Over thirty years ago, I started my first company. Since then, I’ve started more companies, acted as an angel investor in more than ten ventures and as a board member or advisor in several others, and interacted with numerous founders and entrepreneurs. In addition, I’ve collaborated with intrapreneurs inside large organizations trying to get innovations off the ground and commercialized, both while working inside those organizations as well as through consulting arrangements.
Over these years, I’ve collected several experiences and learnings that I feel might be worth sharing. Some might be counterintuitive and some might be obvious, but either way, I’ve been surprised how often people know one thing and do the other. In the coming weeks, we’ll be diving into ten lessons I learned the hard way, meaning that I lost money, time or both. Of course, there’s no better way to internalize a lesson than through personal (negative) experience. Still, quoting Elon Musk, starting a company is like eating glass and staring into the abyss, and it’s much better to learn what you can from others and make your own, novel mistakes instead of repeating old ones. So, here goes…
1. Too much early funding kills a startup
Most startups that I work with love the idea of not having to worry about funding for a good long while. However, I have some examples that show that too much funding causes a company to focus internally, build products based on the opinions of the founders and staff and ignore customer input. By being budget constrained all the time, the focus is on generating revenue, which automatically causes everyone to focus on building what customers are willing to pay for.
2. Build it and they’ll come is setting yourself up to fail
One of the hardest challenges in startups is the balance between building based on your conviction on what the world needs or is going to need and feedback from customers and the market. Only listening to what customers say will result in too small a delta compared to already existing products. However, ignoring input from the market and blindly building what you believe is needed is a sure way to fail. Entrepreneurs are by necessity rule breakers and tend to ignore the market input longer than what’s good for the business.
3. Customer interest is no evidence of buying intent
One of the most painful lessons I’ve learned the hard way is that ideas and research that were presented to potential customers with great and positive feedback didn’t convert well at all when turned into a commercial offering. I have cases where hundreds of people were interested in research results and we completely failed to build a cash-flow positive business around the commercial offering based on the research.
4. The leadership team almost always is the bottleneck for growth
Once a company gets off the ground, there seems to be a number of points, in terms of company size, where growth stalls. In many cases, the reason for this is that the leadership team isn’t effectively restructuring the roles, responsibilities and authority in the organization. Often, the founders have a high need for control and don’t dare to properly delegate and, by extension, become the bottleneck for growth.
5. The offering’s pricing is wrong
Few topics lead to such heated debates in startups as the pricing of the offering. The fallacy many fall into is that we need to get the pricing right from the beginning as we can’t change it once we’ve established the anchor point in the market. In practice, however, pricing needs significant experimentation with customers, meaning that you need to develop mechanisms to experiment without burning bridges.
6. Inbound sales is an illusion
The holy grail of sales is to create a lot of noise on social media and to see a slew of customers knocking on your door, desperate to buy what you’re selling. Several of the startups I work with start with the ambition to use that model. In my experience, until you have a valuation exceeding a billion or more, the best way to generate sales, especially in B2B contexts, is to simply scout for potential customers, fill the pipeline, start taking prospects through the funnel and get them to sign on the dotted line. Despite having started my life as an engineer, I can’t stress enough how hard sales is and how much work it is to work the funnel and to close deals.
7. Solving ‘your part’ only is causing you to fail
Many of the entrepreneurs I work with, especially intrapreneurs, have experience in the industry they’re looking to disrupt. Mature industries tend to be horizontalized and each company fills a specific role and position in the business ecosystem. When starting a new company, many want to focus their energy on precisely their core area of expertise, expecting the remainder of the offering to the end-customer to be built by others. The challenge is that for new, innovative offerings, there are no ‘others,’ meaning that you need to take much more responsibility for the end-to-end, vertical integration of the offering to customers.
8. Consulting to bootstrap slows you down immensely
Even if raising funding can be quite addictive, many entrepreneurs are looking to maintain as much ownership of the company as possible. One strategy is to bootstrap the business by complementing the product work with consulting to pay the bills. This is a perfectly viable strategy, as long as you realize how much things get slowed down by having fewer resources and splitting attention between two fundamentally different types of businesses. Also, there’s a significant chance that the certainty of consulting income is far more comfortable than the glass-eating risk that comes with building a product company, causing the product side to atrophy and disappear over time.
9. Two-sided markets are uphill battles until you win
Every company wants to be a platform business connecting multiple groups of stakeholders and levying a tax on the value created in the ecosystem enabled by the platform. Once you’ve established that position, it’s one of the best places to be as a company. However, getting there is really, really hard and it takes an amazing amount of time – if you even get there at all. The only approach I’ve seen work in this context is to first build a viable business with one stakeholder group and only after you’ve established some modicum of success, start to open up to other stakeholder groups to platformize the business.
10. It will take twice as long – if you’re lucky
Everyone, including myself, and perhaps excepting seasoned serial entrepreneurs, underestimates how long it takes to grow a business. The media often presents successful startups as overnight successes, but the reality is that these overnight successes have been quite long in the making. For instance, those working with mechanical systems may know WD-40 as a product to help, eg loosening bolts. What many don’t know is that WD-40 was the 40th try of the company to build a successful product. Similarly, Rovio, the company behind the Angry Birds game, had built 51 failed games before the ‘overnight’ success. For all the gung-ho attitude many associate with a startup, it’s more of a marathon than a sprint.
Starting new ventures, either as an independent startup or in the context of a larger, established, organization is hard. To increase the likelihood of success, it’s helpful to start with the right mindset and set of beliefs. As the saying goes, a smart person learns from his or her own mistakes, a wise person learns from other people’s mistakes. I hope that you, as a wise person, can benefit from my learnings over the last decades. Don’t worry about failure; you only have to be right once!