10. Developing a solution without a problem

1. 10 Greatest Startup Screwups 10. Developing a solution without a problem It’s tempting to think an idea is good “because it’s cool.” But what value does it create for people? If it doesn’t save them money, they will not pay for it. People will pay for a painkiller, much less for a vitamin, and they won’t pay at all for a cool-looking placebo! The fix: calculate a profit-and-loss sheet for your customer’s purchase of your product. Credibly defend each line item: their increased revenues and decreased costs. This should form the basis of your sales pitch. Use conservative numbers!

2. 10 Greatest Startup Screwups 9. Solving the wrong problem Are you sure you know why your customers like your product? If your customers use your product differently than you intended, they are informing you that you don’t understand their most critical problems, even if they did buy your product. As many as half of technology “wins” succeeded for reasons other than the originally planned vision! The fix: Eat crow: enhance your product for its new use, even if you abandon your old vision.

3. 10 Greatest Startup Screwups 8. Customers uninvolved in product design Amazingly, even in 2005, many entrepreneurs hide their ideas from customers “until it’s ready.” While commercial sensitivity is a real concern, you must do your development intimately with an ideal end user. A single technical advisor who claims to “know” your customer’s industry is not enough – an individual is a poor substitute for knowing the marketing, purchasing, and operations departments of your customer company. Your idea is not so well visualized that you don’t need your customer’s perspective to work out the kinks! The fix: find a development partner! If you are selling retail, use at least three buyers as advisors, and if they wouldn’t buy it, find out why. Your product is not ready until your partners will purchase it with their own money!

4. 10 Greatest Startup Screwups 7. Business plan focuses on all the wrong sections Most entrepreneurs fixate too much on the product description, thinking that if they only describe it in more detail, the concept will be obvious. Nope. Investors want the logic of how value is added, not simply a product description. Worse, entrepreneurs often spend weeks doing meticulous financial projections. Investors know that sales assumptions underpin all the numbers anyway; the “accuracy” of each line is less important than the credibility of overall trends. The fix: the product must be described in terms of the money it saves customers, not in terms of what it “does.” Financial projections should be simple, credible, and based on well-referenced market data. Over-complicated calculations tell investors that you are unsophisticated.

5. 10 Greatest Startup Screwups 6. Raising funds too little, too late (the cash crunch) Do you have the cash to get to profitability on your current plan, with a 20% margin and a near-guarantee that you’ll make the sales you need? If not, start developing relationships with prospective investors now. It takes six months to raise cash, and today’s investors want to know that you have a history of meeting your milestones – something they will only know if they see you operate for many months. The fix: Your timeline to profitability must be credible and based on actual customers telling you they will buy when the product is ready. Prospective investors should be appointed to your advisory and corporate board now.

6. 10 Greatest Startup Screwups 5. Groupthink: misusing your advisors Your advisors should know each other, and be from all different areas of your industry: people who know your service, and people who represent all areas of your customer’s companies. Choose people who will argue with you, and with each other. One of the most common mistakes is to keep your product a secret for too long, and to dismiss your advisors as being “too unconnected” to your daily reality. Listen carefully and sell them on what you want. If you can’t, re-evaluate your plan! The fix: listen to your advisors, and let them meet each other.

7. 10 Greatest Startup Screwups 4. Hiring the wrong sales team Underpaying a receptionist or accountant may work for a while, but underpaying a sales rep will ensure underperformance. Good sales reps can work anywhere, anytime, and expect to be compensated no matter who you are. If you can’t afford to pay a sales rep at market rates, give them meticulous support, then your business is simply not viable. They will take some commissions, but you must be prepared to give them a good chunk of your company. And as the leader, be prepared to make cold calls and join them on the road. The fix: pay them what they’re worth. Unlike your other employees, you’ll have to pay your reps above the market rate, not below. Expect to pay them more than yourself.

8. 10 Greatest Startup Screwups 3. Misusing lawyers and professionals Don’t do handshake deals! Lawyers have a purpose: they can uncover holes in your deal’s logic, and anticipate problems that you’re unconsciously deferring. Most professionals will overstep their bounds and offer advice on strategic or business issues. This can be useful, but use it appropriately – you are running your company, not them. The fix: hire the best, but ask only precise, targeted questions. Make a contract for every deal you do, but don’t let the professional overdo it. If you do not know how to do this, draw on your advisory board – do not let the consultant or professional drive your agenda!

9. 10 Greatest Startup Screwups 2. Overselling yourself and your company Many first-time entrepreneurs confuse “selling” and “promoting.” You are offering a solution to your customers, and returns for your investors. In both cases, it is the start of a long-term relationship where their expectations will determine how happy they are with you later. If you oversell your customers, they won’t give you references for your next hundred sales. If you oversell your investors, they won’t be there if you ever need a second round. The fix: be scrupulously honest about the risks of your company. It’s harder in the short run, and you will even lose some deals, but it’s worth it in the long run. It will also separate you from most other entrepreneurs!

10. 10 Greatest Startup Screwups 1. Doing the easy things, not the hard ones The #1 mistake of entrepreneurs is to forget that being your own boss is harder, not easier, than having a manager. Most entrepreneurs spent too much time tinkering, ordering furniture, shopping, and dealing with staff or product development. Most entrepreneurs procrastinate over the ugliest and most important jobs – cold-calling and customer hand-holding. The fix: find a way to discipline yourself. Adhere rigidly to realistic, weekly task lists. Deferring known problems is the most common reason for startup failure.

11. 10 Greatest Startup Screwups 10. Developing a solution without a problem 9. Solving the wrong problem 8. Customers uninvolved in product design 7. Business plan focuses on all the wrong sections 6. Raising funds too little, too late (the cash crunch) 5. Groupthink: misusing your advisors 4. Hiring the wrong sales team 3. Misusing lawyers and professionals 2. Overselling 1. Doing the easy things, not the hard ones

12. 10 Greatest Startup Screwups Further questions? Contact Cameron St John Pacific Technology Ventures cstjohn@ptventures.ca Phone 604-730-9706 Fax 604-677-5414