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Common Startup Mistakes to Avoid Part 2
Early last year, we hosted an event on “10 Startup Mistakes to Avoid” and brought in some high-profiled founders and investors to share their experiences (you can read the entry here). Fast forward to present day, while the startup world has changed a bit, the general “rules” and advice for entrepreneurs remain the same. Earlier this month, we decided to do another panel on startup mistakes to avoid, call this Part 2 if you will. Our stellar lineup of panelists this time around included Rahim Fazal, CEO & Co-Founder of Involver (which was acquired by Oracle in 2012), Ben Jacobs, CEO & Co-Founder of Whistle, Gentry Underwood, CEO & Co-Founder of Mailbox (acquired by Dropbox earlier this year), Aileen Lee, Founder of Cowboy VC, and Kent Goldman, Partner at First Round Capital. So what common startup mistakes should entrepreneurs be wary of? Here are a few golden tips to keep in mind.
1. Building the right team is your top priority – It can’t be said enough, but finding a co-founder or a team that complements your skills is so important for building the initial team. Having the complementary skill sets and someone you trust deeply and can work closely with, should always be on the founder’s mind when looking for additional team members to bring on. There’s a reason why investors like to see history between co-founders and the initial team. It means you’ve been through the ups and downs together and have probably at one point or another, seen each other at your worst. See here for a previous post re-capping a session with Dianna Mullins from Glam Media, about building the right team.
2. Clearly identify the roles of each member of the founding team – All too often, founders will get together and decide they want to start a company, but no one knows who the CEO is. It’s important to have these conversations early on and to set the proper expectations for responsibilities. The CEO’s primary jobs are to “get money in the bank, make sure there is always money in the bank, and recruit a great team,” says Rahim Fazal. This will also come into play when figuring out how to split equity (see below).
3. There is no hard and fast rule for the number of co-founders a company should have, but it’s important to think about when equity comes into play – Most investors recommend having two co-founders, but the number is entirely up to you and your team. As Aileen Lee mentions, there is no right or wrong answer, but it can be tricky. “Oftentimes, let’s say that you have three co-founders and you split [equity] three ways, but whoever the CEO is, he or she will be bearing the weight of the world on their shoulders,” says Aileen. “At the end of the day, the buck does stop with the CEO and if they all have equal equity stakes, it can create messed up dynamics as a result.”
4. Be strategic when approaching investors – Investors want to see that you’re being strategic and tactical about the mechanics of your business. How will you scale? What’s the business model? Milestones and risks? These are all questions to ask yourself when you’re preparing your pitch deck for the initial meeting with an investor. Quantify your results and know the upsides and downsides of your business. Ben Jacobs recommends leveraging your secondary connections and never cold e-mail any investors in the Valley.
5. Just like a marriage between founders, board relationships are very complex – Just as important as your relationship is with your founders, the dynamics between the company and the board members are equally as important. Make sure to be very tactical in your approach with board members and be sure to ask the right questions. As Kent Goldman says, do lots of reference checks. If you’re thinking of opening up a board seat to an investor (or multiple), do your due diligence on them. Ask other founders they’ve worked with and find out what their reactions were towards wins and losses. At the end of the day, if you’re looking for board members to be with your company for the long run, find individuals who can empathize with you and help move your company forward in all aspects.
6. When it comes to your product, you should always be talking to the customers – Having a good product is important, but it doesn’t matter if the product isn’t being used by anyone. Distribution is key and as Rahim said, if you’re not out there with the largest market share and in front of the most important companies in the space, it really doesn’t matter. At the early stages of building your product, create your MVP and start talking to as many customers as possible about their needs. Knowing your customers and what they want will help you build a product that will scale and scale fast. Iterate on things that matter and make that a focus.
7. A good company is bought, not sold – When good companies are bought, chances are they’ll be bought again and usually at a higher price. It’s a good idea to be open with your founders early on about the trajectory and exit of the company so that you keep in mind founder liquidity along the way. One of the things Gentry Underwood learned from his counsel early on was to say yes to every meeting with the corporate development companies. Even if you’re not thinking about it now, much like everything else, it’s a courtship and takes time to build relationships. “So think of it as laying down seeds and meeting people and getting into those relationships,” says Gentry. “Maybe one of them at some point will come to fruition and play out in that way. But if it does, it will probably be because it’s been building over a period of time.”
For your viewing pleasure, you can watch the event below in its entirety.
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