First-time Founders’ Common Mistakes

0
336
First-time founders

First-time founders tend to make many common mistakes at the beginning of their journeys. Some of these mistakes can slow them down, while others can kill their startups. Knowing these mistakes can save them time, money, and effort. If you are a first-time founder or are thinking about starting a business, this article is for you.

Technology-driven products

First-time founders with technical backgrounds tend to be technology-driven. Before building any product, founders must focus on the business value. For most startups, following technology trends can be disastrous. For example, during the past two years, Facebook, Google, and many other giants invested in chatbots. Afterwards, thousands of startups around the world developed chatbots. At this point, business owners tried to build any chatbot because they believed it was cool to have one. Unfortunately, 99% of these chatbots were useless and didn’t have any business value. Accordingly, almost all of them failed to gain meaningful traction.

One of the lessons that most technical founders learn (the hard way) is to focus on business rather than technology. People will never use a product that doesn’t have a clear business value. In addition, keeping an eye on the Gartner’s hype cycle diagram can help founders avoid such a mistake. In our previous article, we discussed how to determine whether an idea is worth implementing. We also listed the common traits of startups that became multi-billion-dollar businesses.

Too many assumptions

First-time founders usually prefer to build their products based on their assumptions. In most cases, the fewer assumptions the founders make, the better their chances of success. If you have some assumptions, try to validate them with potential clients before you start. If the idea is a bit complex to discuss, try to build a Minimum Viable Product (MVP) in a few weeks. You can launch this MVP in platforms like ProductHunt or HackerNews. By doing so, you are saving your effort, your investment, and a hell of a lot of time. Furthermore, the feedback you get will assure you about the need for the product.

Raising investment without progress

After building the MVP and validating the business need, you may decide to raise funds. For first-time founders, the process of raising funds can be difficult and time-consuming. It’s quite normal to contact one thousand investors, receive responses from one hundred or fewer, and get funds from only two or three. On average, the first funding round can take from three to six months. During this time, you should keep improving your product, acquiring new customers, and exploring new channels. The less progress you make during the funding round, the more you move in one direction: toward failure.

Not listening

First-time founders are usually enthusiastic about their ideas. Although it is important to believe in their products, they must also be open-minded to criticism. If they cannot listen and learn from mentors, investors, and clients, they won’t survive for long. Most entrepreneurs are shocked when they listen to their first feedback. It is quite normal to find that 90% of one’s assumptions are incorrect. Although founders may receive contradictory advice from mentors and investors, it is important to listen and be open-minded. It is very rare to find successful founders who didn’t maneuver their products in their early stage.

Wrong hires

If they have little or no funds, first-time founders usually hire inexperienced employees. Although they do this to save money, they end up wasting their time, effort, and funds. Startups must move quickly to compete with existing players. Inexperienced employees will waste a lot of the founders’ time in training. Even after training, they will make a hell of a lot of mistakes. In addition, they may decide to leave your startup once they gain business/technical experience. In other words, your product will be treated as a lab for training.

Founders shouldn’t rush to hire employees, and should do so only when they have sufficient funds. They must be patient until they can hire the best employees in their areas. In addition to competitive salaries and benefits, every startup must offer its early employees some shares. In one of our articles, we discussed, in detail, the employee share pool. By following this advice, startup founders can hire experienced employees and keep them motivated for years.

Incompetent co-founders

As with employees, first-time founders must take their time when selecting their partners. A common mistake first-time founders make is choosing their friends, regardless of their experience. In the startup world, a good and complete founding team is the most important factor for success. In addition, investors won’t spend a dollar on a startup whose founding team is bad or incomplete. According to Paul Graham, one of the most common reasons a startup fails is that it has a problem with its founding team.

Ideally, the startup team should have both business and technical founders. It is also preferable to have founders who have previously worked together. In addition, founders should take equal risks. For example, startups’ founding teams usually have some full-timers and some part-timers. Those who left their jobs to build a startup are taking a higher risk than the others. During their first year, founders usually work 12 hours a day, six days a week. In addition, they may receive little or no salary for a few months. On the other hand, part-timers won’t be able to work more than four hours a day and they aren’t risking their livelihoods.

Lack of a marketing plan

Some first-time founders mistakenly believe that having a good product is enough to succeed. However, without marketing, a good product won’t lead to success. Founders must have a robust marketing plan before they even build the product. In addition to the marketing plan, they should have backup plans to use when necessary. The startup must also have the team and resources it needs to execute such a plan.

First-time founders who have multisided products (like marketplaces) need such plans more than anyone else. Founders with these products usually have to solve the chicken-egg dilemma. On the one hand, suppliers won’t sell the founders’ products through the suppliers’ platforms unless the founders have some traffic. On the other hand, clients won’t use these platforms if they do not have enough products. Consider how Uber started – did it convince the car drivers or the clients first?

Big scope

Startups should focus on building a niche product rather than one with a big scope. In most cases, first-time founders have neither the time nor the resources to build and market a product with a big scope. In addition, maintaining such a large product with the startup’s resources can be impossible. Most unicorns started with niche products before gradually increasing their scope. For instance, Jeff Bezos started Amazon.com in 1994 by selecting only 20 products to sell online. Today, Amazon has more than 400 million products on its website. In addition, Zoho started with an online word processor before expanding its scope. Most unicorns started with very niche products in their early stage. In summary, think big, start small, and learn fast.

Over-optimism

First-time founders are usually very optimistic in their plans. They typically overestimate their market, sales, and projected profit. They also underestimate their rivals’ strength. These inflated expectations can cause real problems for the startup and its founders. Accordingly, founders should have their first-time plans reviewed by other experts in their areas.

