But the hearty ones who succeed know you need more then optimism and passion to make your business work: You need a road map that not only helps you identify the metrics for success but also warns you about the dangers that can surely derail you. (Learn How to Start Branding Yourself and Your business)
Granted, there are probably as many reasons for startup failure as there are startups, but here are ten common mistakes to avoid, along with some hard-earned wisdom from entrepreneurs who know from experience how debilitating those mistakes can be.
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Over the 30+ years I have worked in and with startups; I’ve seen it all. I am constantly amazed at how many ways people can screw up theiropportunities. Avoid below mentioned mistakes, so you will improve your chances of success.
1. Making it personal
As entrepreneurs we pour everything into our business—our money,time, creativity, passion, hopes, expectations, and our dreams. To often the lines between the business and who you are as a person can easilyblur.
This becomes really difficult when you are faced with hard feedback from customers or from potential investors. I personally won’t everforget sitting in a VCs office with 3 young men who were recentgraduates hired to evaluate companies before a partner meeting. One ofthem actually said to my partner and I; “we’re concerned you don’t haveenough time in the saddle”. Never mind that our collective managementexperience may have exceeded their collective ages, it certainlyexceeded their IQ.
You are not your business, and taking anything personally will only hurt your chances of learning something. When, for instance, someonesays no or you make a mistake or an employee walks away or people giveyou input you’re not ready to hear, it is not about you personally. Ifyou understand this, you’ll make smarter decisions and spend less timelicking your wounds and more time making money.
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2. Avoiding customer feedback
I admit I am biased; I teach Lean Business Canvas. I’m a SteveBlank disciple and I eat and drink LBMC every day in every business. Our mantra is, companies never go out of business from having too manycustomers. They go out of business because they are not able to solve acustomer problem. Don’t be afraid to ask people in your market what they need and want. It is the most essential element of your success as astartup.
What that means is startups are NOT a smaller version of a largecompany. Companies must execute. Startups must discover their customers. Early conversations with customers will help you avoid mistakes andunderstand how to deliver a product they will pay for. Talking tocustomers can only help your business.
The best feedback will come from those who don’t love your productor your brand and their honest feedback is worth listening to before you spend too much money. You may be missing a huge opportunity by ignoring customer and market feedback, so stow away your feelings and fears andget yourself out there.
Bottom line; fall in love with your customers not your product.
3. Not knowing your numbers (or KPIs)
Metrics are the key to success in any startup because you can’t fix it if you don’t know how broken it is. When I help startups understandtheir numbers, they feel more in control, make better decisions, andeven have a renewed sense of hope. Numbers tell important stories;listen to them and the path to success will become clear.
So what numbers matter most to a startup? Customer AcquisitionCosts (CAC), Customer Retention, Number of Touches, Revenue, ReferralRates, Conversion Rates – do your homework – the numbers matter.
Also read: 10 Business Ideas You Can Launch in 7 Days
4. Failing to become the leader
As a new entrepreneur, we all start out wearing many hats, productevangelist, culture warrior, even programmer or janitor. In startups you will do everything from janitorial work to sales – but at some pointyou’ll have to step into the shoes of a CEO, the leader of the team.
In this role you will need to be able to articulate your company’smission and a clear and concise vision. You’ll have to communicate yourvision to many people while maintaining a solid grasp on the processesyou helped to design, company culture and policies, and partnership andgrowth opportunities. What will make you a successful entrepreneur inthe end is your ability to make the transition from solo superstar whoattracted the money to a leader of a competent team who can share thespotlight – and your success.
5. Stress eats you alive
I always say that startups are a living version of the serenityprayer. You will need to have the courage to change the things you can,the serenity to accept the things you cannot change and the wisdom toknow the difference.
Stress kills intelligent business. As a Founder the feeling that it is all on you, it’s all about you, can wreck havoc on your professional and personal life. So, learn from your competition, listen to yourspouse, rely on good friends for advice. Cultivate mentors. Most of allremember what got you to this point – your authenticity, integrity andenthusiasm. Get out there and be yourself. Spending time obsessing overthe competition distracts entrepreneurs and deepens doubt and fear.
And, if you pay attention, you’ll always find it’s the last line of the serenity prayer that is the most difficult.
