The biggest mistakes founders make

quote

The Forbes article He Sold His First Startup To Yahoo, His Second One To Google And Now His Third Is Worth $500 Million by Alejandro Cremades is focused on the successful career of Craig Walker, as you might assume from the title. But buried in the long Forbes article is something Walker learned from his stint at TeleSoft Partners, a venture fund that brought him on to do telecom internet investments:

The 5 Biggest Mistakes Founders Make

In all his experience, Craig says the five most common mistakes he’s recognized among startups are:

  1. Being too greedy and not creating win-win deals
  2. Scaling too fast and spending too much cash
  3. Not trusting yourself and sticking to your direction when decisions need to be made
  4. Poor interpersonal dynamics between the founders
  5. Not anticipating a competitive threat to the product or company

Number one is quite interesting to me, as I focused on business development at most of my startups. However, in all my time as a founder and now as a mentor, spanning several decades, I’ve yet to see any significant number of startups make this mistake! I’m not sure where Craig Walker is coming from on this one. He doesn’t specify who the deals were with. Partners? Investors? In any event, while it’s good advice to strive for win-win deals and to not treat deals as a zero sum game, I’d hardly put this on the top of my worry list.

However, scaling too fast and spending too much fast are deserving of the number two slot in my book. The problem here is that VCs invest their capital to enable startups to scale – and they will push founders to do so. Having the backbone to resist pressure to scale prematurely is absolutely critical for founders. You must have product-market fit absolutely nailed before you put the pedal to the metal and start paying millions of dollars for Facebook ads or whatever marketing push you choose to fuel your growth.

Mistake number three – not trusting yourself – is in the “founders need strong backbones” category, just like resisting pressure for premature scaling. The prerequisite here is have a very clear vision and operationally defined mission that is well communicated to your team. The company’s vision is the founder’s lodestone in decision making. Founders will be making hundreds if not thousands of decisions in the course of building their companies. Without vision and mission it will be too easy to change direction based on market forces or pressure from investors or fellow partners. And a well-defined decision making process is a must. Nothing complicated, simply document the pros and cons of each option. Weigh the cost/benefits and make a choice. But don’t stop there. Create a decision tree based on that decision to make sure you don’t end up running off the rails based on choosing that option. And no decision is worse than a bad decision; at least you learn from making bad decisions.

Unfortunately I have see “Poor interpersonal dynamics between the founders” all too often. This usually stems from lack of alignment of values, metrics, goals and corporate culture between founders. This is why Y-Combinator’s research showed that founders who had worked together previously and/or knew each other for a significant period before founding their company were significantly more successful than those who just met recently.

Finally, as I’ve written previously, I made mistake number five myself by not being aware of an established competitor that I hadn’t found because they came out of a small business market, not the startup ecology I was part of. I’ve seen too many founders fail to do a sufficient scrub of the Internet to source competitive threats. There always will be some; the mistake is not anticipating them. If there’s no competition there is likely no market either.

And let me nominate my candidate for mistake number one: doing a poor job of customer discovery. Without knowing your target customer you are like a rifleman who fires before they aim. To extend the metaphor, keep your gunpowder dry until you have nailed your target customer. Don’t rely on being able to pivot if you make this list leading mistake. Lack of knowing who your customer is by far the most common mistake I  made by startups, in my experience.

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 )

Google photo

You are commenting using your Google 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 )

Connecting to %s