When you write and read about start-ups
all day long, you see founders make a lot of mistakes.
As
an observer of and dabbler in start-ups, I've kept track of all the things I'd
try to avoid as an entrepreneur.
Here
are the most common mistakes early stage start-ups and new founders make:
1. Getting press too early or just
because.
If
you're a start-up looking for press, the first question you need to ask
yourself is "Why?"
Why
do you need press? Are you really ready for press? What will an article help
you achieve?
If
you want press to make yourself look cooler to friends or employees, you
probably shouldn't be seeking it. If you're doing it to gain users, the bump
will likely be temporary. Just look at Turntable.fm, Airtime or Brewster.
In
some cases, press can be good. It can attract investors if you're seeking
financing. An article in Ad Age could attract advertising dollars.
But
if you haven't nailed your business model or product (and chances are in the
first year you haven't done either of those things), do you really want your
name out there only to fail a year later? That'd be more embarrassing than
never having press in the first place.
2. Raising too much money too early.
Bootstrapping
a start-up is scary. No one likes seeing their savings dwindle away. But when
you rely on outside investors to take all the risk, it can make founders
frivolous with their spending. It also can dilute them so a future exit becomes
much less rewarding.
If
you pursue a start-up on your own first, you can work on proving the business
model and gaining traction without the pressure of board meetings or investors
looming over your head. Once you are self-sustaining, you can secure better
terms from investors. And, if no one outside is controlling your company, you
can exit whenever you want and never worry that someone else with a vested
interest in your start-up will fire you.
If
you don't have at least $50,000 saved up and you're not at a stage in life
where you're able to take a risk, you shouldn't be doing a start-up.
3. Trying to do a start-up alone.
Start-ups
are stressful and no one is good at everything. To avoid burn out, you need a
co-founder and/or advisors to split the work load and confide in. You'll also
be more productive with other people helping you, plus there will be more money
to bootstrap with.
Startups
take up a lot of time, so it's normal to feel chained to your desk. But you
need to interact with people and take productive meetings to move your business
forward. No one can do a start-up alone.
4. Having too many co-founders.
It
can seem like a great idea to start a business with your four best friends. But
that means you're starting out with just 25 percent of the company before ever
raising a round. Plus, it's hard to have four people calling the shots and it's
frustrating if everyone isn't pulling equal weight. Most start-ups with
multiple founders dwindle down to one lead founder anyhow. Think Facebook,
Quora, Path and Foursquare.
Do
a start-up yourself (like David Karp) or with one other person you know you can
work with. Otherwise, it could be a messy and expensive breakup.
5. Going out too much.
There
are a lot of networking events and parties in the start-up world. It's possible
to network too much, and not work enough.
Strike
a balance. If you're a well-known face in the start-up community you should
probably be spending more time at your desk. Otherwise it sends a bad message
to your employees and investors.
6. Trying to force a business that isn't
working.
You
quit your job because you have a brilliant idea you're sure will work.
Only
... it doesn't. Now what?
First,
you should never quit your job until you've had a chance to test your concept
and there's a legitimate chance it will work. But even then, it's hard to
predict your start-up's future.
You
may not have accurately predicted the way people would use your product, or
customers may hate a new feature you love.
Move
fast, break things, and kill things. Don't hold onto a start-up idea just
because you're enamored with it. Pull out a kernel of the idea that's working
and blow it up into a full-fledged business, or pivot altogether. Some of the
biggest companies today arose from the ashes of failed start-ups.
7. Communicating poorly and ignoring
critics.
When
you have a start-up roadmap in your head, it can be difficult to properly
communicate it to others.
Keep
lines of communication open constantly and force yourself to listen to critics.
Learning how to manage people takes work. But if you don't learn how to
communicate, you'll destroy your relationships with customers and employees.
8. Being greedy.
Being
a smart entrepreneur means knowing when to leave the table.
A
lot of buzzy start-ups have gotten $100 million acquisition offers and decided
to walk away. Usually that's an admirable but stupid decision.
Foursquare
could have sold for $150 million when it had only raised $5 million. Video
startup Qwiki had an offer to sell for over $100 million and now it may be
selling to Yahoo for $50 million. Path was offered big bucks by Google but its
founder Dave Morin turned it down and has had a bumpy road since.
For
first time founders especially, seize a life-changing opportunity when it's
offered to you. Save going all in for your next start-up.
It
can be better to sell for a smaller amount of money than for hundreds of
millions of dollars. A $20 to $30 million exit takes less time to reach and
less outside capital to fuel than a $200 million exit.
9. Telling white lies.
Since
start-ups are private companies, they can lie to journalists and investors who
don't perform due diligence. If you're desperate to raise capital or keep your
start-up alive, you may be tempted to tell a white lie about how quickly you're
growing or how much money you're making.
If
your start-up is failing, the truth will come out eventually. Lies just delay
death and keep you from founding something worthwhile.
10. Being impatient.
Investors
say 10 million users are the new one million users, which has start-ups
scrambling to scale quickly. But if you're only focused on growth your product
will suffer.
Different
types of start-ups grow at different rates. Set growth goals based on the
trajectory of similar start-ups and manage your expectations accordingly.
If
you're running a media company, you're going to have to wait until you're big
enough to hire a direct sales team before you make money. That could take
years. If you're running a transaction-based business, know what margins you
need to sustain a lasting business.
11. Underestimating how difficult a
start-up really is.
Most
of the start-up stories we read are about successes. But founders don't often
win the lottery.
500Startups'
Dave McClure recently explained how difficult startups really are:
It
was a hell of a lot of work for not a hell of a lot of return. And then there
are days when you sit in a corner and cry. You can't really do anything else.
You don't have a social life. You don't really want to interact with family and
friends because there's just not much context for them. Your world revolves
around your start-up and it's all about trying to survive and not look like an
idiot in front of employees.
There's
still recognition that it's a set of first-world problems that don't get to the
level of war, starvation, or something like that. But when your whole world is
about trying to show everyone else you're successful and hold it together, and
maintaining that psychic dissonance of externally everything is going great while
the internal side you're freaking out and trying to make payroll ... it gets
fucking stressful.
12. Not dreaming big enough.
There
are people who are practical and there are people who are dreamers. The best
start-up teams employ both types to keep them grounded while working toward a
massive achievement.
If
you think too small, you're limiting yourself and what you're capable of. When
you're creating something from scratch, you can create anything of any size you
want.
From
Entrepreneur Week
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