But what is a startup? Interestingly enough there is no universal definition of a startup. According to Wikipedia a startup is a company initiated by individual founders or entrepreneurs to search for a repeatable and scalable business model. Founders design startups to effectively develop and validate a scalable business model. Startups refer to new businesses that intend to grow beyond the solo founder, have employees, and intend to grow large.
There are other ways of defining a startup, for example a large majority of participants of the 2018 Startup World Cup & Summit hosted in Prague agreed that a startup is a company built on an innovative idea.
Setting up a startup
It takes more than a bright idea to set up a startup. One needs to setup a company, a legal entity with all related administrative elements that it asks for.
While in the past one had to go through a rather complex process to set up a company in the Czech Republic, in recent years it has become much easier. This is among other things thanks to introduced changes in the legislation, for examples in the Trade Licensing Act (Živnostenský zákon), the Corporations Act, and others.
Not surprisingly there are certain costs associated to setting up a company: a legal entity needs to be registered in a trade register which costs about 100 EUR. This act is typically done via a notary which means additional costs depending on number of owners and complexity of the act. A trade certificate is required for any company to be run. Altogether, to set up a limited liability company one should count with costs of at least 300 EUR.
Key pitfalls for startups
An administrative burden is however not the only challenge that Czech startups – and also their peers in other countries – need to overcome. According to many experts, the most difficult part is not to start a company leveraging interesting technology or offering innovative products but to keep it successfully running in the first few months or years of its existence.
The main three challenges new entrepreneurs face are:
- No market for their product and/or lack of marketing skills
The number one reason for Czech startups to fail is lack of demand for their product. The most amazing or the most innovative idea needs to be translated into a product or service that finds its users who are willing to pay for it. Some products may come to the market too early, some other may be too sophisticated or simply not useful enough for people to buy them. And even when a product is useful and has a potential to find its market, startups are often not capable of promoting it sufficiently to make the potential buyers aware of it and to convince them to buy it.
- Lack of business experience
Startup founders are typically technology experts and geeks, in many cases individuals who have just finished their university studies. But they are often completely missing any experience with business and entrepreneurship: how to run a company, how to deal with all the administration, how to set up and lead a team, how to communicate and deal with customers, suppliers are other parties etc.
- Lack of financial management
Many startups struggle to manage their finances. Most of Czech startups (almost 80%) kick off their business using their own resources. The problems come later; often it is the lack of experience in managing cash flow that is reported as one of the most important reasons for a failure.
Some good news
While it is not as easy as it may seem, startups should not lose their hope as there is a lot of support which they can use. There are numerous web portals, organizations, business incubators and associations offering information for and about startups helping them with their possible challenges. One of them is CzechStatups.org, the first official online hub for starting entrepreneur in the Czech Republic created as a partner project of CzechInvest in cooperation with IBM CR, Czech ICT Alliance and Association of Small and Medium-sized Enterprises and Crafts CZ, and Rockaway Capital.
When running a business it is always useful to build one’s network in order to be able to leverage it when needed. Especially starting entrepreneurs should realize that it is absolutely all right to ask for help and not to always 100 per cent rely on him or herself. That is also part of the mission of the Czech Dutch Chamber of Commerce – supporting companies and entrepreneurs on their journey.
Hence setting up and running a successful startup is not given. While we regularly hear and read about some inspirational success stories, we should not forget that behind every such great story there is a lot of hard work, determination and perseverance. Borrowing the words of Winston Churchill: “Never, never, never give up!”