When should a startup outsource product development?
Is it worth setting up a start-up with little funding?
In 2018, around 38,327 founders in Austria ventured into entrepreneurship. Around four and a half percent less than in the previous year. For most, self-employment is the fulfillment of a dream. A start-up is both an opportunity and a challenge. However: nine out of ten start-ups fail in the first few years. Reason enough to critically question whether the effort is worthwhile in this case.
Disputes in the founding team, liquidity problems, sales difficulties, competition. There are many reasons for bankruptcy. In the euphoria of the moment, many self-employed people underestimate what to expect.
Establishing is a high risk. A visionary business idea and motivation are not enough to survive in the market. Solo founders and founding teams need discipline, passion and the ability to deal productively with setbacks. Communication skills and sales talent are a must: After all, it is always important to convince people of the basic idea of the start-up, be it investors, potential business partners or customers.
What must be taken into account when setting up a company?
- Check the start-up idea for market relevance: Does the business idea have a chance of surviving in the market in the long term? In order to assess this point, the question arises as to which problem the product or service solves. Is there enough need for it? What do supply and demand look like in the respective niche and who are the direct competitors? Start-ups should thoroughly analyze the market and their direct customers. Also important before the launch: the product should be ready for the market.
- Set up a suitable team of founders: Hardly any founder has mastered all the tasks that an entrepreneur has to face. In a team, the burden is spread across several shoulders. The optimal colleagues are technically competent and complement each other.
- Mutual sympathy and respect are - despite flat hierarchies - a must.
Financing: Without money there is no chance of a successful start-up.
Raising capital: where does the money come from?
The share capital to found a GmbH in Austria is 35,000 euros. Start-ups benefit from a foundation privilege: a minimum share capital of 10,000 euros is initially sufficient for the establishment of a GmbH. Founders have to pay in at least 5,000 euros directly. Shareholders make a deposit of at least 70 euros. This regulation gives start-ups ten years to raise their share capital to 35,000 euros. Until then, the addition "foundation-privileged" makes their special position recognizable to the outside world.
This comparatively manageable sum can possibly be raised by pooling all of your savings. What prospective founders should be aware of, however, is that their actual capital requirements significantly exceed the required minimum investment.
Initially, friends and family may work for free to support the young company. It is not uncommon for founders to work around the clock. But at some point the start-up needs office space with the right equipment, technically competent staff and an advertising budget.
In the first years of establishment, the focus is usually on product development. In return, start-ups in Austria receive monetary support from the federal and state governments as well as grants from business angels and seed investments. Crowd funding is another method of obtaining financial resources.
It is worthwhile to exhaust all possibilities. To illustrate: According to a recent study by Bitkom, start-ups in neighboring Germany need an average of 3.1 million euros within the first two years. Only nine percent of the young companies surveyed are keeping themselves afloat with 900,000 euros. Twelve percent even estimate five million or more.
But even in the subsequent growth phase, the company needs millions to say goodbye to micromanagement and to set up internal structures with managers and departments. The risk of failure in this phase due to a lack of financial resources is great.
Proper bookkeeping is the key to success
Accounting is uncharted territory for a number of founders. Errors in pricing, invoicing and tax matters are the death knell of any company: If the set price for services or products is not correct, the start-up can be financially ruined in no time at all.
Founders with no accounting knowledge are well served with online accounting software. This means that every employee can easily access documents and invoices in order to be able to work on the go or from home. This not only saves costs for the young company, but also ensures a pleasant working atmosphere. A realistic overview of costs, income and expenses can only be obtained through accurate bookkeeping.
Sales and Online Marketing: Building Reach and Reputation
Products and services must be effectively marketed to customers. A professional online presence is crucial for this. On the one hand, the website should be technically up-to-date and, on the other hand, present the start-up's offerings in search engine optimized texts, images and videos. Only those who can be found win customers and generate sales.
For effective marketing, at least in the initial phase, hardly anyone is better suited than the founders themselves: They know the start-up and are "passionate" for the vision behind it. Advertising campaigns on social media contribute to increased visibility on the Internet. Close contact with potential customers also provides valuable feedback that can be incorporated directly into product development or the design of the service. The more precisely start-ups know their customers' needs, problems and pain points, the more successfully they will be able to market their offer.
Online reviews create additional trust and strengthen the company's reputation. Not all founders are sales professionals or born marketers. In order not to give away any opportunities here, additional help from (paid) professionals may be necessary.
Is it worth founding a start-up with a minimal budget?
Under certain conditions, founding a start-up is worthwhile even without a financial cushion:
- The business idea is highly relevant to the market. It solves a problem that affects many people.
- The founding team pulls together. The members complement each other professionally and personally.
- The founder or the founding team is not only familiar with their own product, but also with accounting, sponsorship and marketing.
- The founding team succeeds in exhausting existing financing options, inspiring investors and ensuring liquidity through sponsorship.
- There is little or no competition for the product.
Whether a start-up will ultimately succeed in the market and survive the critical growth phase depends to a large extent on the personality of the founders: On the one hand there are visionary ideas, a feeling for trends, accounting knowledge and marketing know-how. But in addition to this specialist knowledge, stamina, resistance to stress and the ability to deal with setbacks are also decisive for success. (April 15, 2019)
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