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Growing Pains: What Do Startups See as Their Biggest Challenges?

Patrick McAnaney

MA Candidate, Johns Hopkins SAIS

Startups need resources to grow and scale—but what, exactly, are they missing? It’s easy to theorize about what’s working and what’s not, but hard to say for sure.

So we asked them.

Last month, we unveiled our Innovation that Matters report, which examines the state of civic entrepreneurship in eight U.S. cities. The report looks at the factors that cause startup ecosystems to emerge, as well as the barriers holding them back. Our research involved convening broad groups of actors—entrepreneurs, investors, government officials, corporations, nonprofits and civic institutions such as schools and hospitals—and asking them to share their perspectives on what’s working and what’s not to drive further innovation to improve the lives of citizens in their communities.

Beyond collecting broad insights from all these actors through roundtable discussions, we also dove deeper to gather more in-depth perspectives from one group in particular: civic entrepreneurs. In partnership with the Brunswick Group, we surveyed 230 entrepreneurs from the eight cities highlighted in the report, and we asked them to rate different aspects of their local ecosystems. The results are highlighted in the Civic Entrepreneurship Index featured in the report.

But our survey did more than simply ask entrepreneurs to evaluate their own communities. We also wanted to understand the bigger picture of what these startups really view as the major impediments to growing their businesses. To do this, we included two additional questions in our survey, asking entrepreneurs to select their biggest business challenge and their biggest policy challenge.

Here’s how they responded:

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So what does this all mean?

1. Money on the Mind.

Perhaps unsurprisingly, money is the clear priority for startups—both from a business and policy standpoint. The main business challenge startups identified is access to funding, while the main policy challenge is lack of financial incentives to fund startups.

 But this doesn’t necessarily mean that increased funding is actually the most important factor for building startup communities; our research found that it networks, not money, are the real secret sauce behind successful ecosystems. In fact, many startups actually fall into the money trap: the assumption that fundraising a large round, rather than focusing on refining the business model, is the surest path to creating a viable company.

Yet, this result does remind us of a key reality of the startup world. For entrepreneurs hustling to grow their businesses, make payroll and pay the bills, money is on the mind, 24/7.

2. Sell, sell, sell.

While talent ranks as the second priority for founders, the challenge of “cracking the sales nut” falls directly behind it. Our survey shows that entrepreneurs deal with this challenge on two fronts: finding initial pilot customers when they first develop a product, and again when creating a repeatable sales model to scale up thereafter.

If you add these two separate-but-related difficulties together, the total number of respondents listing sales as a top priority was 31 percent, a close second behind access to capital. Innovation that Matters highlights the challenges of navigating the large bureaucracies of civic institutions in order to sell innovative new products, so we were not surprised to see this issue reflected in our survey results as well.

3. Mentorship, events and office space are not priorities.

The survey makes clear that entrepreneurs do not view access to mentors, events or office space as key business challenges. Considering that we offer all three services at our DC-based incubator—access to mentors, regular networking events and coworking office space—this result struck us as particularly interesting. 

It also begs the question: Do startups not view these areas as challenges because they are comparatively less important than money, sales and talent, or because community support organizations like incubators and accelerator programs already provide these services effectively?

4. Legal uncertainty is the real policy barrier.

During our Innovation that Matters roundtables, we heard several entrepreneurs mention that the policy issues they faced weren’t particular regulations or procedures that they were forced to navigate. Rather, the key challenge is the lack of legal certainty that make institutions such as schools and hospitals reluctant to partner with them. 

Often, civic institutions are interested in adopting new products that startups offer. Yet, because these products are so new, they don’t fit neatly into current compliance frameworks. This makes institutions hesitant to adopt such solutions for fear of exposing themselves to legal risks. In these cases, uncertainty is the real innovation barrier.

5. It’s time to address procurement reform.

When it comes to specific policies, procurement is the main area in which startups struggle. The reasons for this—explored in our full report—involve the way in which public agencies approach procurement. Namely, agencies tend to request pre-determined technical products, rather than articulating pain points and requesting the type of out-of-the-box innovative solutions that startups can provide. If governments are really looking for ways to revamp their policies in order to promote entrepreneurial activity, procurement is a good place to start.


Patrick McAnaney

MA Candidate, Johns Hopkins SAIS

Before enrolling in his current graduate program, Patrick led 1776's research initiatives. He had also worked in business operations for Downtown Project in Las Vegas, where he opened the Downtown Container Park…