There are lots of things to consider, before getting evolved with a startup idea. The idea is very much important, but so are some other factors that come into play like validating your idea and properly structuring the company for investment and acquisitions. I’ve learned this the hard way through my experience dealing in my first startup, and these mistakes can cost you dearly down the road if its not done right from the get go. Luckily for me, during my first startup I had the resilience to endeavor and keep going through all our mistakes, headaches and nightmares, and essentially we ran the company for 12 years before our first exit. But most new young entrepreneurs aren’t so lucky.
So before jumping on your next euphoric, world changing startup idea, here are 5 mistakes to avoid that can determine your road to success.
- Don’t start a company, solve a problem. Your idea should solve a real life issue that can improve or change the lives or processes of your customers, essentially solving a problem. You can also build an existing product or service, that is more efficient or that improves upon an existing technology or product. Avoid the mistake to copy an idea (one to one), try to either improve or build something complete new (Zero to One) that addresses a marketable audience. Read up on Peter Thiel’s book Zero to One, this book changed the way I now conceptualize startups and businesses.
- Poor corporate structure: If you’re a tech startup in the US, register as a Deleware C corp, read up on cap table, ESOP plans, and make sure that your co-founders have a fair and equally share of the company. Most companies fail because the founders are unable agree on the basics and equity split. Avoid the mistakes of starting a company prior to formalizing your corporate structure, this will save you time, money and headaches when your MVP is ready to take off. Most importantly, if your a tech startup chances are you’ll need funding and most VCs and angels prefer the Deleware C corps. Keep it simple but do it right.
- Poor culture and hires: Culture is arguably the most important aspect of your company, it sets the tone, vision and attitude of your company and its employees. From the get go, establish the culture within your company and hire winning, scrappy, smart, experienced go geters to drive your company’s mission. Hire C quality employees get C results, hire A employees get A results. Employees and culture will determine your success because you will not be able to do it without a kick ass team! Once you’ve hired the right employees, make sure they have incentives so that you don’t loose them.
- Overspending: Every penny counts, don’t spend expenses that don’t bring a direct return on investment at first. Your cash should be used to either promote your product to drive revenues, hire talent to drive revenues, and every penny should be spent on the notion that it will drive revenues. As as bootstrap startup, bootstrapping your cash goes hand in hand.
- Under funding: So you finally have your product ready to market. Now you need more cash to make that happen? So what do you do? This is where the CEO’s main role comes in to play, keep cash coming in the company! The CEO’s #1 job is to keep the company cash flow positive and to go out and raise funds. Once you’ve gained some customers and traction, its time to get some seed funding to jump start your operations. Underfunded companies are usually unable to hire experienced talent, even if some equity is in play there’s a minimum compensation necessary to get on board the best talent.
Finally, I encourage any entrepreneur to read books like The Lean Startup, Zero to One, The Hard Thing about Hard Things and so much more. Make sure to read and even follow free courses and interviews for folk like Sam Altman from Y Combinator on YouTube and just checkout stuff about startups. The more you know, the better off you’ll be in your next venture. Knowledge is power, and it can help you avoid costly mistakes.
Good Luck.
Michel
