how to avoid the 5 most common mistakes for early stage startups

How to avoid the five most common early stage startup mistakes?

how to avoid the 5 most common mistakes for early stage startups

Either as a business coach, advisor, mentor or consultant, during the last few years I’ve had the opportunity to engage or work directly with more than a hundred startups. This has given me insights on how early stage entrepreneurs deal with the journey from an initial idea to a product with a good close rate, a decent sales cycle and sticky users/customers — thus achieving the so called product-market fit.

The first thing I’ve realised is that entrepreneurs are super awesome people. What makes them special is that they are driven by passion & ambition. And while it may let individuals pursue progress and innovation, passion & ambition might also cause profound suffering or troubles in case it’s not properly managed and kept under control.

Here are five common mistakes I’ve seen early stage founders make as a result, alongside a few options on how to get back to the right track.

Jumping into build mode

The storyline behind this error is often: “I can do it, so I’ll just do it”. Which translates into: “I’ve had this idea, I have technical skills/I have friends I’ve managed to take on board/I have money in my savings account/I have someone giving me a loan/I have an house to remortgage, so I’ll just build what I have in mind”.

There is so much passion and courage in this decision that it’s so easy to admire. However, there are some terrible facts — 72% of all new products flop and the most common reason why startups fail is because they build something people don’t want right now.

So while extremely brave, to jump into build mode is like going for a bike ride knowing there is a 72% chance you will go face first into a wall. “Build and they will come is not a strategy, it’s a prayer”, said Steve Blank, the initiator of the Lean Startup methodology.

The Lean Startup methodology helps entrepreneurs solve this problem, in the same way brakes, steer and helmet help bike riders avoid walls. Lean Startup practitioners validate customer problems and customer segments before anything else.

I’ve seen founders investing £50–100k on apps that were just used by a few friends, and I can guarantee they didn’t have fun when they went back to a day job, with a lower seniority and salary, and much less money in the bank. What if they had realised that their idea was flawed in few days without spending anything or writing a single line of code?

Developing a proof of concept

A variant on building too soon is building a proof of concept too soon. This is when a founder creates something to prove they can do it, before they do it. It’s very common especially among large companies or tech founders.

This translates into “I’ve had this idea, I have technical skills/an infrastructure or a budget available, so I’ll build it to see if it’s feasible or not”. This seems like a good plan on paper. In fact, it’s advisable to check whether we are able to deliver something or not before promising and selling it.

However, proving that you will be able to execute something again does not necessarily mean there is a market for it! Instead, the fastest and cheapest thing to do after having a new product or new business idea is to start from validating the customer problems that a Proof of Concept may intend to solve.

If those problems are not there or are not big enough, here’s the good news: you would have either built the wrong product or targeted the wrong market. Why is this good news? Because you haven’t spent a single penny on that idea yet! In this case as Eric Ries, author of “The Lean Startup”, says: “Better to have bad news that’s true than good news we made up”.

Writing a business plan too soon

This one is hard to kill. There must be an unwritten law defining that the best thing to do when you have a business idea is to write a business plan. I have met with founders who have been recommended by “advisors” to write a business plan first thing. This is also what most business schools suggest to do as a first step to create a business.

A business plan is a very long document, sometimes even 70 pages long, where a founder writes details on how she is going to execute a plan for her business idea, and what would be the financial impact over the next few years (sometimes even up to five years!).

There are two main problems with business plans. First of all: who is going to read 70 pages? If no one is going to read them, why spending valuable time to write in the first place? Secondly: if the business idea is something innovative, how could they make a plan for it, let alone forecast the financials?

The first and last time I wrote a business plan, I was sitting in front of a spreadsheet late at night and the row “monthly revenue” was empty. My cofounder was sitting next to me and I asked him: “You are going to be in charge of sales, tell me the numbers.” We hadn’t met even a single customer yet, we both had no idea of the future revenue, so we just “reasonably” made the numbers up.

Unless it’s about an established business, a business plan is a document full of unvalidated assumptions not even worth the paper is printed on. Think of it this way: what if an investor sees the plan and actually invests in your business? Easy answer: they will expect you to execute it. Let me rephrase: they will expect you to execute a plan full of unvalidated assumptions and to come back with financial results that you made up. This sounds like a nightmare.

One of the mantras of the Lean Startup methodology is to “get out of the building”. In other words: instead of spending weeks to collect unvalidated assumptions in a document that no one will ever read, just move on and start doing business properly by validating the riskiest assumptions in the fastest and cheapest possible way.

I’ve helped my clients to stop wondering about fictional figures and plans, and to start a learning exercise about their customers instead. This ultimately led to launching a product validated by the market, scoring early traction and getting a clear understanding of sales channels and acquisition costs. All elements able to inform a proper financial plan in the future.

Not being focused

This one has a lot to do with how passion & ambition sometimes lead founders to a bad place. I’ve met with entrepreneurs with glorious visions for their businesses. Visions that I personally embrace and that, if executed, would have definitely made the world a better place. However, passion & ambition got the best of them, and made them so restless that they simply couldn’t stop spinning around.

One of the founders I met was busy launching multiple businesses at the same time, including an online marketplace, an accessory for foodies, a niche event business and a startup incubator. All this with a team of just two full timers and capital bootstrapped in the thousands. It didn’t work out very well for him.

My passion for the Alps taught me that whatever the height of a mountain, the only way to do make it to the summit it is to take one step after the other, aiming at the top. While going up I might take turns to avoid obstacles, falls or creeks, but I’d be focused on the summit all the time.

For early stage founders, the focus has to be on early adopters, those customers who are in desperate need to solve the problems the company is addressing. Conquering early adopters will be the first step to reach the summit of a valuable business.

Expanding the team too soon

Finally, when I launched my first startup we were initially fully aligned and full of enthusiasm. But as soon as we had the first differences of opinion, I soon realised that having a business partner is not that different to being married: should I want to part ways, it’s going to be a pain. For example, to get rid of a co-founder I might buy her out — after having had the company valued by an independent expert. And that obviously comes with the caveat that she is willing to sell.

Working together can be fun, but is rarely easy. I’ve seen destructive team dynamics going on between co-founders dangerously focused on how to deal with each other instead of how to solve customer pain points and make the business profitable. The incredible level of energy a new venture need does not allow for things like this to happen.

I recommend that my clients keep the founding team as lean as possible until they have a clear plan. Once they have managed to define a value proposition, tested, iterated and validated it on the market, that’s the point when they will have a clear picture of who they absolutely need on board. Also, if they have early traction they will be able to negotiate a more favourable deal with any new team member.

Finally, I recommend them to be careful with who they bring on board. The path to product-market fit requires people who are comfortable with change, chaos, and learning from failure and are at ease working in risky, unstable situations without a roadmap or a pre-defined plan. Not something for everyone.

I hope this list was a useful exercise to spot early sign of passion & ambition taking over. In case you could see yourself in at least one of the five errors, let’s have a chat and let’s see how can we deal with it together.

 

This article originally appeared on the startup experts platform Kandu‘s medium blog. They match entrepreneurs with trusted experts, helping startups grow better and faster. Check them out!