Starting a new business takes courage, discipline, and vision. Unfortunately, even when all three of these traits align, new ventures often fail or run into difficulties because they fall prey to some common and avoidable errors. The list below is not prioritized nor is it meant to be exhaustive. Instead, it captures the most prevalent mistakes that plague new companies.
Raise too much, too soon. Nothing demotivates and destabilizes a start-up more than a large, unused, pile of cash. We live in an unprecedented era in which powerful tools and resources of all kinds can be accessed and utilized by businesses easily and inexpensively. It simply does not take hundreds of thousands of dollars to get most businesses launched and on the road to product development. Exploit these resources to their fullest potential and build your business on your own before taking other people’s funds and giving up a piece of control.
Fail to focus on revenue opportunities. Don’t believe the hype about eyeballs, traffic, potential markets, and future cash flows. You are starting a business and businesses make money. Your product and go to market strategies should move in lock step with your technology development. Even if they both change, you will build a culture of revenue generation that will ultimately benefit the business.
Exit stealth mode too early. Take the time you need to grow your idea outside of the public glare. You will make mistakes and simply change your mind about strategies, designs, and technologies as you move toward the market. These transformations may lead to your ultimate success, but they most certainly will cause you pain and uncertainty if you try to execute them in public. Stealth offers you the freedom to innovate effectively.
Over bootstrap. This mistake acts as the inverse of mistake #1. Too often young companies convince themselves that they can learn and do everything about business on their own and fail to rely on outside experts when it makes sense. This mindset always creates tremendous distractions within the organization and issues that could be easily dealt with by an experienced advisor turn into severe problems. Technology expertise does not equal business expertise and the best entrepreneurs understand this dynamic.
Obsess about advisors. I often see young companies spending more time thinking about their advisory boards than their business plans and technologies. Early stage ventures crave credibility and founders often seek it from outside biographies. Great products and ideas will naturally attract talent at all levels of the business. A key advisor can play a big role in your success but recognize that your business matters more than the composition of your advisory board.
Fail to raise enough when ready to raise. Once the business builds the product and exploits the vast trove of resources referenced above, the need for outside capital will often present itself. Don’t fool yourself into thinking that you will be able to make the leap to profitability and self-sustained growth without first encountering some set backs and delays. You need capital to weather these squalls and, if you built a business focused on revenue generation, you should be able to secure funds on favorable terms.
Don’t be a follower. There will never be another Google, Facebook, or Apple. Too many entrepreneurs arrive in my office with a business plan that promises to be the “next…Google, Groupon, Twitter, etc.” or to exploit some minor niche market that the giants have yet to cover (“We are the local social network.”). Tag along strategies fail. Be bold and innovate.
Over-hire/under-hire. People issues plague new businesses in so many ways. You need a great team to build your business, but building one always presents difficulties. Companies can over-hire and under-hire in two ways. The first is obvious, you either bring on too many people too early and eventually face the pain of letting them go, or you miss a key opportunity because you do not have the proper human capital in place to exploit it. The second focuses on quality rather than quantity. All business owners need to learn talent evaluation skills and many businesses that struggle do so because the people factor is overlooked.
The hired gun. Many new businesses (often at the behest of outside investors) turn to hired gun CEOs, CFOs, or COOs to fill some perceived gap in expertise. These high profile and costly hires can quickly turn into huge distractions. Conversely, remember not to over bootstrap and bring in talent when you really need help.
Ineffective communications with your board. One of the most difficult dynamics for many founders emerges when they find themselves answering to a board of directors. Founders, by nature, possess independent and often rebellious streaks that lead them to set out and change the world. The idea that outsiders who bring money also expect a role in governance chides many entrepreneurs and leads to useless struggles in the board room. Lean on your experts here: experienced business people, attorneys, and accountants can help you to craft effective board communications so that you can concentrate on the business.