Strategic blunders that can sink a startup

adoption curveTechnology Adoption Curve

Flipboard, which I use to keep up with business and tech news, is infested with listicles. Since their business model is advertising you can’t blame them; research proves people will click on listicles. I tend to ignore most of them, but I noticed this article was from Entrepreneur India ,which I find is a provides a different and valuable perspective on the startup world.

Five Blunders that Could Doom Your Start-up Even before it Takes off by Dr. Pavan Soni, Founder of Inflexion Point, is based on Dr. Soni’s experience as a strategy and innovation coach and I’m in general agreement with him.  Here are those blunders with my comments based on my own experience as an entrepreneur and mentor:

Not knowing or communicating the ‘purpose’ with clarity

This blunder is rightly listed as number one. Simon Sinek observes that customers buy your ‘why’ and not ‘what.” Unfortunately, product oriented founders like myself get too hung up on the “what” – the product we are so proud of and have worked so hard to build. But what gets lost in the fervor to build – and founders are builders, as our most MIT students and alumni, they are engineers after all – is why anyone would not only want to use your product, but why they would actually pay for it. And there are layers below that, including why would they stop using their current product to adopt yours? Why would they attempt to convince other members of their team or company to adopt the product? If you don’t know the “why” a customer would adopt your product it doesn’t matter how many features you add, you won’t be adding any customers. But founders aren’t just building products, they are building companies – at the same time. And the same warning applies: what is the purpose of your company? And no, it’s not just to make money! The original purpose of Google was to to organize the world’s information and make it universally accessible and useful.”  Note how the “why” is embodied in the last phrase: make it universally accessible and useful. Simply organizing the world’s information is necessary, but not sufficient, it’s part of the what not the why. I suggest you start with the purpose of your company and the purpose of your products and why customers will buy them should follow.

Trying to be everything for everybody

This is one of the most common mistakes I try – sometimes with little success – to help founders correct. Many founders fear that by giving up some function in the Swiss army knife they are creating they will cede market share to a competitor and leave money on the table as well. They prefer to be a mile wide and half an inch deep. Unfortunately this is the converse of the success formula for startups: to be ruthlessly focused on a target market and clearly differentiated from competitors. I often use Microsoft as a great example of a startup that began focused on tools for programmers, namely programming languages. They built upon that success to become the colossus they are today by carefully expanding into adjacent markets, working their way up the customer food chain to the CEO suite, where the biggest deals are approved. One way I attack this problem is to ask, “Ok if everyone is your customer, who are your early adopters?” This generally gets the founder to pause for a minute to stop and think – the goal of a mentor! Working with Geoff Moore’s adoption cycle is the best way I know to kill off founders trying to be everything for everybody. As I tell my mentees, if you try to be everything for everybody you will end up being nothing for anyone.

Chasing the investors, and not the customers 

If you follow this blog you know that this mistake is extremely common and very frustrating to me. So many founders outrun their headlights and start looking for investors before they have a significant number of customers. I try to teach them that customer acquisition is the path to acquiring investors. In fact many of the most successful startups end up with investors chasing them because their rate of customer acquisition is so astounding. As Jeff Bezos said: “We’ve had three big ideas at Amazon that we’ve stuck with for 18 years, and they’re the reason we’re successful: Put the customer first. Invent. And be patient.” As Dr. Soni writes:  “Often, identifying the right market segment remains a thorny issue, and no amount of money can help you discover one.” That is painfully true! And keep in mind that customer revenue is the best and non-dilutive way to finance a company! Investors invest in growth potential, until you can demonstrate that by customer acquisition traction it will be very hard to garner VC capital. (The biggest exception to this dictum are successful serial entrepreneurs with very big and unique ideas.)

Settling for B-talent, initially

The number one operational responsibility of the CEO  is to supply the needed resources to build, market, sell and support their product. The two main resources are capital and people. Unfortunately I often see founders being opportunistic rather than strategic; hiring B players because they know them rather than holding out for finding A players. Hiring the best talent takes a lot of time and effort.  But if you cut corners and hire B players they will hire C players, as they are fearful of anyone as talented or more talented than they are taking their job. Here’s a great Steve Jobs quote from the article: “It doesn’t make sense to hire smart people and tell them what to do; we hire smart people so they can tell us what to do”.

Trying to do it all by yourself

Trying to find a co-founder if you don’t have one organically – a friend or colleague – is very, very hard. And founders tend to be fearful of “giving up equity to a co-founder.” But the reality is that unless you are an inventor who plans to license their invention you must build a company at the same time you are building your product. Therefore before you even start you should be thinking of who in your network has world class talent and would fit into your company. The other source of help I’m very familiar with from experience with is strategic partners. It is safe to say that Course Technology, Inc. would never have grown to become a $100 million/year company withou the help of Lotus Development Corporation. Just as you should always be keeping an eye out for talent keep an eye out for strategic partners. And consider what is in it for them to work with you – the why again! (We helped Lotus to dominate the higher education marketplace which created thousands of graduates who demanded 1-2-3 in their new jobs.)

There are many, many more ways to screw up a startup! But if you can clearly define your purpose and your target market; focus on customers, not investors; hold out for A level talent; and successfully build out your company and forge strategic partnerships you will be far ahead of most founders.

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.

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