Startup general interestVenture Capital

Mistakes that startups make

By November 18, 2009 7 Comments


Scoble has a list up of 12 common mistakes that startups make.  I’m going to bring out three of them:

2. You can’t tell me what you do in a single Tweet. See that super complicated Toyota Prius in my driveway? It gets better mileage than your car. If you can’t explain why your product is better, the way I just did with the Toyota Prius, in a short space or time on the phone you won’t make it.

I love that the elevator pitch just got reduced to 140 characters.  The importance of having a crisp pitch is not a new idea, but it is one that can’t be repeated too often.

6. (This should be #1) They don’t fire fast enough. I’ll be honest, at Podtech me and another guy were pulling the company in different directions. John should have fired one of us. He didn’t. The story got muddled. The rest is history. (In those situations it doesn’t really matter who is right, either, you gotta pick one direction and go with it, startups don’t have enough resources to try out two directions). I’ve seen lots of other startups be slow to fire people who weren’t pulling their weight. Always bad because the best people get pissed and/or leave. Again, you need to have everyone pulling with all their weight in one direction. If that isn’t happening the startup probably isn’t firing people fast enough.

One of the more unpleasant sides of my ten years as a VC across two recessions has been seeing lots of people fired – and I’m struggling to think of a single redundancy that with hindsight was made too soon, so I think this point is spot on particularly as success is tough to achieve even with a perfect team, let alone with an imperfect one.  Avoiding this mistake is made more difficult by our desire to be humane and by ‘confirmation bias’ – our natural inclination to seek out evidence that supports our existing beliefs.  In the case of people that means justifying someone’s importance based on a couple of things they do well rather than the overall picture.  Don’t make that mistake.

8. You let VCs control your management team and strategy too early. There’s lots of advice out on the Internet about this one, so I’ll leave it for you to figure out. But your early decisions will have big leverage on your company later. Hire the wrong management team and your company won’t make it to the B-round. I’m not experienced enough to give good advice here, but I’ve seen what happens up front. I remember meeting one CEO of one company that was just, well, let’s say clueless. How did he get hired? The VCs put him in.

I include this because I want to comment on it rather than because I believe in it.  I guess I have two reactions – firstly that (generally speaking) handing over control to VCs is something that happens to companies that have missed their numbers too often and had to raise too much money at low valuations – in that scenario there is probably little the entrepreneur can do about it (beyond avoiding burning too much cash in the first place).  My second thought is that not all VCs are created equal.  In an ideal world you will have a highly capable VC who you like, trust, and respect and you would work together with her to choose a new CEO, should you need one.  In a less than ideal world you might decide to risk taking money from a lesser character in which case you have done your deal with the devil and will have to cross your fingers and live with the consequences.  You can, of course, help yourself by negotiating hard to limit the VCs powers.

Reblog this post [with Zemanta]