7 Advantages and Disadvantages of a Startup

7 Advantages and Disadvantages of a Startup

Leaving the CEO position at an established company for a startup business felt like a setback. I soon realized that working for a startup has advantages and wrote about them in an earlier article. For a balanced view, I added the disadvantages that I have encountered.

Literature Review

In 2013 VentureVillage conducted an online survey with over 150 participants to uncover the Pros and Cons of working for a startup and published the results as an Infographic. The top Pros were Work Environment, Flexibility/Freedom, More Responsibility, and Steep Learning Curve, and the top Cons were Lack of Structure, Low Compensation, Long Working Hours and Uncertainty / Instability. The article Advantages & Disadvantages of Working for a Startup mentions similar Pros and Cons and is an excellent complement to the Infographic due to its detailed explanations.

In his article 5 Competitive Advantages Startups Have Over Big Businesses Larry Alton mentions Agility, Team Chemistry, Less Bureaucracy, Competitive Pricing and Personality as the five strengths that small businesses can use against big businesses. He doesn’t mention the disadvantages, so there’s a danger that small businesses remain blind to their weaknesses.

Indeed, in an earlier version of this article, I focused exclusively on the advantages. Experience has taught me that running a startup is hard work and becoming successful could take many years of hard work and experimentation. I have therefore decided to match the 7 advantages with 7 disadvantages. These are illustrated in the Infographic below and discussed further on.

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Advantages

1.      Agility

Startups are smaller and less structured. They are also innovative and keep improving their business models, processes, and portfolio. These allow them to adapt to disruptive technologies and changes in market conditions. Established competitors face vested interests, a historic path, and a strong team culture. This makes them resistant to change.

2.      Efficiency (Lean and Mean)

Established companies have high administrative overheads. Startups offer their services in a more efficient, cost-effective and competitive manner. They are likely to be aware of their limitations and tend to focus on their core strengths. This causes them to partner with other small organizations. Customers often benefit with a superior value proposition.

3.      Team Culture

Employees of large corporations get attracted by prestige and big salaries. They easily lose sight of the company’s vision, mission and values and the success of its customers. Startup employees form a close-knit community that shares passion, beliefs, and values. They must work together for the good of the company, its customers and the world at large.

4.      Personalization

Startups deliver their products and services with a personal touch. This creates a uniquely personal experience for their customers. Startups also take time to study and understand their customers’ business requirements. This allows them to build lasting relationships with specific offerings and responsive solutions.

5.      Versatility

Startup employees multitask and the salesperson could double up as the relationship manager. This adds continuity to customer relationships and enables startups to respond to emergencies. Most startups support learning and have a higher tolerance for mistakes. Both factors enhance the versatility of startup employees.

6.      Flexibility

Your organization could have rather unique needs and demands for products and services. These might not be met by established service providers operating in a rigid manner. Startups are very flexible and are more likely to work at the hours, the place and in the manner that suits you.

7.      Fun

Last but now least, working with a startup could be a lot more fun. A startup doesn’t have to please everyone and may decide to select clients that are fun to work with. Spontaneous fun activities after work are a lot easier to organize in a startup. Your colleagues could become your best friends.

Disadvantages

1.      Risk

Most startups fail within their first year of operations, so the risk of failure is high. Working under such high risk can blur a startup’s strategic vision. So they either fail to seize market opportunities or overestimate their sales projections. High risk also hinders a startup’s ability to attract experienced and competent staff.

2.      Compensation

It takes blood, sweat, and tears to build a company, and long working hours are the norm for startups. The rewards might be low since it takes time to generate revenue and make profits. Some startups give up since it’s demotivating to work without proper compensation.

3.      Market Access

Many customers prefer a business that they have worked with over a new startup. Besides it is more expensive to acquire new customers than to retain old ones. Without a customer base, understanding market needs also becomes a real struggle. All these factors combined increase the cost of business development for startups.

4.      Team Composition

Some startups are born out of desperation since the founder could not find or hold on to a job. Such founders often struggle to build a team that the business needs to succeed. A successful startup requires founders/co-directors with complementary personalities and competencies. Even then disagreements can creep in when the going gets tough.

5.      Resources

Growth hacking, cloud computing, and venture capitalism allow startups to gain market entry. Most startups operate on a shoestring budget, against competitors that are well-resourced. It gives the competitors an edge in product development, sales, and marketing. They use that edge to push startups out of the market when they become a threat.

6.      Processes

Startups are flat organizations that lack defined business processes and operational procedures. This exposes them to poor customer service, legal liability, and financial losses. Startups might thus opt to outsource non-core business processes to external service providers. But the high associated costs could form a barrier.

7.      Stress

We did mention that working for a startup is fun, but it could also become very stressful. Low compensation, many responsibilities and long working hours are more or less expected. Add legal prosecution, imminent business failure, and screaming customers and work becomes unbearable.

Wrapping Up

There you have it, we discussed how startups can leverage Agility, Efficiency, Team Culture, Personalization, Versatility, Flexibility, and Fun to compete against more established businesses.

On the downside, we saw that they must overcome numerous business challenges related to Risk, Compensation, Market Access, Team Composition, Resources, Processes, and Stress just to survive.

Startups continue to succeed all over the world, but the odds are stacked against them in countries that have a closed economy where an innovation culture is lacking. Hopefully, these odds will erode against the gaining realization that SMEs are creators of jobs and wealth in economies of all sizes.

Over to you, would you want to work for a startup now that you better understand the advantages and disadvantages that it offers? And is there anything that your Government ought to do to make it more attractive for you to venture into business? Kindly share your thoughts with us.

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