Must read: 10 Reasons Why Startups Fail
6. Choosing the wrong partners
This one of the mistakes I make most often myself because I likepeople; I want to believe in them. But of all the mistakes this is thesaddest and most destructive of all. Don’t choose a partner, whether aco-founder or outside partner, based on a few exciting conversations.Make an opportunity to work together – and take time to make sure youare partnering with the right people.
It’s important to balance any partners mindset of accountability,the management and technical skills, personality type, work ethic,integrity, how they work under pressure, and long-term objectives. Onceyou find the right partner, do not avoid investing the time and money to create a fair and equitable contract.
7. Failing to find and use mentors
You don’t have to do this alone. You will be surprised to findjust how many people want to help you so take the time to followsuccessful inspirational and industry leaders. So, ask for help, andsurround yourself with experts and people who inspire you. Read theirbooks, watch their videos, and learn from their mistakes.
Also read: 7 Things to Consider Before Starting Your Own Business
8. Screwing up your cap table
I am amazed at what people do to mess up any chance at financing.Time and time again I meet entrepreneurs who cut a deal exchangingequity for rent or services. They think in whole percentages. On theother side is the entrepreneur who wants to maintain “control” and allthe stock.
I learned this lesson at least 100 times over my career. I startedcompanies as early as 1986 and started actively angel investing in 1998but my real pain happened between 2000 and 2005. I watched,participated, and suffered through every type of creative financing ascompanies were struggling to raise capital in this time frame. I’ve seen every type of liquidation preference structure, pay-to-play dynamic,preferred return, ratchet, share/option bonus, option re-pricing, andcarve out.
My companies or investments suffered through the next financingafter implementing a complex structure, or a sale of the company, orliquidation. I’ve spent way too much time (and way too much money) withlawyers, rights offerings, liquidation waterfalls, and angry/frustratedpeople who are calculating share ownership by class to see if they canexert pressure on an outcome that they really can’t impact anyway, andcertainly haven’t worked toward constructively contributing to asuccess.
After all of this, I have two simple rules for founders:
1) Makedamn sure you know where the capital is going to come from to fully fund your business. You might be able to bootstrap (my strong preference) or have it in the bank from existing operations or your own past exit.Your existing investors might be willing to provide it, if they areproperly motivated and believe in your business. Or you might need toraise it.
Until you are consistently generating positive cash flow, youdepend on someone else for financing. And, in this kind of environment,that can be very painful, especially if you need to go find someone whoisn’t already an investor in your company (e.g. your insiders requirethere to be an outside lead, or you need to raise much more capital than your insiders can provide.)
Second (and most important), keep your capital structure simple.
There are three things that will mess you up in the long run:
Inappropriate preferences: A simple rule is that if you’ve raisedmore than $25m and your liquidation preference is greater than 50% ofyour post money valuation, you have too much liquidation preference. You should use this at every scale of financing even though this isobviously a little tricky in early rounds and with modest up-round financing.
However, as long as you have a liquidation preference thatis high relative to your overall valuation it’s generally a bad thing.As you raise more money at higher valuations, this must normalize. Ifyou end up doing a down round, simply use the down round to clean upyour preference overhang.
Also read: 10 Mistakes to Avoid When Naming Your Business
Weird deals. I’ve seen company’s loan money to key employees to buy stock (what a sweet deal a secured loan you don’t have to pay unlessyou are successful!), use equity to pay for rent, create option poolsworth 50% of the capitalization, write off then recreate debt, the listgoes on and on. Bottom line anything not standard will give any investor pause; keep it simple, and keep it clean.
9. Contracting “finders” or paying “finders fees” to help you raise money
I am always surprised how often I find this. It is clearly illegal. Nolawyer would sanction it. Investors hate it. If you get caught it cankill the company and somebody might just go to jail. Don’t do it.
10. Building an unbalanced team.
Diversity is your friend because engineers or scientists found most startups I work with. What you must realize is when you launch, your product will account for only about 10 percent of your business’s success, with the other 90percent coming down to developing the most effective business model andsales and marketing. I am putting you on notice: You are not in your“awesome product” business; you are in the sales and marketing business. You need to either become an expert at sales and marketing, and running a business or hire or partner with somebody who is. Building a teamwith the right mix of skills is critical for any startup.
I hope this helps at least a few of you avoid the most commonmistakes. Trust me, there are a lot more! What is the most commonmistake you see entrepreneurs make? PLEASE include your advice in thecomments!