What Are the Most Common Mistakes First Time Startup Entrepreneurs Make?
Here's a dozen of the most common mistakes that I've made as an entepreneur and that I continue to see other entrepreneurs make.
1. "Aim", "Aim", "Aim" instead of "Fire, Adjust"; "Fire, Adjust"; "Fire, Adjust"…
Less planning and more selling. Stay in front of customers. Consult with your customers prior to building out your offering.
Never do it in this order:
1) plan, 2) launch, and then 3) try to find customers
Instead, do it in this order:
1) find customers that are willing to pay you to solve their problem while you “perfect” your offering, 2) do that over and over again (and you will be launched), and then 3) measure the results and fill in your plan and make adjustments as necessary.
2. Investing in Infrastructure that Already Exists/Trying to Create Too Many Capabilities
Never invest in any infrastructure that already exists. Outsource everything except for the most strategic nature of your offering. There’s already tons of capacity of everything – just tap into it. Creating capabilities from scratch in a startup is really hard. Focus on the most important capability in your value chain and partner for everything else.
3. Not Owning the Sales Pipeline
Don’t hire a sales team and expect them to just deliver sales while you focus elsewhere. As the entrepreneur, you need to live, eat, and breathe sales. You need to be the primary rainmaker. You need to inspire your sales team. It also helps you stay grounded in terms of what’s working and what’s not working. And that way, your sales leader can never BS you. Don’t underestimate how hard it is to land customers. It is really hard to grow. Really focus on how you identify prospects, how you qualify prospects, how you quote prospects, the sales process, the stages, the failure points, why you lost deals, and the sales cycle time.
4. Hiring Too Fast and Firing Too Slow
Instead, hire slow and fire fast. Never confuse a few early wins with a trend. It’s a fluke. Never hire in the euphoria of winning a few deals. Contract for someone’s work first, kick the tires, test them out. Once you sign them up, it’s really, really hard to unwind the relationship. On the other hand, if someone is not working out, let them know immediately. If that continues after additional feedback, let them go immediately. Once you see the issues with an employee, everyone else already knows they need to go and are wondering what it taking you so long to fire them. And always pay a severance, but get them to sign a release in exchange for their severance.
5. Launching with a 50/50 Partner or Three Equal Partners
It almost never works. Someone needs to be in control and have the ultimate decision-making authority.
6. Hiring Friends and Associates Instead of Experts That Know Exactly What to Do
There's no time for on-the-job training in a startup. Only hire employees that have done exactly what you want them to do, with the tools you want them to use, in the context in which you are operating, at the stage in which you are operating, at the pace in which you run, and with values that match yours. Anything else is going to fail or cause misery or be misaligned.
7. Not Owning the Financial Model
You don’t have to be a finance or accounting expert, but you better know your financial model. You need to know your customer acquisition cost, your CLTV, your unit economics of each major offering, your cash economics, your overall business model. You need to own it, you need to be able to explain it, and you need to make sure your CFO or Controller is on top of it. (My painful lesson on this one was the reason I created the Startup Financial Model.)
8. Trying to Finance a Bad Business Model Instead of Fixing It
Having a cash crunch in the early stages? Add two more zeros to your revenue and you will still have a cash crunch unless you fix your business model. Focus on the ability to fund your own growth rather trying to raise capital to fund your growth. Raising capital is hard. Prioritize your ability to gain liquidity and improve your cash cycle. Get customers to pre-pay. Negotiate extended terms with vendors. If you get paid upfront with a low customer acquisition cost, you can grow infinitely without external capital.
9. Focusing Too Much on Selling Stock Instead of Selling Customers
Every startup thinks raising capital is the answer to all of their problems. It’s not. It solves one problem but creates new ones (managing a board, answering lots and lots of questions all the time, a deep long-term financial stewardship relationship, a prioritization of the financial outcome over everything else, including your personal life, family, health, etc.) Selling customers creates more value and makes you more attractive to investors. Focus more on selling customers.
10. Not Realizing that Raising Venture Capital Means You Just Gave Up Control
Chances are really good that by raising capital:
1) you no longer control the series (A, B, etc.), 2) you no longer control the board, 3) you no longer control the majority of shares, 4) your stock was turned into 5-year vesting options, 6) you can get shot and replaced at any time, etc.
11. Worrying Too Much About the Competition
They have their own issues. Ignore them. Focus on selling and delivering a great offering and you will do just fine.
12. Not Focusing Enough on Repeatability and Scalability
Having a repeatable offering (the exact same offering for all customers) and a scalable offering (very little COGS or Direct Labor for each incremental unit of offering) are the two most powerful components of a highly successful and profitable business. Do not deliver customized anything – it doesn't scale.