If you think that just because you have a great idea and people are excited about your new startup you will be successful – think again! The excitement surrounding the startup, the friends and family proud of a son or daughter and people gushing over your new unicorn are just the beginning. If you are not prepared for certain minefields that dog all startups you will fall into start-up oblivion.
You can break down the mistakes that happen along the way that differentiates your small company from success or failure into several general headings. In no particular order they are people-oriented, planning and finance issues that can derail a good start-up.
Let’s start with my favorite problem with start-ups; people or management.
Founders
Single founders are often a bad sign because they typically have no one to run things by, they work in a vacuum and the vision is usually totally their own without the benefit of group input. The single founder is at a disadvantage from the beginning because he will try to be everything to everyone but as start-ups consistently prove otherwise this is foolhardy.
Turmoil Between Founders
I was in a meeting of founders the other day and they got into a fight over who would be the CEO when clearly the guy opposing the clear CEO choice was a salesman. The ‘salesman’ became so agitated he ripped up the partnership agreement and stormed out – what?
As far as I can tell without everyone on the same page, going for the same vision, choosing the right person for the job and realizing there is no ‘I’ in TEAM this will always be a start-up killer.
Poor Management Skills
What does a programmer know about financial planning, board governance or HR? Why should he? The programmers, I know, would rather stay in their comfort zone rather than do CEO duties. Many start-ups, once they have gone through a reasonable seed round, will top off their management team with experts in specific areas. Even if you are running lean and bootstrapping the business you can’t do everything well. The very existence of your start-up depends on good decision-making.
Bad Location
There are two issues in play here. The physical location of the business as a place to do business and how the location can play a role in the future development of the start-up. If you were a start-up specializing in Freight logistics it may be a poor choice to setup shop in a small town far from the ocean and container hubs. A business owner I know set up a small retail operation in her neighborhood which was totally inappropriate for her demographic, psychographics and traffic. She failed miserably.
The bad location in terms of the start-up’s growth and future relates to the ‘buzz’ in the location the business is setup. Obviously if you opened your start-up in Silicon Valley, Vancouver, Waterloo or any start-up hub you will have no problem securing talent to work for you, money from VC’s and press when needed. A tech start-up headquartered on a ranch in Wyoming might be a different story.
Inept Employees
A recent start-up I met with had friends and buddies working on developing a new Fintech software. All were nice guys with some skill but they were not the talented staff needed to make a world-class software product. It’s a challenge starting up not to take the easy road and hire inexpensive programmers in the hopes they will rise to the occasion. It rarely works that way and the start-up has just hit mistake number 5.
Lack of Planning
It’s obvious even to the creative guy who really doesn’t want to be the CEO that finances have to be planned, staff needs have to be addressed and investor relations doesn’t just happen. There needs to be controls in place.
Market Niche
I consider this to be under planning because it takes a plan to be able to produce a widget that will take a piece of the market and grow a successful company. The market niche must be strategic and well defined. Having a niche in a market doesn’t mean you can hide out to avoid the competition. You need to face them head-on and rely on your uniqueness to differentiate your service or product.
If your product or service is creating knock-offs or derivatives you still need to be in planning mode. Everything is a derivative of something unless it is incredibly unique so you must be able to do it better to succeed.
Undefined Demographics
You must love those programmers and their start-ups where the software is developed because they liked it and never thought to do a market analysis? I know a classic example where a friend developed this silly software game that by many accounts ‘sucked’. No one wanted it. He finally listened to me, pivoted so the game engine was the product and sold it for a pile of money.
Again working in a vacuum without knowing whom your customer is will be your downfall. Eric Reis’ Lean Startup coupled with Ash Maurya’s Lean Canvas is a simple method to find out the persona of your perfect customer and develop a workable plan for you business.
Launching Too Slow or Too Fast
Nothing is ever perfect so delaying the launch only hurts. You might fail to be the first to market. It forces you to finish faster but it gets you out there. If you can get the core value of your tech company out there to market quickly and then work on more benefits and features as you go isn’t that a better way of looking at a launch
Underestimating the Capital Raise Needed
There’s nothing worse than going through a seed round and then calculating that your burn-rate will stop company operations in two months not the planned 6 months to the next round. The whole idea of the round was to get the company to the next step in development and now you are stuck explaining to your investors why your start-up is slowing not growing.
Raising Too Much Money
Ah, so you don’t think that’s a problem? Watch out! The level of anxiety rises for your investors and the expectations increase to the level of money you have raised. They want a return on the private financing and they will only wait so long before they start to exert pressure on you. Timelines start shrinking and the next thing you know you are releasing things too early or are not as careful in your decision-making.
Out of Control Spending
My buddy hired a President to manage the company while he went on a junket across Europe to raise awareness for his software as well as raising investment capital. When he returned he found his monthly burn-rate went from $50k to almost $100k per month. With accounts receivables late and supplier increases he barely survived the experience.
The concept of bootstrapping a business is not only practical it is required but when the world is telling you that your company is the greatest don’t believe your own BS.
Investor Relations
Many start-up CEO’s will agree that while you loved them coming on-board investors are a hard lot to keep happy. You must take care of them and not see them as a liability. You must keep them informed and even take their guidance at times. At Equifaira we provide quarterly dividends to our investors and even have small celebration events to show our investors we are thankful for their continued support.
We can blame all of the start-ups woes on the founders but some of the other factors don’t amount to specifically bad management. Planning is one of those things that people tend to ignore. Strategic planning and long–term planning will not only determine the direction of the company but will provide clear goals and the steps to attain them.
Finances have to be one the biggest mistakes start-ups can mess up. Funny enough too much capital is almost as bad as not having enough. While Finance is arguably the most critical part of success many founders hate talking about it let alone working on it.
Running a start-up is not for everyone. It is fraught with challenges and mis-steps happen more than most would care to admit. You must keep your vision clear, your goals on track, your finances lean and with your investors happy that next quarter just might make you money.
Originally published at Equities