When the first time startup founder
succeed, they often really do change the world—and the bank balances of a lot
of people around them. And it's because I love them that I say, with all due
respect: They make a lot of mistakes. And a lot of times, they make the same
ones a thousand other first-time founders have made before them.
1. Ignoring market risk when starting a
business
Ignoring or downplaying market risk is the
single biggest reason companies fail. Most founders put too much emphasis on
perfecting their technology platforms—which is understandable, given that many
founders are passionate technologists—and not enough on making sure those
platforms deliver real business value. But as one of my favorite books, Max
Finger and Oliver Samwer's America's Most Successful Startups: Lessons for
Entrepreneurs explains, "Many startups burn through a lot of cash with a
product or technology searching for a solution." But it's being wrong
about the market, not the technology, that'll kill you. A better approach, say
the authors, is to take six months to talk with potential customers to
understand their needs and validate your idea.
2. Taking the wrong advice
Talk is cheap, or as William Shakespeare
wrote in Othello, "mere prattle without practice." Those are words to
live by in Silicon Valley where startup advice is plentiful but most of it is
wrong. It's a truism that most people with valuable insights are in very high
demand while those with plenty of time to dispense advice typically don't have
much value to impart. When taking advice, consider the source, and weight your
response proportionally.
3. Ignoring constructive feedback
Founders should be wary of ignoring the
feedback of a venture capitalist or a potential customer who has engaged deeply
with your firm, but ultimately decided to pass on either investing in it or
buying your product right now. As an example, one of my most successful client
companies struggled for years to monetize an incredibly popular product. They
eventually developed a pricing model that helped them succeed, thanks to advice
from Kleiner Perkins VC Randy Komisar. He had passed on investing in the
company, believing their likelihood of beating incumbents was too small. But
based on Randy's long years of related industry experience, he offered insights
about how best to monetize the company's product. The advice proved vital and
the company was smart enough to implement it.
4. Going too fast
Most commentators on startups suggest you
must go first and go fast — get to market first, stockpile the best talent, and
full steam ahead while shoveling capital into the boiler. And sometimes that is
right, but I have seen far more companies fail from growing too quickly. It's
more prudent to conserve capital until the company understands what the
customer really wants and at that point, damn the torpedoes! Nest co-founder
Matt Rogers says that while the firm had a vision of a connected home, it first
had to focus on a thermostat: "Take one step at a time and be sure to
celebrate the major accomplishments and milestones along the way."
5. Hiring the wrong team
The late Oakland Raiders owner Al Davis was
often criticized for drafting for speed, not football skill. Even when seemingly,
everybody knew the Raiders needed defensive reinforcement, Davis would still
prefer to draft a fast wide receiver. Which is probably why the Raiders haven't
won a Super Bowl in 35 years. Similarly, most first-time entrepreneurs hire the
wrong people. They hire their head of sales too quickly and their head of
product too late. They also tend to hire key staff with too little experience,
being overly impressed by time spent at a successful start-up or tech giant.
Two people can work side-by-side at the same company and leave with
dramatically different levels of experience depending on their engagement, self-reflection
and pattern recognition. It's important to sort the pile according to company
needs, not flashiest resumes
