While there is no statistical basis for the often-repeated claim than nine of 10 new businesses will fail, the challenges faced by technology startups are significant. According to a study by Bruce D. Phillips of the National Federation of Independent Business and the late Bruce A. Kirchhoff, director of the technological entrepreneurship program at New Jersey Institute of Technology, just under 40 percent of startups with 500 or fewer employees will survive their first six years.
Here are the 10 leading challenges faced by technology startups:
10. Failure to appropriately protect the business’s confidential information
9. Failure to form an appropriate legal entity such as a limited liability company or corporation
8. Failure to document the transfer of intellectual property from the founders to the legal entity
7. Failure to ensure that subsequently created IP is transferred to the legal entity
6. Failure to provide compensation and ownership systems that appropriately recognize the contributions of the founders
5. Failure to attract a team with complementary skills to deal with various aspects of developing and running a business
4. Granting overly generous terms to the initial investors, such as veto rights over business actions the company may need to make
3. Failure to involve strategic legal counsel early enough in the process so you can avoid challenges four through 10
2. Failure to create a written business plan that makes practical sense
1. The number one challenge is failure to focus time, resources and attention on:
- The near-term most likely successful projects or areas of the company
- The near-term strategic initiatives of the company
Investors won’t finance a science project. Technology startups need to focus on milestones that are achievable in a reasonable period of time along with a budget that shows how funds can be used to achieve those milestones.