15 mistakes young entrepreneurs make, but don't have toJanuary 4, 2011: 7:26 AM ET
By Alex Taussig, contributor
(I originally published this at my blog infinitetoventure.com in 3 separate posts. Go check it out!)
If you're an entrepreneur, you're probably going to screw up at some point. That's ok. Entrepreneurship is a constant process of quickly testing hypotheses, failing, refining and testing again. If you're not failing, you're not learning, right?
Well, not all fails are created equal. Some are wholly unnecessary, and I'd like to list my top 15 here. Note that many of these are based on advice from actual entrepreneurs who would rather you learn from their mistakes than repeat them.
So, without further ado, here are 15 mistakes you don't have to make as a young, first-time entrepreneur. Enjoy!
#15: You're trapped in the "college bubble."
When you're in college, it's tempting to see the world through the perspective of a college student. So, when you brainstorm business ideas with your buddies, you may come up with concepts that only work on your particular college campus, or are only appealing to college students as customers.
Now, you might say, "Uh, Facebook?" Yes, there's Facebook, but Facebook's ultimate vision goes beyond colleges. Zuckerberg wants to connect all of humanity on a social graph. College was his stepping stone to that vision. If you need to get started in college, that's great; but make sure your product can appeal to non-college users if you want to build a big company.
#14: You have no prototype. Or you do, but your users are irrelevant.
It's been said ad nauseum lately, but it's never been cheaper or easier to invent a web product. So, do it! Once you have the concept sketched out, build the basic guts of your product and start getting users.
But, don't just get any users. Remember, your goal is to test a hypothesis. If your sample size consists of your immediate family and friends, you probably haven't tested the right things. Instead, find a way to get users early on that looks similar to the way you'll get users at scale.
#13: You didn't research the competition.
If you think "you have no competition," you're wrong. Competition is everywhere. Competition is anything fighting for your customer's attention and, eventually, their dollars. So, first off, make an honest assessment of what's out there.
Secondly, make sure you understand what these companies do and how you're different. If you find that you have several hundred competitors, it's ok to try something else. Do you really want to spend the next 5 years of your life building the 301st of anything?
#12: You haven't talked to customers.
At an early stage, the best entrepreneurs I've met know their customers by name. Even web entrepreneurs, who don't typically meet their customers face-to-face. Early on, you should be talking to customers any time you're not building and testing product. After all, if you're not infusing your product with customer input from Day 1, you're probably not building something they'd want to use.
The sole caveat here is if you're inventing something truly novel. Steve Jobs didn't ask us if we wanted the iPod. We were pretty happy with the portable CD player (or at least I was). But, he had some pretty rational beliefs as to why it should exist, beliefs which were based on customer input on other products. (If you haven't seen the video of his introduction of the iPod in 2001, do yourself a favor and watch it.)
#11: Your customer acquisition strategy is not repeatable.
There are many ways to get customers, but not all of them are scalable. I've seen lots of college businesses acquire customers by literally walking into shops and asking to speak to the owner. That works for a while, but I'd argue that it doesn't prove the sustainability of your business model.
You want to move towards a proof point where every dollar you spend to acquire a customer nets several times that in contribution to the bottom line. Unless you're selling a $100k widget door-to-door, it's hard to make the numbers work just with feet on the street.
#10: You pay for things that could be free.
You need certain business services to get your company off the ground. These services fall into lots of categories, ranging from financial to legal to CRM.
As a rule, spend 30 minutes researching the free alternatives to all the great paid products people will throw at you. The HBS Startup Tribe has listed some here. For legal docs specifically, Goodwin Procter has created a Founders Workbench and the National Venture Capital Association has its own stuff as well.
In general, good venture lawyers will give you free advice if you're nice to them. They know you can't afford them now but want to build a relationship over time.
#9: You didn't practice your pitch.
Practice makes perfect. Don't delude yourself that you can wing it. VCs ask tough questions and will quickly find the holes in your story.
A few tactical tips. First, pitch a close friend. Then ask him to introduce you to another friend you don't know at all. Pitch him. A little bit of distance will make it feel real, but you can still feel comfortable revealing the intimate details of your business since you're only separated by a single degree.
Also, be honest with yourself about the weaknesses in your plan and be prepared to address them. Anticipate the arguments you'll get, and be sure you have the data on hand to back up your counterargument.
#8: You don't tell a good story.
Why do storytelling and pithy communication matter? It's not just for raising money. Stories help you recruit the best talent, and stories help align organizations around specific goals.
