(Editor’s note: This post on the mistakes startups make is part of our Tech Tuesdays series.)
Our core business is built on the global mobility of talent. So, we work with lots of startups in our subsidiary businesses such as Tier1 Tech Talent, the world’s only tech talent management company. (Think Hollywood talent agency, but with techies and startup founders instead of movie stars.) We help startups with marcom, messaging and strategy on the way to putting them in front of American investors.
This post is just something we needed to get off our chests. Having worked with startups for years, we’ve seen every possible mistake. (Okay, that’s a joke. We haven’t … there’s lots more insanity on the horizon.)
As they say, you learn more from your failures than from successes, so we’re distilling some of the mistakes we keep seeing over and over and over again into a post to keep you from making them.
• Don’t lie. It’s okay to be wildly optimistic, but out–and–out lying will kill your credibility … and your startup. We see too many startups claim to be in “talks” with potential investors and customers. American investors see right through that BS, because it usually means the team talked with somebody from some random company at a startup event.
Also, don’t tout sales you don’t really have. The most egregious example we’ve seen lately is solar car company Lightyear claiming to have 10,000 “pre-sales” worth like a billion euros. The truth was, some rental car company executives said they’d consider buying a less expensive Lightyear 2.0 car than the 225,000 euro original. But Lightyear never built the first generation of cars, so they were going to just magically start a whole new line? Oh, and then Lightyear declared bankruptcy.
I remember sitting in front of VCs having to admit our first media company had nothin’ – no revenue, no full-time staff and a tiny audience. They didn’t care … they liked the concept.
That and the fact we didn’t lie.
• Can you even articulate what you do? Believe it or not, this is the most common mistake we see, teams that can’t clearly state exactly what they do, how their technology works, what business they’re in or why anyone would want their product. “Our widget solves problems in multiple sectors.” Really …..
• Don’t start a startup without an exit plan. In other words, envision your exit even before you start. Do you want to be acquired? Are you building the next Microsoft or Tesla? Why are you doing this? Because you’re in for years of struggle and you’ll need to tap into your confidence reserve … a lot.
• Own your IP. No, really. We’ve seen incredible startups teams that forgot – or couldn’t afford – to patent their intellectual property. And guess what … a competitor emerged with exactly the same technology. Sur-prise! This was a lesson we learned early; get a great attorney on your team.
• Get rid of the deadwood early. We see way too many startups stick with team members who are clearly not A Players as they go to get funded. Remember, for American investors, it’s all about the team. If you have weak links in your chain, they’ll find them. In fact, ask yourself, “Should I really be in a startup? Can I work 12-hour days for years? Do I take it personally when potential customers or investors say ‘No’?” We see too many talented people better suited for corporations trying to survive in startups. That never ends well.
• Don’t dilly-dally. This is another huge mistake we see all the time, European startups just cruising along, taking their sweet time to get to market while living off government subsidies. What happens is, American and Chinese competitors beat them to market. Or they get left behind as technology advances. And trust us, technology is accelerating like never before in history.
We saw this with a very cautious cybersecurity startup we thought had potential. That is, until we saw new biometric security technology. The technology leap-frogged, making the startup’s technology obsolete because they didn’t move quickly enough to market. Part of that has to do with taking your eyes off the prize and taking lengthy holidays when your competition is blasting past you. We’ve only said this a million times … Americans don’t take off summers and holidays. They’re working while you’re at the beach.
• Be honest with yourself about where you are in the evolution of your startup. We’ve seen too many startups and scale-ups sure they were ready for the U.S. market, which is the biggest. Yes, they had good products and some revenue. But they had sooooo many issues, including lackluster leadership, a vague business plan, no sales team, no market research and insufficient capital reserves to get to the next raise. And don’t go to serious investors without a detailed business plan that includes multiple funding stages. “We’ll figure it out later” is not a strategy.
Finally, America is a big place … you know that, right?
• If you’re a small startup, don’t hire big-name consultants. If you’re pumping revenue or looking for a merger and can afford to get strategic help from Big Four firms such as EY or Deloitte, by all means, go for it. If your startup isn’t even cash-flow positive, why would you spend thousands of euros to get advice from some kid fresh out of business school? Because on your level, that’s who you’ll get.
There are lots of experienced people who’ve built companies in your ecosystem who might give you advice for free.
• Find someone who understands the nuances of risk capital. Too many times, we see teams full of great engineers, but no one who understands business, including what investors expect. If the terms “private equity,” “fund vintage,” “limited partner,” “liquidation agreement” and “cap table” have you baffled, you’re in the wrong game. If you don’t understand where venture capitalists get their money or how funds work, find someone who does.
• Learn to read between the lines. As in real life, there are a lot of nuances and personality quirks in the startup world. In fact, reading people might be the hardest lesson of all to learn. Here’s a hint: When a potential American investor says “Hmmm, interesting,” European startups come back telling everyone they have an interested investor.
“Interesting” is American for “Oh, hell no.”
We could go on and on, but we’ve got to get back to work. If you want to work with us, ping us at: [email protected].
While you’re waiting to cash that check, here’s some light reading:
“Steve Jobs,” by Walter Isaacson
“The New, New Thing: A Silicon Valley Story” by Michael Lewis
“Secrets of Sand Hill Road,” by Scott Kupor
“The Hard Thing About Hard Things,” by Ben Horowitz