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Young companies have small margins for error. Mistakes made early on can sink a company before its gets off the ground. Below is a list of 10 common mistakes made by young, small companies. In the list below, I use the generic term “product” to refer to either a product or a service.
Over the next few posts, I will expound on these ideas; for now, here is the list :
- “Drinking Your Own Kool-Aid” – Overestimating the Enthusiasm for Your Product/Service – thinking your product is more special than your customers perceive.
- Not Validating Market Demand – thinking that your product is a “winner” before making sure you get a solid base of people who agree
- Starting to Work with Customers Too Late – only engaging with customers when the product is ready for sale.
- Underestimating the Difficulty in Penetrating the Market – not expending enough effort to reach customers and to get them to try the product.
- Overestimating the Product’s Uniqueness – related to “drinking your own Kool-Aid” this refers to not taking competition into account, where competition can be another product or service, or whatever customers are using today.
- Underestimating the Effort Needed to Build the Product – promising to get to market before you can actually finish the product.
- Hiring the Wrong Kind of People – hiring “big-company types” who are used to having a support staff to help them do their work.
- Not Focusing – being tempted by side projects and spreading yourself too thin to focus on developing your company’s main value proposition
- Not Pricing Correctly – under or over-pricing the product may inhibit adoption.
- Not Having a Long-term Vision That Scales –having a “one-trick pony” that does not lead to future sales
In the entrepreneurial spirit of “under-promise and over-deliver,” here are two more mistakes young companies make:
- Never Finishing the Product – the “never time to do it right, but there is always time to do it over” syndrome. Constantly redo-ing the product but never finishing it.
- Not Offering Employees Enough Fun – sadly, a common quality of many startups – despite what you read in the pubs.
Disclaimer – as the veteran of six startup companies (two that were successfully sold), these are mistakes I have seen time and again. If you have some additional ideas, feel free to comment.
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Recent Comments | 21 Total
September 9, 2009 at 2:54pm by Alice Korngold
David, this is a great post, and your advice would apply to nonprofit enterprises as well. As a consultant to the boards of directors and CEOs of nonprofits, I would even apply your comments under #7 "hiring the wrong kind of people" to the importance of building the right nonprofit board of directors, including recruiting business entrepreneurs on nonprofit boards--people who understand organization-building. I would also apply #2 "Not Offering Employees Enough Fun" to the nonprofit board experience. All groups need to create an esprit de corps and have a great time while they are working hard establishing a successful organization.
September 11, 2009 at 8:43am by Mark Birch
This is a good, comprehensive list. I would say the most important however is #7 not hiring the right people. Having the right people (whether founders or hires) at the beginning stages is critical, because it is people with the right skills that will be able to avoid many of the common mistakes you list.
September 11, 2009 at 10:00am by Tommy Day
Spot-on. One side effect that i noticed from drinking Kool-Aid is that it severely hinders the ability to listen. Customers that give feedback don't understand and employees that give feedback aren't as smart as as the founder. So related to #7, the founder hires a "yes" person to help continue a flawed plan that won't succeed long term without the acceptance of honest feedback.
September 11, 2009 at 10:00am by Tommy Day
Spot-on. One side effect that i noticed from drinking Kool-Aid is that it severely hinders the ability to listen. Customers that give feedback don't understand and employees that give feedback aren't as smart as as the founder. So related to #7, the founder hires a "yes" person to help continue a flawed plan that won't succeed long term without the acceptance of honest feedback.
September 11, 2009 at 10:37am by Marge Jensen
This is a great summary. Short and to the point. Based on my past experience with startups and mid sized companies, many times the BIG mistake is working with the customers too late. We build a product in the confines of our ivory tower and miss the real need of the customer, so when it is presented to the customer, it really does not fit their need. And then wonder why the product adaptation is slower than expected. However, with the tools available today, this should never happen, or so we wish.
September 11, 2009 at 5:30pm by Rob Miller
Excellent Post. I would add two more based on several successful software companies I have started:
#1 Not recognizing the right time to take investment capital - which is the inflection point of the hockey stick.
#2 Partnering with individuals that have the same skills as you. You need founders with diverse skills.
September 12, 2009 at 6:01pm by Yahav Isak
Excellent post and I agree with every point (love the "Drinking Your Own Kool-Aid"). However, you can easily apply the same 10 mistakes to mid/large companies.
