When you're launching an early stage company, and—to borrow from Top Gun—"going Mach-2 with your hair on fire" in the competitive race to get your product or service to market, naturally a few mistakes are going to be made along the way.
"Speed Wins," as Steve Kaufer, founder of Needham-based TripAdvisor, famously advises, but moving too quickly can also lead to hiring the wrong people, spending too much time or too many resources in the wrong areas, or being too rigid about your roadmap, among other rookie mistakes.
For startups, moving too quickly can lead to rookie mistakes. Here’s how to avoid them.
Take the advice of veteran startup founders, like these four entrepreneurs who spoke at the Bentley's Innovation Series at District Hall in the Seaport area of Boston. Learn from their hard-won lessons about what NOT to do.
"You have to have answers for all those things, so a business plan is good when it gets you to think about all those things and fully vet your idea. But once it's done I would just throw it out," says Arian Radmand, co-founder of CoachUp. "You'll have all the knowledge that you need—it nearly makes you a domain expert so it has served its purpose—and then it's just time to execute."
Don’t know how to create a business plan? An MBA degree can give you the necessary skills.
- Don’t Waste Too Much Time on Your Business Plan
Of course, when you start a company it's good to have structure for your ideas and a vision that is tangible and presentable. But our panelists and Bentley professor Alain Hanover (himself a veteran entrepreneur and investor) all agree that a formal, meticulous and micro-detailed business plan at your seed stage is a huge waste of your time and resources, since you will likely toss it out or rework it completely after your first meeting.
Bentley alum, serial entrepreneur and investor Cort Johnson ’06 cautions that you shouldn't waste months and months honing your business plan. Instead, he suggests using a simple 10-page slide deck that covers all the important bases, including your:
- Existing problem
- Solution to the problem
- Product or brand development strategy
- Projected traction
- Early financials
- Don’t Be Afraid to Pivot
Ellen Fitzgerald, founder of Boston's Mother Juice food truck, points out that major items from your business plan like revenue streams (in her case, wholesaling raw juice) could also change entirely if you hit regulatory or other limitations. Don’t let fear of changing your ideas hold you back. Be flexible and embrace pivoting early on.
"No matter how much time you spend on your business plan, you're not going to foresee some of the challenges that you'll face," Fitzgerald advises. "When that happened to us, we started doing corporate catering instead and it has become a much more lucrative business for us anyway. Don't let obstacles get you down; they’ve happened to every single business. You just need to pivot and try again.”
- Don't Rush to Be First to Market
Especially in the "Speed Wins" era of consumer startups, there’s culture of panic that can take over and make even veteran entrepreneurs anxious about the need to be the first company or product to market, or the first to "disrupt" a particular industry in order to secure market dominance.
But our experts caution that the first to market is not always the consistent market leader. Instead they can create a bona fide example of market need and traction that you can use to execute your business plan even more successfully—maybe even grease your wheels on the road to recruit investors.
If you're a software company or mobile app, this could mean learning from the design, functionality, marketing, funding or adoption mistakes of your early competition. If you're launching a traditional brick-and-mortar business, this could mean simply creating a bigger market for the type of product you're selling and then offering you the opportunity to innovate.
- Don’t Ignore Paperwork
Stories about companies whose partnerships ended hostilely and in very costly ways are all too common in the startup world. It can cause the longevity of the company or the financial success of its founders to suffer as a consequence.
"When you're starting a company, you're working with a friend, and you just have an idea. It seems crazy to go to a lawyer and ask them to put that in writing for you, but those documents are so important should anything happen with your partnership," recommends Fitzgerald.
Even at the earliest hypothetical stages of your business, take the documentation of your ownership stake and your partnerships seriously. Look around for resources near you or online that can help create your legal framework for free or pro bono. Don't overlook the importance of dotting your I's and crossing your T's from the beginning.
- Don’t Ask Everyone You Know for Funding
Yes, if you’re working on a small project and only need a $50K, asking friends and relatives for money is fine. But involving people you know for larger projects can be tricky. (Need convincing? Watch the family dynamics in the movie Joy.)
You also shouldn’t reach out to every possible investor out there. “You don’t want to muddy your investor group if you don’t have to,” cautions Hanover. Some venture capitalists want to be the first ones in the door, and shopping your opportunity around may make you used goods. “Once you shop the deal, word gets out,” he says. “The investment community is very small.” You could hurt your chances by going to the wrong investors or too many of them.
- Don’t Hurry the Hiring Process
Finding the right people to join your team is always tough. Sometimes you want to rush to get people on board. But taking your time can be a major value-add in the long run. Spend the time and energy up front vetting candidates. Bring in people who can not only do the job, but also think a little deeper. Look for colleagues who offer distinct skills and unique resources and networks to the tableeven just distinctly culture-creating personalities.
“There were a couple of hires that I’ve made over the years that, if I had to do it again, I wouldn't do it,” says Hanover. “The people that you choose to hire and bring into your organization are the lifeblood of everything, from selling your product to delivering your service to creating the actual culture. Every person that you hire is important, especially in critical stages for your company.”
“The people you bring into your organization are the lifeblood of everything,” Alain Hanover
- Don’t Forget the Big Picture
Modern entrepreneurship culture loves to harp on the statistic that nine out of every 10 businesses fail. But those numbers can be misleading as to the definition of failure.
If you define failure as the inability to IPO, that’s one thing. Hanover advises instead to think of a successful company as one that gets a high valuation and decent payout, especially when weighing the option of how much equity to give up in exchange for investment.
Hanover describes a company he funded as an angel. It didn't have a product, just some software prototypes. The founders gave up half the company for $1.5 million. “But at the end of the day, the company was worth half a billion dollars. I always tell people it's better to have a small piece of a big pie than big piece of nothing.”
Working on your financing plans? Try these 6 Creative Ways to Get Funding.
- Don’t Forego Your Salary
Entrepreneurs have a tendency to put all of their available funding and liquidity back into their businesses, sometimes without thought for their own personal finances. But paying yourself a salary—even if it’s a small wage, even if you’re bootstrapping—will be crucial to your longevity and your future success.
"[Founder salaries] need to be a part of your business plan,” cautions Fitzgerald. “A lot of small businesses—and I know I thought the same way—don't want to take money out the business because your business is you.”
If you're looking for financing later on, angels and venture capitalists will want to see salaries in your financials. “It’s not a real business if you can't afford to pay yourself,” she shares. “It doesn't look good in the eyes of the investors to opt out of paying yourself, even in the beginning.”
- Don’t Dismiss College or Grad School
Yes, you want to get going on your amazing idea. So much so that you think going to college or getting a graduate degree is a waste of time. But be open to the opportunities that an education will offer. In business classes, you can learn about how to create a business plan, market your product or structure your company.
And there are benefits outside the classroom as well. For example, Hanover says that the best place to meet business partners is at college or grad school. “Most companies have co-founders who met in school.” You have the chance to both work and socialize with your fellow students, bouncing ideas around and seeing what resonates. Who knows? Your next great idea could come up during an all-nighter studying together.
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