How do you know when your story sucks? The first sign is that people don't know what you're talking about. You may assume that they "just don't get it," but the alternative explanation is that you're not explaining it well.
#7: You know nothing about the investors across the table.
It's not an ego thing, but I always raise a yellow flag when an entrepreneur knows nothing about me. Heck, if we're talking on the phone, at the very least I have your LinkedIn, your company website, and our email thread simultaneously on my computer screen.
You should do as much due diligence on your investor as he does on you. If not, you run the risk of signaling that you don't do your homework. So, take the 5 minutes to read through our bios, LinkedIn, portfolio company websites, blogs, twitter feeds, etc.
#6: You make stuff up instead of saying "I don't know."
I know it seems like investors expect you to have perfect information, but we don't. You can't. Don't feel pressured to answer every question definitively. Sometimes, the best answer you can give is, "Gee, I don't know. But, here's the information I'd need to know to answer that question, and here's how I would go about getting it…"
I've said it before, but startups are experiments. If you knew the answer to an experiment a priori, you wouldn't be doing the experiment in the first place. Be intellectually honest about what you know and don't know, and investors will want to trust you.
#5: You seek confirming, not disconfirming evidence.
A basic axiom of the scientific method is that you can never prove a hypothesis to be true, only false. The same goes for theories about your business.
The best entrepreneurs I know are obsessed with proving that their world view is incorrect. As David Cancel notes here, you should always have one dashboard that management can go to and figure out "where you suck the most."
It's a big mistake to drink too much of your own Kool-Aid. I've never met a great entrepreneur without conviction and vision, but I've also never met one who wasn't interested in seeing data that proves him wrong.
#4: You pick advisors who are easily accessible, not particularly relevant.
The most impressive, accomplished person a college student knows is probably one of his professors. So, it's no surprise that these are the first people a student turns to when he wants advice for his startup.
Just because it's easy to get a professor involved in your startup, however, doesn't mean you should do it. The vast majority of professors, especially those with tenure, live in a world antithetical to a startup's. There are obvious exceptions, but the vast majority of academics will take purely intellectual interest in what you're doing, when what you need is tactical assistance.
So, focus instead on finding the best tacticians. These are people who can help you recruit, build, and sell. And, they're probably not on campus.
#3: You hire for short-term needs, not long-term fit.
When you have a short-term need ("I need a Ruby developer" or "I need a guy who knows accounting"), it's tempting to reach out into your social network and pull in someone who can fulfill it. One piece of advice: it's way easier to hire than to fire someone, especially when that person is a close friend.
In an early stage company, every full-time hire should be given the same scrutiny as the one before it. And that all leads back to employee #1, i.e. you! Relaxing that criterion creates a downward spiral of mediocrity in your organization which can be incredibly difficult to unwind.
Guy Kawasaki calls this phenomenon the "bozo explosion."
#2: You treat fundraising like an end, not a means.
I estimate that 80% of venture capital blog posts are about raising money. I think this does a great disservice to the craft of entrepreneurship. Yes, as Fred Wilson has pointed out, one job of the CEO is to make sure there's always cash in the bank. And yes, someone who is twice your age handing you millions of dollars will certainly make your mother proud of you.
But, fundraising is just a small part of what an entrepreneur needs to do to build a great company. If you do everything else right, fundraising will be relatively easy. Don't treat the VC dollars like they're the goal, when they're just a means to an end.
#1: (drumroll, please!) You do more than one business plan competition.
Some business plan competitions are good for you. You can get feedback from the startup community, network to find teammates, see how others are doing things, and gain publicity for your venture. Who knows? Maybe you'll win some cash!
Please don't do more than one of these. There are severely diminishing returns to the marginal business plan competition. Why? Because (a) your business plan is probably as good as it's going to get already, (b) your business plan is largely irrelevant anyway, and (c) you're not building your business, just the plan. Put differently, would you rather spend another 3 months getting feedback from a whole new set of people for the potential to win $10,000, or spend 3 months building a product for the potential of earning $10,000 in revenue from actual customers?
Business plan competitions are fun. Lots of people will tell you how awesome you are. Someone will blog about you. You get to put a nice logo on your webpage if you win.
Yet, none of this matters nearly as much as getting your product out the door. Use your time wisely.
Alex Taussig is a Principal with Highland Capital Partners and invests in startups tackling problems in some of the world's oldest and largest industries — including energy, education, and machine automation. You can find this blog post, as well as additional content on his blog infinitetoventure.com. You can also follow Alex on Twitter @ataussig.