The biggest startup mistakes and how to avoid them

modelForbes made a huge mistake with the article Biggest startup mistakes and how to avoid them by Tom Taulli who “reached out to some successful founders and asked what lesson they advise entrepreneurs to keep in mind.”

What wrong with this picture? What the hell do successful entrepreneurs know about failure?!

Well I’ve been a serial failing entrepreneur, so take some advice from someone who has been there and probably didn’t do that, with “that” being what it takes to be successful.

Let’s start with Real Time Audio, a company I founded right out of college. Fed up with the terrible sound I found at the blues, rock, folk and other music concerts I attended I decided rather arrogantly and ignorantly that I could do better, based on my 15 years of experience as an audio hobbyist, AKA audiophile. So I took my saving and bought a very low end system, a Shure Vocal Master, which was the standard PA for small shows, and tried to go into business. Well let me make a long and painful story short: sound reinforcement is a capital intensive business! If your PA isn’t significantly better than the band’s own PA why hire Real Time Audio? So we only got business from bands with weaker PAs than the Shure Vocal Master. In other words bands that couldn’t afford to pay more than peanuts to a “sound reinforcement company.” But I didn’t let that stop me! I built an Altec Lansing Voice of the Theater Speaker and bought another one, giving me a major step up from the Vocal Master and enabling a few concert hall shows. But guess what? Bands playing concert halls wanted something called stage monitors – in laymen’s terms a totally separate PA so the band, in particular the singer(s) could hear themselves play. Well at that point I’d run out of money and the idea of trying to raise money never crossed my mind, so I decided to pack up my system and go to work for an established sound reinforcement company. Which I did, Bill Hanley Sound, famed for doing Woodstock amongst many other giant festivals. Turns out a friend of mind is a good friend of his, so I managed to catch up with Bill last year after about 40 years, and he is still going strong!

Lesson learned: if you are going into a capital intensive business get a source of capital to fund your capex! And understand cash flow. If you don’t know if your business is capital intensive or not you are greener than I was!

My next startup was an idea that came to me after working at Addison-Wesley Publishing Company, which at that time (the late 1980s) had the biggest and best computer science publishing list – publisher talk for product line – of any publisher. Built by my friend at A-W. My idea was that computer science was changing at such a rapid rate that publishing Patrick Winston and other top ranked computer scientists in books, which at that time took months of typesetting, page layout, and printing time to get to market made no sense. My solution? Publish them online! And set up forums so readers could communicate with these giants of computer science. Well despite inveigling my
A-W friend to join me, that idea never got off the ground, as we couldn’t find an online service – Prodigy, CompuServe or AOL – that was suited to electronic book publishing at that time.

Lessons learned: Being too early is just as bad, if not worse, than being too late. Today, 30 years later, ebooks are a huge success. Also if you are building a business dependent on a distributor – in our case an online service – make sure you have not only one that well suits your business, but a backup as well. We had neither.

After successfully founding two startups I got very antsy when the second one started thrashing. It was based on my idea that the world’s programmers would need a great, constantly updated source of information on the latest thing, namely the Internet and all the new tech from HTML to HTTPS. Well I had the right idea for sure, only that giant need was quickly filled by the magazine publishers who quickly moved from publishing how-to articles about PCs and the client server model to articles about HTML and web servers. I had modeled the company after Microsoft’s subscription service for programmers, MSDN, not realizing that programmers HAD TO PAY MICROSOFT or they couldn’t develop for Windows – the world’s biggest platform.

Lessons learned: One, don’t get arrogant just because you had one success. Two, don’t copy someone else’s model and try to apply it to a new market – one of the lessons in the Forbes article. Three, spend a LOT more time talking with potential customers. Just because I had run a major IT group for MIT didn’t mean I knew what IT staff needed to transition from PowerSoft to Java.

Forcing A Model
“Don’t just copy the latest fad. Think bigger and differentiate. One of the biggest mistakes is chasing after the product mechanic rather than the reason for the product. In other words, the model that worked for movies might not work for books or that photo-sharing app might not work as a video sharing app. You cannot assume that a certain model will work across different industries or modes. First, find out what consumers truly need, then figure out the optimal way to deliver it to them. Too many startups try to force a model to fit the supposed ‘need’. Before you do anything, it’s essential to find out if consumers actually want your product or service.” – Jeff Chen, Cofounder & CEO, Joyride
This company did a 180, focused on the business market and what business leaders needed to know about the Internet, and ended up going public, then being bought by IBM.
Being a slow learner, I had yet another brainstorm whilst immeshed in the startup ecosystem of the ’90s – that startups needed a company to help them with all the admin tasks it took to build a company, tasks that distracted them from what they should be doing: building a product and selling it. Stuff like finding office space to rent, choosing a telephone system and getting it installed (this was the last century if you can’t guess!) and buying PCs and furniture for all the staff. I managed to get this startup, Throughline, Inc., funded by one of the top VCs in the country, who shall go nameless to protect the guilty, and Silicon Valley Bank – the go-to bank for entrepreneurs, which by the way, was in the midst of trying to provide similar services to its clients. Well we got customers, we generated revenue, but our growth rate was anemic. And rather than try to raise more money to keep going, I decided to shut Throughline down, much to the relief of my lead VC investor. But Silicon Valley Bank wasn’t a total loser, they scooped up the remnants of Throughline and integrated them into their startup service, whose name escapes me at the moment. Not a fond memory fault.
Lessons learned: one, I had thought VCs would love us as we would be saving their companies time and money on admin/operations and act as a channel for us. Bad assumption! VCs couldn’t have cared less. They were totally focused on top line and top line growth, saving a few dollars on office rent or web servers didn’t mean a thing to them. Second, I had thought CFOs would love us, but it turned out they found us threatening, as CFOs in startups negotiated for office space, bought PCs and phone systems and were responsible for admin/operations. If they outsourced all this to Throughline what would they do? Third, I did no competitive analysis. If I had I would have found a well established local company about three miles away that started out doing much the same thing as Throughline for small businesses. Being composed of former purchasing agents, they really knew how to get the best deals on what small businesses and startups needed. They rapidly put us out of business. Do your competitive research before you start your venture!
Believe it or not as they say, I just kept failing harder. So there’s more startups and more failures to write about. But that’s enough for today. Do read the Forbes article, but just consider the source when your read an advice column.

Author: Mentorphile

Mentor, coach, and advisor to entrepreneurs, small businesses, and non-profit organizations. General manager with significant experience in both for-profit and non-profit organizations. Focus on media and information. On founding team of four venture-backed companies. Currently Chairman of Popsleuth, Inc., maker of the Endorfyn app for keeping fans updated on new stuff from their favorite artists.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s