Ok, here's my belated follow up and conclusion from Part 1 of Top Ten Start-Up Mistakes from the Orrick event last month!
Mistake #5: Not Recognizing When to Supplement or Shrink the Team
Founders who fear bringing in the right people at the right time are a problem. "When I find someone as smart as me then I'll bring them in" - wrong! Engineer founders generally don't know how to build sales and marketing. The culture you want determines the kind of people you hire. You should always be hiring or shrinking - but make sure the people are the right fit (don't hire guys with machetes if you are already on the highway). Personal characteristics and motivation are always the most important, not the specific skills - you can learn the latter but not the former.
Mistakes #6 and #7: Not Having a Real Plan - and Not Knowing Where You Are On Your Roadmap
A key emphasis here was to insure you figure out what type of business you are building - a big or small company, a home run or a single. This is really important because it determines much of what you do - and who you hire and whose money you take. The reality is the vast majority of startups that succeed turn out to be single. Very few ever IPO (fewer than ever). Most will get acquired if successful. And for you as a founder you may be a lot better off taking smaller money from angels or smaller vc's, controlling your destiny more and getting a larger share of a smaller business (and more total dollars) than someone who swings for the fences and even if successful gets a very small piece of that bigger business. Regardless, you need to build your business to be independent, not just to be bought.
Always have a clear plan - but be nimble enough to change it if you need to. If revenues are less than you planned then you need to find new growth or cut expenses. This is partly why investors bet on people - things rarely go according to plan and how the people handle it is key. Knowing where you are on your roadmap then becomes key - is your hypothesis (for that's what it is) working or not? By the way - as I've written about before - tying funding to milestones is wrong, not just because its a cheat on valuation by the investor but because you may need to change the plan and the milestone becomes a millstone.
However metrics are important. Here's what we said we'd do. Here's what we did. Here's what we're going to do next. It's your feedback mechanism. Why is something drifting? Be ready to reset if needed, or take other action. Be super transparent, regular, communicative and avoid surprises.
Mistake #8: Being Penny-WIse and Pound Foolish
As a financial advisor and CFO to startups of course I have to echo the starting point on this one - the panel's statement that you need to have a good CFO or Controller. It's still a surprise to me that so many startups don't have either one - and in fact frequently don't even have a good bookkeeper or basic financial information available. The panel view was that you need someone on board who doesn't want to spend money BUT the real key is someone (CEO's are often not the right ones) who can help make the right trade-offs. After all, saving $5k a month in online marketing is a false economy your total burn is $150k/month and not spending the $5k means you take X months longer to make your target. Not having a top sales person is a bigger mistake than having a colour copier. I'll repeat a personal view here: the right financial person on board (emphasis on RIGHT) will pay for themselves many times over in better business decisions and return on investment.
When you have raised money (see below) then have self-control and don't defocus. If your plan said you would spend $Y on marketing and you raise the money you needed then don't go spend that $Y on swanky new space instead.
Mistakes #9 and #10: Never Be In The Position Where You Have No Money; Don't Raise Too Much or Too Little
Sounds obvious. Amazing how many don't figure it out. Cash is the rocket fuel so you need to raise it. Be sure you know you much you need to get to the next key funding milestone - then raise more because it will take longer than you think to achieve that milestone. But also, raise money when you can, not when you need it. Timing is a key factor - not just in your business but when the market is more ready to supply funds is critical.
Be forced to make tradeoffs and prioritize. Be very lean during product development and market discovery, then accelerate to ramp up the customer acquisition and returns.
Raising lots of money at a high valuation means you need to have a big exit. This will NOT happen for most companies. Solid singles (an exit in the $50 - $100m range) are a great result for most people. When raising money don't obsess on valuation. Take a reasonable valuation and focus on increasing it solidly between rounds. Down-rounds are viewed very negatively (in fact they can be the kiss of death).
Finally, raise money strategically. This means raising based not just on cash needs. You need to have in mind what business you're building over the longer haul, who the investors are and what they bring to the table that can truly help move the business froward. Yes, terms are important but get a win-win-win out of it.
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