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Updated Oct 24, 2023

Tech Startup Challenges (and How to Overcome Them)

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Nicole Fallon, Business Ownership Insider and Senior Analyst

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Technology seems to be the industry of choice for many of today’s aspiring business owners. It’s a broad, fast-growing field that attracts investors and venture capitalists, and if you succeed, the payout potential is enormous.

The allure of launching a tech startup is easy to understand, but some entrepreneurs fail to consider the unique risks they’ll face in the competitive world of technology. Here are seven challenges you’ll likely come up against, and ways to overcome them.

These common challenges are familiar to many tech startups, so it’s important to be prepared to navigate them before launching your business.

Constant change

Rapid changes in technology, more so than in any other industry, can really throw a startup off-kilter. As many tech entrepreneurs know, there’s a lot of pressure to move quickly and beat the competition to a solution. [Read related article: Business Plan Templates for Businesses]

“If a company isn’t nimble enough, or cannot execute fast enough on an idea, the window of opportunity for your product or service may very well close before it is ready for the market,” said Andrew Van Noy, CEO of e-commerce solutions provider Warp 9. “If you feel you have a solution to a problem not addressed yet on the market, don’t be fooled – it won’t be long before someone else does too.”

But being the first doesn’t always mean you’ve won, Van Noy said. If a product or service doesn’t yet exist, there is a steep price to pay to blaze new trails, and oftentimes, the second mover can capitalize where the first can’t. To assess where you stand, Van Noy advised tech startups to seek out feedback on their ideas, goals and path to success.

“You may have a great business idea but come back out of the clouds,” he told Business News Daily. “Get feedback from friends and relatives on your idea, and take their criticism seriously. Be realistic about how much time, money and energy it will take to make your idea come to fruition. Talk to other founders and leaders and see how long, hard and expensive it was for them. There is nothing worse than seeing entrepreneurs get their dreams and savings destroyed because they thought it would be easy.”

Being unable to reach your initial goal

Because technology changes so quickly, there’s a strong possibility that you may not be able to complete what you initially set out to do with your startup. Instead of accepting the failure of the business or changing direction, many startup founders simply let their operations stagnate.

“So many startups end up in ‘zombie’ states,” said Shawn Livermore, founder and CEO of outsourcing platform Ziptask. “The founders don’t want to give up, and are embarrassed to concede defeat. So they keep the dream alive but never really complete what they originally set out to do. Large companies are not worried if one of their projects never gets completed. But in a startup, not completing something means you leave the door open in your life, and that’s worse than failing.”

Did You Know?Did you know

  According to CB Insights, 20% of startup business failures are a result of the business being outcompeted.

Finishing what you start is a good rule of thumb for many situations in life, but especially for a tech startup. If it seems like you’re going to fail, allow yourself to do just that.

“If you fail, try again, but next time, do it faster,” Livermore told Business News Daily. “Ziptask started, failed, pivoted, started again, failed, pivoted, started again, took investment, succeeded and now is growing. It took three solid efforts by an extremely determined group to get to legitimate revenue.”

Partnership decisions

For a new business, partnering with another company in a related field may seem like a great way to grow. But the stakes are much higher for tech startups, whose operations can easily be ruined by hitching their wagon to a passing fad.

“The technologies that are mainstream today may be eliminated over the next few years,” said Chris Miles, CEO of business software provider Miles Technologies. “I have seen many companies develop entire product lines and build services and solutions based completely on emerging or popular technologies. When those [fads] go away, everything dissolves. Then what? You have to make sound and smart decisions.”

When you’re choosing which companies to do business with, having clear policies regarding this issue can help you make the best decisions for your startup. Miles’ company, for example, chooses to work only with larger, established companies that have a good chance of longevity and success. On the flip side, some entrepreneurs have discovered that large companies can steal their ideas and replicate them at a lower cost.

“When you are building a business, it is important to focus on instituting policies that help you mitigate risks,” Miles said. “As an entrepreneur, you always take risks. But with policies in place to guide decisions, you are not throwing the dice and hoping for the best.”


Writing a business partnership agreement can alleviate many of the pitfalls that partnerships encounter. These agreements act as a road map for how to navigate difficult decisions or resolve disputes.


Hiring employees can be a nerve-wracking experience for any startup, but tech startups often employ too many people before they’re ready. Even if you have investor money behind you, stretching your resources too thin right away can quickly become a problem.

“Tech startups are fast-growing and attract massive amounts of funding, but it’s hard to accommodate that growth well,” said William Zhou, CEO of education technology company Chalk. “Tech startups are notorious for overscaling, or hiring too many employees prematurely … Always hire slow and fire fast.” 

