.

This underscores the importance of IT and software selection, which is the topic of the next section.

: Which technologies do startups and SMBs rely on most?

ANSWER:
Small businesses report CRM as the technology they most rely on, followed by tools for IT and data security and then by a company website.

Gartner’s recent Top Technology Trends for SMBs survey asked stakeholders about the necessity of a variety of software and IT tools to the running of their business. Software for customer relationship management (CRM) topped the list among businesses in the small size band.

Most Necessary IT Tools, As Reported by Small Businesses

Survey results - Top technology trends for SMBs

CRM software plays a central, organizing role in many businesses. This shouldn’t be a surprise, since the category CRM includes tools and applications used for sales, marketing and customer service—and these are for most companies in the primary customer-facing and revenue-driving departments.

Startups in different industries have different goals, as do startups at different stages of growth and those preparing for different stages of funding and investment. That said, a majority of startups begin their CRM search by focusing on the following tools and related applications:

  • Contact, client and partner management: These apps make up the keystone of any CRM system. (Remember that the C can stand for more than “customer” in the traditional sense. A CRM platform can help manage all of your company’s external contacts and partners.) Note that these client information gathering and recording tools are often built into other tools, such that the information is added automatically and without interrupting other workflows, like those involving sales and service functions.
  • Sales pipeline management: While these tools are useful for all companies, they’re often critical for startups seeking funding. Investors often look at metrics like lead velocity rate LVR and these tools are a first step towards tracking and improving it and other key indicators. This list of Sales Enablement tools is a good place to start.
  • Customer service, communication and ticketing: Depending on the nature of your startup, you may be communicating with your customers on any of multiple communication channels: phone, email, web forms, live chat etc. An omnichannel customer service platform helps track individual inquiries, collating them with a larger CRM platform or your own internal customer database. Service tools ensure that your newly earned customers get the service they need to stick around for the long haul.

For new businesses and those in the early stages of growth, the main strategic takeaway here is that CRM software should be chosen with care. It should provide tools that directly align with the company’s business model and support the workflows used in each department.

For more information on the role CRM can play in your organization, check out the following articles:



1 Gartner conducted this survey in April-May 2017 among 699 U.S.-based SMBs, with more than 10 employees and annual revenue of less than $100 million. The survey excluded not-for-profit organizations. The qualified respondents are decision makers, or have significant influence on the decisions related to purchasing technologies for their organization.

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