The goal, in fact, of most new enterprises is to hang in until a scalable, repeatable, or comfortable path is found. Celebrated entrepreneur and investor Marc Andreessen calls this “product/market” fit.
In our quest for escape velocity, my startup, Contently, nearly exploded on a dozen occasions. In 12 months, we validated an idea, built a repeatable business model, and talked investors into giving us $2 million to grow it. But we cut things close.
Looking back on that first year with a mix of pride and regret, I realize our blunders helped us mature as entrepreneurs. But not everyone has to fail to grow up. Here are six mistakes we made that you shouldn’t:
1. We built features in order to test them, rather than testing to know if we should build them.
“Great idea! Let’s build it and see what our users do!”
2 weeks later: “It’s not quite ready for scale. What if a million people use this? We’ll need another couple weeks to make it air tight.”
3 weeks later: “Well… no one’s using it… maybe if we built this feature to go with it…”
Sound familiar? This is why so many new companies fail. With the limited resources of a startup, investing time and money on anything is a big bet, too many of which can kill.
We spent valuable cycles building elaborate certification systems and style guide generators for our publishing clients, when in reality all we needed was to ask users what they wanted.
The book The Lean Startup changed our entire company culture from “make the developers build it” to “how can we validate this idea for free?”.
Spreadsheets, surveys, paper mockups, and dummy prototypes can prevent companies from launching expensive, misguided missiles.
2. We waited too long to get our books in order.
As our company grew, we discovered a disturbing irony: The more success we had, the more financially screwed we were.
The problem was twofold. We’d placed the burden of accounting on one of our three cofounders, who was already spending 80 hours a week on other work. Bookkeeping was relegated to some Saturday evening every couple months.
At the same time, we were invoicing clients a month after we’d floated cash to the writers the clients had hired through our platform, and many of those clients took 45 days or longer to pay via check.
Needless to say, one day we looked at our bank account and found a nasty surprise. We thought we were profitable, but cashflow was killing us.
Luckily, we survived long enough to set up automated billing and hire a bookkeeper. Had we discovered the gravity of our error two or three weeks later, the business would have failed.
Virtual bookkeepers and automated credit card billing systems like Stripe or PayPal are dirt cheap when compared to the value of a founder’s time. The right time to get accounting set up is “immediately.”
3. We didn’t split up responsibilities among founders early enough.
In the early days, all three Contently cofounders weighed in on every product decision and went to every meeting, pitch event, and sales call. While it was important early on for us to experience all aspects of the business, you’d be amazed how good 3x productivity feels. We all loved business development and product design, but ended up divvying up responsibilities and just keeping each other informed. Joe worked on business, I worked on design, Dave worked on tech.
Naval Ravikant of Venturehacks talks about the power of complementary cofounders where “one is good at building products, and the other is good at selling them.”
Delegation at a startup can mean the difference between failure and success.
4. We spent too much time talking, not enough time doing.
In his book, Making Ideas Happen, Behance founder Scott Belsky (disclosure: Scott has invested in Contently), says, “A relentless bias toward action pushes ideas forward. Most ideas come and go while the matter of follow-up is left to chance.”
Like many businesses, we spent meeting after meeting brainstorming ideas, rehashing arguments and potential solutions to problems. At the end of a two-hour talking session, we’d leave feeling good, as if we’d accomplished something.
This was killing our progress. The only advantage a startup has over an established company is the speed and agility we were hamstringing.
It wasn’t until we started holding ourselves accountable for action that we stayed the talk trap. At the end of meetings, we discuss action items and who’s responsible for them. We started holding a team lunch every week where each member reports what they did, and what they’re doing next week. It creates a good kind of peer pressure, that keeps us acting rather than just talking.
5. We started raising money too early.
Raising investment is like Game of Thrones. You think you’re committing to a couple hundred pages, but end up trudging through 5,000. Scheming characters and gore abound.
In two rounds of fundraising, we discovered two things make an enormous difference in the time it takes to close venture capital. The earlier you are, the longer it takes. The more social proof you have, the shorter it takes.
Two months into our company, we thought we were ready to raise money. Naively, we thought having a good team and a good idea could nab us half a million bucks. We learned that although we thought we were a good team (and every entrepreneur thinks this), we were unproven in VCs’ eyes. Investors liked our idea, but saw little proof it would work, much less scale.
We spent months collecting fuzzy responses, until–to our horror–we started hearing, “Haven’t you guys been raising money for a long time now?” Implied meaning: What’s wrong with this company?
The biggest problem with raising money too early is time spent fundraising is time that could be spent making the company more fund-worthy. We squandered valuable money and opportunity cost chasing venture cash too soon.
Months later, we’d built a better product and finally landed investors who believed in our vision. But by that time, our credit cards had little left to give.
6. We didn’t ask ourselves the hard questions often enough.
Ideas are people’s babies. It’s hard to look at your baby and admit it’s flawed. But recognizing the flaws lets you get your baby help.
We were afraid to ask ourselves questions like, “Does this scale?” “Will people use this?” or “Does this even work?” because they threatened the existence of our company and the value of our months of sacrifice. But the longer we refused to truly address the tough questions, the worse the repercussions.
Fortunately, we’d guessed right on a few crucial points. That kept us afloat while we sorted out the others. The market we were going after, for example, had ended up exploding in popularity, eliminating some risk. But the way we crowdsourced copy editors on our platform, on the other hand, was creating a huge bottleneck in our process and, upon inspection, was completely unscalable.
When we finally looked at ourselves in the mirror, we fixed the problem. And now, every time we meet as founders–and every time our team meets for Friday lunch–we end our updates by announcing the one thing we’re most excited about and the one thing we’re most worried about. By developing a culture of candor, we’ve been able to cut through our own BS and ask the questions we need to face.
Though we’ve made a lot of mistakes, we built a company by stockpiling double-stick tape and fire extinguishers. Persistence and a “fix it now” attitude got us through turbulence, and will get us through more.
Sometimes you have to crawl onto the rocket’s hull and hold pieces down with your own body. But that, to me, is entrepreneurship.
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[Image: Flickr user Chris Willis]