Idea overprotective

Typically, first-time founders are overprotective about their ideas. They are usually afraid about having their ideas stolen. In reality, any idea won’t bring in a single dollar if it isn’t implemented correctly. In addition, before implementation you must share your idea to make partnerships, raise investment, and get feedback. If you feel unsure about sharing your idea, you need to either file a provisional patent or have a non-disclosure agreement (NDA). You can read more about the provisional patent in our idea validation article. Here, we will discuss the non-disclosure agreement.

An NDA is a legal contract between at least two parties that prevents the sharing of information, material, or knowledge without permission. An NDA is usually signed when you’re in talks with potential partners. A common mistake that founders make is trying to have an investor sign it. Most angels and funding firms don’t like to sign NDAs. That’s because every year they hear thousands of pitches; therefore, they may not know whether they’ve been pitched a certain idea or not. Accordingly, most of them will refuse to sign such an agreement.

Lack of business model

Most products in the world exist to generate money. Even free products have some sort of business model to generate revenue. Although building a product that people need should be your first priority, knowing how to monetize it is crucial. It is also a good idea to have a business model canvas ready while you’re raising funds. A business model canvas can summarize everything about your business. It helps business angels and VCs understand the most important resources in your business and how you will generate money.

Being a perfectionist

They say that “perfect” is the enemy of “good.” When building a new product, you should focus on adding some value for its users. Don’t aim for a perfect product with no problems. If you’re building a software product, keep in mind that most startups launch their products with some bugs. Even tech giants like Microsoft and Apple have bugs and other problems in their products. You should be quick in fixing and improving your product but you shouldn’t aim for perfection.

Taking a long time to launch

Most startups take from three to six months to launch their products. The shorter the time, the more room you have to maneuver. Launching the product will get you tons of useful feedback from real users. This feedback will validate all your assumptions. In addition, by launching the product, you will have some traction. Most business angels, accelerators, and VCs need to see some traction before they invest. Accordingly, launching the product as soon as possible should be one of your top priorities.

Some first-time founders may be reluctant to launch the product early because they want to add features, increase scope, or make some improvements to their products. If you are afraid of losing customers due to any problem, consider relaunching the product later under a different name. It is very common to launch the same product multiple times under different names. By doing so, you can ensure that a need exists for the features or improvements you will add.

Spending too much

As per Warren Buffet, if you buy things you don’t need, you will soon sell things you need. Most entrepreneurs should consider minimizing their spending as much as they can. Many unicorns’ founders started their journey by bootstrapping. Furthermore, many of them didn’t raise funds at all. You can read more about bootstrapping in our previous article. Even if you managed to raise investment, you should try to minimize your spending whenever possible.

Before spending on anything, calculate the value you will get from it. Every startup must have its own Return on Investment (ROI). In addition to ROI, first-time founders should keep an eye on cash flow. According to ACCA, 82% of startups fail due to poor cash flow management skills. Founders must start raising investment if their cash covers only six months of operations. Raising investment usually takes from three to six months. Accordingly, founders must have enough cash to finance their operations during this period.

Not fully committed

Building a successful business while working another job is difficult. At least one founder must be fully committed to the startup. It’s very rare to find an accelerator, business angel, or VC that funds a startup whose founders are all part-timers. In addition to financing, founders must do several things to launch their product and get traction. Besides coding, founders must answer clients’ enquiries, manage employees (if any), network with investors and partners, and handle several other tasks necessary to lift the business off the ground.

Not paying self

Some first-time founders decide not to pay themselves even after they raise investment. Although founders should receive less than their peers in the market, it is impossible to sustain oneself in the long term without some cash in hand. During the first funding round, investors must be aware that the startup founders will get salaries. If this wasn’t clear enough while raising funds, founders may have a hard time convincing them to get salaries.

Don’t know when to give up

In terms of when to give up, all founders receive contradictory advice from the people around them. Some experts encourage founders to give up quickly, saying, “If you are going to fail, fail fast.” On the other hand, some people (especially investors) encourage founders to keep fighting. Apparently, no one likes to lose their investments in your startup. Fortunately, there are some signs that can tell you when to give up.

First, if your competitors offer better products than yours and you cannot compete, this is the time to surrender. If you don’t have enough cash to hire the people your startup needs, you should consider giving up. If you don’t make any progress for a few months (like acquiring new clients, increasing profits, gaining more traffic, etc.), it might be the right time. Finally, if the founders are no longer excited about the business, there’s no other option but giving up.

On the other hand, you should never give up if your customers are satisfied with your product. If you are growing your user base, keep going, whatever it takes. If the process of raising funds is taking a long time, remember that many businesses survived without fundraising. Finally, as long as your business is making significant progress, you are on the right track.

Going back to corporates

Many first-time founders decide to return to the corporate life after their first failure. They can certainly go back if they need money. However, what they learned from their failure can be the seed of a successful business. Many founders started their entrepreneurial journey with failures. However, they learned from their mistakes and kept going until they became billionaires. The Internet contains countless stories about those who turned their failures into success.

The experience you gained during your first attempt will boost your chances of success in your second trial. According to Fortune, 60% of venture-capital-backed startups fail. This figure is much larger for those startups that didn’t raise series A. Accordingly, keep in mind that things can go wrong. And, yes, while many successful founders made mistakes, as Warren Buffet said: If you don’t make mistakes, you can’t make decisions.

 

Have any questions? Feel free to post a comment below!