Startup school: Three out of four Aussie startups fail. Here’s how to make sure you’re not one of them

Today’s tech industry is a highly competitive environment whether you’re in Sydney or Silicon Valley. Even with the best startup idea, entrepreneurs can struggle to secure the funding necessary to stay in business, let alone sustain long-term growth. That’s why approximately three out of every four Australian startups fail within the first five years, according to the International Centre for Trade and Sustainable Development (ICTSD).

Achieving sustainable growth for your tech startup company is no easy feat. It requires careful consideration, a strategic business plan, as well as the knowledge and funding to navigate countless challenges. However, with the right team and strategies, you can not only avoid startup failure but also realise rapid growth. 

This second article in our startup school series will look at some of the tactics that successful tech startup entrepreneurs use to gain investor interest, overcome difficulties, and expand their companies.

Timing your tech startup expansion

Before a founder pushes for rapid growth, they must first ensure everything is in place to successfully launch their tech company expansion. The first step is to gather the right team of well-rounded professionals and experts who will add value to your tech business. This could include outsourced business advisors, managers, HR professionals, accountants and more. As a new or small business, your team may be barebones but you still need to ensure they can handle the expansion while consistently meeting financial targets.

With the right team in place, it’s time to consider the potential risks of rapid growth. One of the primary issues many startups face is ensuring a reliable cash flow. The tight budget of a new business often means there is very little room for financial flexibility. The most successful startups produce a clear and accurate financial forecast to ensure they budget efficiently and effectively.

In addition, owners should take full advantage of tax incentives to improve their revenue. For instance, the Research and Development Tax Incentive (R&DTI) helps Australian startups accelerate growth by offsetting the costs of research and product development.

Strategic planning

Once you’ve taken the time to understand when your burgeoning tech company will be ready for rapid growth, the next step is to develop a strategic business plan. This will serve as a road map along your journey to becoming a successful startup. It should include everything from raising capital and increasing revenue, to developing your marketing strategy and entering new markets.

At the core of all these objectives lies a common problem: funding your venture. A startup owner might assume that Series A funding will cover all their expenses with enough proven business success however, this is simply not the case. In fact, many startups backed by venture capital still struggle to secure enough funding. The best practice is to carefully budget and plan your finances to determine your company’s position now and in the future.

Challenges in growth for tech startups

Now that you have a solid strategy to help grow a successful startup, it’s critical to address the challenges every tech company faces when it’s first starting out. One of the most difficult tasks is balancing your debt-to-equity ratio. This means determining how much of your funding will come from loans versus shares of your company.

While a higher debt means you hold onto more of the company, it can be equally risky if you fail to meet your financial goals. On the other hand, selling equity can bring in a lot of funding, but at the cost of control over your company. One option is to offer ‘convertible notes’. These are loans or debt obligations with a provision that allows for them to convert into equity in a company at a later date.

In addition to funding challenges, a tech startup should develop detailed risk management strategies for, but not limited to:

• Financial risks; 
• Legal risks; 
• Cybersecurity risks; 
• Employee risks; 
• Environmental risks; and
• Political risks.

A comprehensive set of effective risk management strategies can be the determining factor between a startup’s failure or success. These strategies are fundamental in addressing potential crises within the company, protecting stakeholder interests and better utilising resources for business growth.

The next edition in the startup school series is all about getting your tech startup funded. Find it on SmartCompany Plus on Wednesday, July 29.