The good news is that everyone expects entrepreneurs to make mistakes, since founders explore uncharted territory. In fact, investors recognize that founders usually learn more from mistakes than from success, so a well-explained startup failure can improve their odds of funding the next time around. However, investors do expect you know the common pitfalls—and not repeat them.
As an active angel investor and startup advisor, I’ve seen many of the same stumbling blocks repeated all too many times. As a result, repeating any of the following 10 mistakes outlined here won’t get you any credit for intelligence and learning and will cost you dearly in your funding credibility and in your real cash.
- Assume you already know what your customers need and want. Just because you love a new solution doesn’t mean your customers will love it. Before spending any money, make sure you interact directly with potential customers, industry experts and investors. Be prepared to pivot at least once before you get it right, even with this input.
- Confidently believe that you have no real competitors. Usually, no competitors mean no market—or it means that you haven’t looked. If the market is new and competition is minimal, then the time and costs of educating potential customers probably exceeds your survival time and budget. Innovation in the face of a few competitors is much less risky.
- Try to solve all the world’s problems with a first solution. A startup needs focus to do one job well or risk the alternative of solving many problems poorly. It’s tempting to tell everyone about all the future potential uses of your new technology and risk confusing them, having them wait for your future or disappoint them with several poor solutions.
- Forecast revenue growth that defies business principles. Every business takes time to scale and penetrate a market due to organizational growth, hiring, training, brand building and customer adoption. Forecasts that exceed 10 percent of a large opportunity in the first five years rarely happen and will likely disappoint you and your investors.
- Dismiss the need to register any intellectual property. Some entrepreneurs believe that being first to market will keep them ahead of competitors. They forget that big companies with many more resources do wake up when they see your traction and can easily overrun your efforts. You need patents and trademarks as a barrier to entry.
- Count completely on friends and family to run the business. Every startup business is a new challenge and requires real dedication, experience and skills to survive. Friends and family may tell you what you want to hear, rather than what you need to hear. Personal relationships and emotions have broken many businesses—so be careful.
- Delegate cash-flow projections and transactions. Entrepreneurs who under-estimate cash requirements or focus on product development while someone else pays the bills are doomed to fail over and over again. Smart founders always build a buffer into their estimates, find a strong financial advisor and personally sign every check.
- Hire helpers in lieu of people who are smarter than you. When you need help as your startup grows, many entrepreneurs are quick to hire less expensive and more available helpers rather than finding the real skills and experience to complement their weakness. Hire people who can train you rather than ones you need to train. Hire slow and fire fast.
- Build the company at the expense of employees. Being too aloof or too busy to lead and communicate goals and status to the team is a sure way to reduce motivation, morale and productivity and set the wrong culture. A startup with happy and highly motivated employees will provide a better customer experience resulting in viral customer growth.
- Try to build a business without specific milestones or a plan. Building a business is much more complex than building a house, and I don’t see any houses winning awards that were built without a documented design and plan. The plan should not be put together for investors but to map the workload and desired results to you and your team.
So, as you contemplate your next startup, it will be worth your effort to go the extra mile to avoid these 10 mistakes. Doing so may well save you the time and cost of a startup failure and will also save you from the embarrassing admission the next time around that you don’t pay attention to the advice and counsel of people who have been there before you. That doesn’t bode well for your ability to manage funding or your likelihood of success the second time around.
Image credit: CC by Sybren Stuvel