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Sunday, May 4, 2014

Startup Mistakes I made and Lessons Learned

This post is all about failures. I realize that some people prefer and maybe learn from other people's failures better than successes. I tend to prefer the latter as there are many ways to fail but fewer ways to succeed. So intuitively, it makes more sense to emulate and adopt successful behaviours and thoughts/mental models than to learn to avoid failed models and mindsets. But it is always instructive to see things from both sides i guess. Below are failures i have made in the past 14 years.

1) Failure to be transparent about cofounder committment & expectations

Problem : Did not initially spell out intentions and feeling about key topics like how to handle working shareholder departures. So when working shareholder decided to not to work full time, there was much difficulty in resolving feelings.

Result : Much stress and difficult conversations when trying to buy out minority shareholder. It took me some 1-2 months and much distraction to settle this issue. Also had to pay out a good 6 figure sum.

Takeaway - Always spell out various scenerios when contemplating a venture with  multiple shareholders. Make sure there is agreement. Don't fall into the temptation of taking the easy way to out and just glossing over difficult items like exit cases, valuation, roles etc. Then encapsulate it all in a written and signed shareholder agreement. If you cannot agree on tough points, it could mean your team has problems.

2) Failure to spearhead new venture & blind faith

Problem : Thought that it made perfect sense to venture out into a recruitment agency work back in the early days. Hired 1 manager & 3 pax and burnt through 40-50K of revenue in 3 months with little to show for it. Believed the manager that they can just start a new wing.

Result : Wasted mgmt focus on sideline and wasted  money pursuing it.

Takeaway - New ventures, even adjacent ones take longer than expected. Also in startups, new areas need to be spearheaded by top management. Seldom will an outside middle level hire be able to do it even if they seem to firmly believe it. Most middle (and some top) mgmt are used to having established brand and structure to help them, so they may actually believe they can start up something if only given the chance. Dont believe them and if you must believe them, still watch them like a hawk.

3) Failure to focus on sales & that Sales manager
Problem : A parallel of point (2) is believing that  hiring an experienced sales director/manager will help you settle sales while you focus on product. This is 99% pure bullshit. Founders must spearhear their own sales almost all of the time initially. I never fell prey to this but a portfolio company of mine has. They raised money, spent it on hiring sales team and sales mgmt then hands off!

Result : Total waste of money as the founder discovered that a hired sales mgmt will never be as dedicated to chasing down each lead, helping to get feedback and care as much as a founder. End result was 1 year wasted and damage so bad it may kill the company. Pain to me is also a possibly wasted 6 figure investment.

Takeaway - Always spearhead your own sales effort via a founder in the first few years. Not only will sell better but will also iterate product better since closer to client. You also squeeze the most out of your other sales hires since you are leading them. Did i mention investors also like sales driven founders?

4) Failure to plan for worst case.

Problem : When things are doing well, that is the best time to raise more money than you need. Another company i invested in had an opportunity to raise money that is equivalent to 2 years cash burn. Business was doing well and so there was also an option to not raise too but it required no mistakes and continued flawness execution. The founder chose not to raise.

Result : As usual, bad things happened and metrics did not grow as expected. Cash crunch started looming. Had to scramble to reverse the metrics. Work in progress.

Takeaway - Always do a worst case scenario and if in that scenerio, you dont need funding, then dont do it. Be paranoid!

Hope the above helps! Feel free to comment and add on.

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