10 Startup Shortcuts That Will Be Back To Haunt You
I’ve been advising and mentoring startups and growth companies for years, and find myself always pushing them to try something new, for the sake of growth and survival. When you try new things, you make mistakes, and I’ve seen many. Smart companies learn from their own mistakes, but some don’t pay enough attention to other people’s mistakes.
In the spirit of saving you a few lifetimes of pain, here are some common mistakes or shortcuts that seem to happen routinely:
- Wait until your company is up and growing before you formalize it. Some entrepreneurs can’t decide if they want to be a Limited Liability Corporation (LLC) or a C-corporation, or they don’t have the money, so they put off doing anything until the first venture capital round, or until the first lawsuit occurs. Investors, lawyers, and experienced founders all agree, the C-corporation is the best type of legal entity for high-growth startups. It’s easy to start, widely understood, and gives founders the ability to divide ownership. Forming a C-corp shows everyone you are serious and limits your liability on any mistakes. It also forces you to pick a name for your company and put other intellectual property stakes in the ground.Company and product naming may also seem simple, but should be a key early effort, because mistakes can be very costly. You may recall the Chevy Nova, a compact car from GM. Pundits in Latino countries quickly pointed out that the name, ‘no va’ means ‘does not go’ in Spanish. Professional advice in this area is highly advised. Cultural and religious implications must be very carefully considered.
- Rely on informal agreements with partners. You may all be friends, or spouses, today, but things do change quickly in the stress of a growing company. The same principles apply to strategic partners. Early co-founders often drop out of the picture due to disagreements, and you forget about them, but they don’t forget about the verbal promises you made.Later, when your venture is trying to close on financing, or even going public, that forgotten partner surfaces, demanding their original share. This problem can be avoided by incorporating immediately after early discussions, and issuing shares to all founders. I know two former friends who are still killing each other financially years later over an unwritten agreement, remembered differently by each.
- Be quick to hire and slow to fire. If you are growing quickly and desperate for help, you may skip on the homework of a proper job description, or validating applicant credentials are a fit before you proceed to interview. The message here is that if you don’t know exactly what help you need, you probably won’t get it. Hiring after one interview is like hopping a red-eye to Vegas to get married after one date.Equally bad, you may know what you want, but you are trying to force-fit the candidate into the position. Maybe she’s related to the boss, or you are confident that the candidate will be a good helper, and can learn a lot from you. Helpers are expensive, since it often takes longer to jointly do a job than it would take one qualified person to do it alone.On the other end of the process, don’t hesitate to pull the trigger fast when a new hire isn’t working, but don’t forget to be human and follow all the steps. Carrying a non-performing employee probably triples the costs, since you are paying two people to do the job, and at least one other is de-motivated by the inequity.
- Only hire people who like you or think like you. Flattery feels good, but it doesn’t pay the bills. Look for the thoughtful challenge to your ideas, and practice active listening, when you are selling your vision. High three-digit intelligence has value.Some executives think they can mix business with pleasure, with inter-office relationships. We all have our favorite story on this one. Make it a rule to not fraternize with your employees, and choose your partners wisely.
- Be super-conservative on your funding requests. Double-check both the money you need before funding, and the size of investor funding requests. You will be amazed at how many items you forgot to cover, and how fast the cash disappears. You should buffer the first by 50%, and the second by 25%. Severe cash flow problems are a big mistake, and may not be recoverable.When you have people and their families depending on you for their paychecks, and you are strapped for money, there certainly won’t be any money for growth. Even if you can find someone willing to help, it may be a very expensive proposition. Cash is more important than profit.
- Let your accountants manage the expenses. Too many founders think it’s more important to work on products and customers. In reality, the most important task of every small company CEO is to review every expense with a miserly hand before the money flows out. Do not delegate this task.A variation on this theme is promising a burn rate to investors than you can’t deliver. That means managing a bottoms-up budget process, and living within the budget. The result of budget and expense overruns is not only lost growth opportunities, but lost credibility and lost support from investors and vendors.
- Make all the decisions yourself. One person making all the decisions doesn’t mean better decisions, and certainly not faster ones. For a company to grow, the team has to grow, and decisions must be delegated. Smart growth companies hire decision makers, not more helpers.Even early in the startup process, you need someone like-minded but complementary in skills to help you with the startup plans. It’s always good to have someone to test your ideas, keep your spirits up, and hone your business skills.Lastly, make good use of your Board Members. One or two “experts” who have “been there and done that” can head off many mistakes and suggest a calm recovery plan for the ones you make. Resist the ego urge to “go it alone” or to convince yourself that you are smarter than your competitors.
- Assume defining the strategy is a one-time process. Your initial strategy will be wrong, no matter how carefully you think it out. Most startups I know have “refined” their target market and “pivoted” their operation several times during their rollout and growth phases. So be alert and be flexible.Plan for strategy changes by scheduling an adjustment review every month. Watch out for the unknown, such as an economic recession you hadn’t counted on, or a new competitor with deep pockets, or the changing trends in the industry. Be sure to communicate changes to the team effectively and often, so it doesn’t look like you are making random changes.
- Let the daily crisis keep you from the “most important” issues. It takes practice and effort to focus on the most important things first. In business, “most important” means time to market, customer service, low cost, and beating your competitors. It also means knowing when to delegate, when to rest, and reserving time for effective communication with your team.If you allow yourself to be driven by the crisis of the moment, you will lose the ability to set priorities and focus on goals. Personal discipline is the key word here. Working in isolation and handling all the issues is fine during the creative phase of the startup, where the founder is often the designer and architect, as well as the builder. Now this same individual has to graduate from short-term thinking to long-term thinking.
- Ignore the mistakes of others. The biggest mistake of growing companies is failing to learn from the mistakes of others, or even from your own mistakes. You can only learn from your mistake after you admit you’ve made it. Wise people admit their mistakes easily, and move the focus away from blame management and towards learning.
The list goes on and on. But the reality is that making mistakes is part of every successful growth effort. Therefore, mistakes should be celebrated and learned from. But the one unforgivable mistake you should never make is to repeat a previous mistake.
In the end, ask yourself this question: Is it better to try and fail, or never have tried at all? To grow in the business world, never trying is not an option.
Written by Martin Zwilling
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