Eons ago I went to Switzerland to do an MBA to learn all about business, with the grand vision of becoming an entrepreneur – which I sort of did. Somehow I became a co-founder of a packaging venture that floated on the ASX, established manufacturing facilities and employed 120 people before being acquired. Since then I’ve been involved as executive, consultant and mentor in over 20 startup and commercialisation ventures in a range of industries including mining & exploration, fertilisers, building products, sporting goods and IT. Almost all of these ventures have suffered to some extent from each of the five mistakes below and many were mortally wounded. My comments are focused on early stage technology, service or product based ventures (rather than web only startups).
1. Doing the wrong stuff Virtually every entrepreneur I’ve worked with focused most of his or her attention on improving the product (or technology or service). Obviously a better product will be more attractive to customers, investors and partners. They are in their comfort zone. I’ve been there too. But to create a business there are lots of things you need to do. And in the high risk, resource constrained environment of a startup, wasting time & effort on the wrong things will kill your venture. To get everyone focused on the really important tasks I recommend listing all the risks – things you don’t know that could have a big negative (or positive) impact on the venture’s success. Prioritise the list by importance then focus solely on the top three risks. Once you’ve knocked one over add the next most important item to the top three.
2. Selling the wrong story Startups (other than me-too copies) by definition are trying to introduce something new to customers, and in many cases its hard to explain by simply comparing to things that are well understood (e.g. the Uber of X). I’ve watched many potential customers glaze over while an entrepreneur excitedly explains, in some detail, what his or her new product does and how clever it is. Enthusiasm is good but to win customers’ attention you need a clear value proposition, framed in terms of “value to the customer”:
- How the product meets the customer’s needs
- The size of the benefits to the customer
- The price the customer has to pay for these benefits
3. Not knowing your customers It always seems that the biggest cost, slowest and most frustrating effort in a startup is winning initial sales. Most entrepreneurs I’ve worked with can sprout data on the size of their target market, number of potential customers and estimated revenues. But in my experience the key to efficiently winning early sales is to really understand your customers:
- What are the first names of your initial target customers?
- What are their key buyer values and how does your value proposition meet them?
- What do you need to do to get them to buy & what’s the likely timing of a decision?
Obviously this requires spending lots of time talking with potential customers about their needs rather than about your product. This should remain on your top three list.
4. Not knowing the numbers To attract essential resources to your venture you will need to pitch a compelling offer to investors, partners and team members. A critical part of that pitch is a clear business model that shows the venture can provide an attractive financial return, pay for essential inputs, deliver on sustainability objectives, etc. While there’s a lot of uncertainty in early stage ventures and the business model is likely to change, you will still be better off if you have a robust financial model to help you and your stakeholders understand what the venture has to achieve to be successful. It can provide a sound basis for discussions about risks, valuations and funding requirements.
5. Failing to build the team Startups are always short of cash. But they also need a full spectrum of capabilities to fulfil the business model. Many entrepreneurs try to fill the gaps themselves, and MBA training can help enormously. Equity is the currency of the startup – its cheap compared to cash and there’s lots of it. But there seem to be three main reasons entrepreneurs don’t use it to build a strong team to help ensure their venture’s success:
- Emotional/greed barrier to sharing equity in their baby
- Belief that they have to keep total control
- They can’t attract people or investors because the business model isn’t good enough (often the underlying problem)