These are the top ten mistakes that entrepreneurs make, compiled in one list to help you avoid as many as possible.
If nothing else, please try to make new mistakes.
1. Mistake: Multiply big numbers by 1%.
Entrepreneurs love to take an enormous potential market (such as the Internet-security market), calculate that even a 1% market share will be huge and easy to attain, and then imagine the revenues they will achieve.
Fix: Calculate from the bottom up. Do a bottom-up calculation instead. You’ll see how hard it is to attain even a 1% market share when you start from zero. Once you ship, you’ll learn that your first-year results are closer to zero dollars than even 1% of the huge number.
2. Mistake: Scale too fast.
A consequence of multiplying a big number by 1% is concluding that you need to scale your infrastructure and head count for huge, inevitable, impending success.
So you increase your burn rate, which uses up your capital, which eventually gets you fired.
Fix: Eat what you kill. Take the risk of foregoing sales and jeopardizing your service reputation by not scaling until sales are in hand. I’ve never seen a company fail because it couldn’t scale fast enough, and I’ve never seen a company ship on time. You may be the first, but the trend is not your friend.
3. Mistake: Form partnerships
Entrepreneurs love to use the P word — “partnership” especially when they can’t use the S word — “sales.” Unless a partnership enables you to alter your spreadsheet, it’s bullshiitake. Most partnerships are a PR exercise and a waste of time.
Fix: Focus on sales. Instead of spinning your wheels with partnerships, focus on sales. Tattoo this on your forearm: “Sales fix everything.” If a picture is worth a thousand words, a sale is worth a thousand partnerships. The longest you can stall using the P word is six to twelve months. Then you’ll hear the F word: “fired.”
4. Mistake: Focus on fund-raising.
Success is not raising money. Success is building a great company. Many entrepreneurs forget that fund-raising is a means to an end, not the end, so they spend weeks working on their pitch and business plan and getting in front of any investor with a heartbeat.
Fix: Focus on prototyping. Building a prototype is the most important goal in the early days of your startup. A prototype enables you to get real-world feedback and, heaven forbid, sales. Bootstrap, borrow, and crowdfund what you need to survive, and pour your energy into building a product.
5. Mistake: Use too many slides.
When you do have to pitch, don’t use fifty to sixty slides. I know that you know in principle that less is more, but you will be tempted to think you are the exception to this rule. You are not. If you need fifty slides to pitch your idea, your idea is flawed.
Fix: Obey the 10/20/30 Rule. The optimal number of slides is ten. You should be able to give your presentation in twenty minutes. The ideal font size is thirty points. Even better, try to get away from slides and do a demo . . . which is another reason you need a prototype.
6. Mistake: Proceed serially.
Entrepreneurs try to do things in a serial manner: raise money, then hire people, then create a product, then close deals, then raise more money. They want to do one thing at a time and do it well. This is not how startups work.
Fix: Proceed in parallel. Life for entrepreneurs is a parallel existence. Get used to it, understand it, and live it. You need to do many things at once, and good enough is good enough. You don’t have enough time to do things one at a time.
7. Mistake: Retain mathematical control.
Founders love to retain control, so they try to maximise valuation and sell as little stock as possible. They think that as long as they control at least 51% of the votes, they run the company.
Fix: Make a bigger pie. The way to make money is to increase the size of the pie, not to hold on to as much of the pie as possible. It’s better to own .01% of Google than 51% of a piece of Mediocre Technology, Inc. And control is an illusion — the moment you take outside money, you are working for the investors.
8. Mistake: Use patents for defensibility.
Entrepreneurs read stories about how patent infringers lose multimillion-dollar lawsuits, and they think that this means patents can protect their intellectual property. This is like reading that a burglar was arrested and therefore you don’t need to lock your door.
Fix: Use success for defensibility. Patent protection is a game for big companies with lots of lawyers and money. Does that sound like your startup? The only thing that makes a startup defensible is that it’s growing, succeeding, and sucking the oxygen out of the market. You won’t have the time or money to out-litigate anyone who’s worth suing.
9. Mistake: Hire in your image.
Many entrepreneurs hire employees who match the rest of the company. Engineers hire engineers. MBAs hire MBAs. Men hire men. Fitting in is one thing, but this is going too far when everyone is young or male or techie or anything, really.
Fix: hire to complement. A startup needs a variety of skills, perspectives, and backgrounds to succeed. Rather than hiring mirror images, you should hire people who complement one another. The two most important complementary skills are making and selling, so cover these two bases right away.
10. Mistake: Befriend your investors.
During the honeymoon period, which is the ninety-day period after your first missed ship date, you may have an insane desire to befriend your investors. This is because you and your investors are simpatico, and they will never fire you because they invested in the startup because of you. Hello, Tooth Fairy. . . .
Fix: Exceed expectations. If you want intimate relationships, use Tinder or eHarmony on the weekends. Your job is to raise money from investors, use it wisely, and then return ten times more than they invested. It doesn’t matter if you end up hating one another as long as you meet your deadlines and exceed sales projections.
Excerpted from The Art of The Start 2.0: The Time-Tested, Battle-Hardened Guide for Anyone Starting Anything by Guy Kawasaki, in agreement with Portfolio, an imprint of Penguin Publishing Group, a division of Penguin Random House LLC. Copyright © Guy Kawasaki, 2004, 2015.
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