September 13, 2009 at 10:01pm by Adam Contos
David,
Great post! These points certainly are pertinent not only for a start-up but for every business to consider as they do regular business planning. All of the ideas will keep you grounded in your thoughts.
To your success!
--
Adam
www.redfolder.wordpress.com
www.redfoldersolutions.com
September 14, 2009 at 12:44am by Clint Buytenhuys
David, great posting! I am looking forward to you expanding on these key items. These mistakes, and others, are even more critical to early-stage and more mature offshore companies trying make their entry into the US market. We are working with a quickly expanding set of clients just like this and have a very specific approach to minimizing the risk (and cost) while maximizing the chance of success.
www.go-esi.com
blog.go-esi.com
September 14, 2009 at 6:44am by David Lavenda
Some really good comments - thanx for the feedback. I particularly didn't add any related to funding, because that topic always seems to be foremost in the minds of the founders, but it is a good point. I will try to expound on some of the other points raised as well, such as specifics about hiring the wrong types of employees.
September 14, 2009 at 9:25am by Anthony Caponiti
Rob Miller raises a great point, especially his #2. Cognitive abrasion and diverse skill sets lead to innovation in any environment. If the founders have the same technical skills, it leads to more disagreement, less definitive roles, and overall inefficiency moving a product forward.
September 14, 2009 at 10:19am by Barbara Hauser
#7 is also high on my list - and it's tricky, because as someone else mentioned, it includes the founders having a high degree of self-awareness. Marshall Goldsmith talks alot about how we over-estimate our own contribution to results and under-estimate what others contribute. At an early stage it's crucial to be accurate in our assessment not just right!
September 14, 2009 at 10:20am by Barbara Hauser
#7 is also high on my list - and it's tricky, because as someone else mentioned, it includes the founders having a high degree of self-awareness. Marshall Goldsmith talks alot about how we over-estimate our own contribution to results and under-estimate what others contribute. At an early stage it's crucial to be accurate in our assessment not just right!
September 14, 2009 at 11:50am by David Buffaloe
All great points, especially #2 Validating Demand. Another item to consider is Understand Your Limits. Many entrepreneurs think they can do it all. I would say focus on the things you are good at, then look to other resources to fill the holes. The other item is to understand the value of marketing from the very beginning. Build the marketing foundation you need to position yourself as a viable player in the market and it will pay off in the long run.
September 14, 2009 at 8:53pm by Pamela Hawley
David, thank you so much for a great comment. I would also add not trademarking. That's the last thing you need -- to be held up by a confusing or conflicting brand issue, when you are ready to promote!
Regards,
Pamela Hawley
Founder and CEO
UniversalGiving http://www.universalgiving.org
Living and Giving
http://pamelahawley.wordpress.com
September 15, 2009 at 1:09pm by Thomas Bailey
I agree with all the comments above regarding the excellence of the post. One thing that all new companies, and many established companies, need to focus on is speed to the market. The market’s need is ever changing. Sometimes the pace is slower as in industrial products, however, the window of opportunity must always be reckoned with.
September 17, 2009 at 1:43pm by Debra Joy
Great post David. I agree with all of your points. I worked in venture capital with many young companies and have started a few myself. I think another point relates to #8. I would say that starting a business to make money and not because you are passionate/interested in the business is a big mistake. Most businesses take more money, energy, time, and other resources than anyone thought necessary. Will you have the passion to stick with it when all looks grim?
September 23, 2009 at 6:42am by David Lavenda
Passion is definitely a critical success factor. When you putting in those long hours, taking back-to-back red-eye flights, and getting the door slammed in your face, it is really important to believe in what you are doing. I have yet to meet a successful entrepreneur who isn't passionate about "the cause." Definitely a "necessary but not sufficient" entrepreneur quality.
September 23, 2009 at 6:42am by David Lavenda
Passion is definitely a critical success factor. When you putting in those long hours, taking back-to-back red-eye flights, and getting the door slammed in your face, it is really important to believe in what you are doing. I have yet to meet a successful entrepreneur who wasn't passionate about "the cause." Definitely a "necessary but not sufficient" entrepreneur quality.
September 23, 2009 at 8:11am by Ginny Montanye
I have to agree with #7 also, I learned the hard way not hiring the right people to start. Lesson I will remember.
October 2, 2009 at 2:51pm by John Dygert
Startups should remember a valuable strategy that I embrace, Under Promise and Over Deliver!
More "In Context" can be found at:
www.johndygert.com