The other issue a new tech business can face is the inability to hire top talent into a startup environment.

“Cash flow is one of the biggest problems facing any startup,” said Mat Peterson, founder of app development company Shiny Things. “Larger tech companies in Silicon Valley can pay much higher salaries than a local startup can afford. Allowing your team to have freedom and creativity with their projects gives them a lot of satisfaction and makes them less likely to go [to a larger company].”

Cyber risks

While nearly all businesses rely on the internet to some extent, a restaurant or brick-and-mortar retail store isn’t going to have the same kind of cybersecurity risks as a startup whose operations are entirely online. In most cases, tech startups serve the B2B market, which means other companies are depending on yours to keep things running smoothly.

“Because tech businesses provide a product or service to help other business owners perform their operations, they are open to liabilities of omission, errors and other exposures,” said Eunice Lim, sales director for insurance company Travelers. “To overcome any possible losses, you need to make sure you understand those exposures first.”

A comprehensive firewall and antivirus software system will mitigate many cyber risks, but these will only get you so far. Lim recommends training your employees in the proper protocol for handling sensitive customer and credit card information, and always making sure company data is accessed only through a secure, private internet connection. Adding a cybersecurity policy to your insurance plan can provide protection in the event of a data breach.

While tech startups may face steeper competition than startups in other industries do, as well as unique challenges, your level of dedication to your new business will ultimately determine your chances of success.

“The odds of any individual building a market-leading company from scratch is minute,” said Jeremy Colless, founder of Australian equity crowdfunding platform VentureCrowd. “Being delusional will not get you there. Skill, persistence, and a bit of time and luck are needed.”

Trying to do it all yourself

When you have created a business from scratch, it is hard to let go and allow others to help you. After all, it’s your brainchild and you know best, right? Wrong! At a certain point in your company’s growth, you will need to identify and hire a management team that fills in the gaps in which you lack knowledge, skills or time. In fact, according to the research from CB Insights, founder burnout resulted in 5% of startup business failures.

While you may be the technical genius behind your product, it is a rare founder who is good at engineering, management, operations, finance, sales and marketing. Even if you have outstanding skills in all of these areas, you should figure out which functions are most important to the company’s success and spend your time on those, while handing off less critical tasks to your team. 

Did You Know?Did you know

Founders spend as much as 40% of their workday on tasks that do not generate revenue, including hiring, human resources, and payroll, according to data published in Entrepreneur magazine.

As your company grows, you may find that you do not have the skill set needed to usher your business into its next phase. At this point, venture capitalists and other investors will want to bring in an executive team with experience in larger companies. Although it may be uncomfortable, it is best to be open to working with executives from outside your company. Collaborating with these individuals gives you the opportunity to communicate the importance of your values and company culture so they remain in place for the long term. 

Neglecting marketing and market research

The philosophy of “build it and they will come” works only in fiction. A best-in-class product that solves a problem does not guarantee a business’s success. In today’s competitive tech landscape, success hinges on a combination of a good product, effective marketing, and quick market saturation to discourage copycats and establish a critical-mass customer base. Tech startups can increase their chance of success by investing early in market research and analysis in the product development phase and beyond. 

When you identify your target market, how they perceive your product both on its own and compared to competitors, and what is important to them, you will know how to reach them and how to price your product. During product development, pre-launch beta testing allows you to improve the user experience to reduce customer frustration and eliminate bugs. Market research can also give you insight into what other kinds of products and enhancements you can create that will meet your customers’ needs in the future. 

According to Hinge Research Institute’s High Growth Study, more than 6 in 10 leaders of tech firms said that they anticipate the biggest challenge over the next three to five years to be unpredictability in the marketplace. Over half identified changes in how buyers buy their services to be a major challenge. To meet these, your firm should engage in market research on a constant basis. That way, you will not be blindsided by a competitive product or a shift in the market.

Jennifer Dublino contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.

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Nicole Fallon, Business Ownership Insider and Senior Analyst
Nicole Fallon is a small business owner with nearly a decade of experience overseeing day-to-day business operations. She and her co-founder self-funded their company and now lead a team of employees across multiple disciplines. Fallon's first-hand experience as an entrepreneur running a staffed business has given her unique insight into startup culture, budgeting, employer-employee relationships, sales and marketing, and project management. Fallon's business expertise is evident in her work with the U.S. Chamber of Commerce, where she analyzes small business trends. Her writing has been published in Forbes, Entrepreneur, and Newsweek, and she enjoys collaborating with B2B and SaaS companies.
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