Top Five Start-up Mistakes
Entrepreneurs are often brilliant, as they think outside the box and have no shortage of passion for their next new ideas. These market disruptors and market creators will continue to drive and transform our world. We can leverage lessons from successful startups and their playbooks, but it is also wise to evaluate and avoid some of their most significant mistakes. Here are five.
1. No Plan
Watching Shark Tank helps viewers with little business experience learn the pitfalls of creating businesses without a comprehensive business model and plan. Investors and banks will not give up their hard-raised cash to entrepreneurs without a solid plan and strategic vision for where the business and their investment is going. Not knowing the market demand for their products/services should not preclude the entrepreneur from creating a financial blueprint that should continue to evolve as they discover unchartered territory. Investors want to see a budget, a forecast, and regular variance analysis with course corrections when necessary. Entrepreneurs sometimes believe they have no competition or do not have a marketing plan that differentiates their sustainable competitive advantages. They can be shortsighted or may overestimate the demand for their offerings.
2. Too Many Chiefs and Other Hiring Mistakes
While it is important to have more than one founder, it is also important to avoid hiring too many early chief officers. When the first challenges come, an organization with too many chiefs will let the lower cost headcount go first and will remain a bloated cash-burning machine. In addition, too many new companies are impatient and favor expediency over patience in hiring ‘B or C’ players versus waiting for the next superstar. Hiring a CFO consultant enables the entrepreneur to avoid blind spots and financial breakdowns without investing in a CFO too early.
3. One Founder Who Can Do It All With No Appetite for Advice
Startups with one founder rarely scale and almost never succeed. Successful entrepreneurs always seek advice and feedback from customers/users, investors, advisors, co-founders, and staff. Some entrepreneurs are not gifted managers and leaders and are slow to delegate. Entrepreneurs lacking self-awareness and recognition that their advisors and staff can be trusted allocate too much time to low value-added activities instead of building something that their customers truly love.
4. Cash Flow Woes
Raising cash is easy when you do not need it. Too many startups underestimate the amount of cash required to run their business. Frugality matters! With the big dotcom explosion of the late 1990s, too many startups had OPM (other people’s money) disease and burned through their VC investment with reckless abandon. Today’s successful startups create 3-5 year P&L, cash flow, and balance sheet forecasts and make course corrections when not meeting their current year plans/forecasts.
Treating the company’s money like it is your own and critically evaluating whether there will be a return on investment on even the smaller expenditures will yield a longer ramp and investor willingness to continue investing.
5. Using Old Technology and Other Technology Mistakes
Be careful to develop on new platforms using new system development methods. Too many startups have been burned by relying on older technology and slow and costly development. Modern development platforms, technology, and agile development help today’s startups make incremental changes quickly versus the big-bang development of old. Online businesses should adopt a mobile first philosophy, but should avoid mobile application development. Many startups invest in “cool” mobile apps that might win iPhone app store awards, but generate little repeat usage, sales, and ROI. Very few businesses have sufficient repeat usage and purchases to justify mobile app development. However, all online businesses can benefit by investing in responsive design, which enables online sites to be rendered effectively on all devices.
Many startups that encounter issues scaling to their next level are lacking the strategic vision and financial plan that is critical for their success. CEO’s and other founders can help avoid the pitfalls of poor or little planning by availing themselves of good counsel from advisors that have blazed the financial planning trails at several companies and can help put best practices in place. At CFOs2GO, we have a deep commitment to be the best we can be in our professional services. We want to share with everyone we encounter how we work and why. By sharing our beliefs, we hold ourselves accountable for setting expectations that are consistent and excellent.
Chris co-leads the firm’s Start-ups, Rapid Growth & pre-IPO Practice. His hands-on financial leadership has helped deliver increased shareholder value, growth in cash flow and profits to startup and established market leaders. His strong foundation in large public technology and CPG companies, including Oracle and Clorox, combined with twenty years of experience in industry leading global ecommerce, software and SaaS startups, developed Chris’ ability to bring hands-on financial leadership and partnership to CEO’s, boards, their investors and staff.
If you would like to speak with Chris, please use the comments section to make a request.