Thinking about starting up a business? Or are you in the middle of the ride of your life – having established a business, found some finance and started developing – totally focused on making it a success? Take a moment to read this – it may save you from making some of the more common mistakes that entrepreneurs make. These are the mistakes that I made.
Humans are funny creatures. Despite our almost unlimited access to the learning and experiences of our parents, partners, siblings, friends, colleagues and associates, as well as whatever we can read, see or hear, we all learn more from our own mistakes than by hearing about the hard-fought lessons of others.
Business entrepreneurs are no exception to this. Quite to the contrary – being pig-headed is almost a prerequisite to succeed with a new business venture. I am certainly no different, having been directly or indirectly involved with half a dozen startups in my career. There are many lessons I wish I didn’t have to learn, but did, sometimes the hard way.
Some of those startups were successful. My first – a company that developed the world’s first hand-held point-of-sale terminal for restaurants – celebrates its 25th year in 2010 and remains a leading provider of restaurant systems in Scandinavia and Europe. Others enjoyed moderate success and were sold or merged. I enjoyed being part of them all, and learnt a lot along the way. But I certainly learnt more than anything from the more spectacular failure of my most recent startup – MobileSelect.
I hasten to add, this is not going to be a story about that company, other than to say it was an online venture set up with a vision to help people find the right mobile plan. With startup funding from iSelect, plus a closely-knit group of more or less wealthy private investors, we enjoyed some early success and quite a bit of media attention. But after the initial euphoria, growth stalled, we ran out of funds, and the company was liquidated in July 2008, at significant financial loss to me and my family as well as the other shareholders and creditors.
This is also not so much about the specific mistakes I made along the journey, of which there were many, but more about the lessons learnt from those mistakes that I hope can benefit others.
1. Get advice from others, and listen to it.
As a matter of fact, mistakes are made in every startup; it is par for the course in any risk-taking venture. It is not admitting to or acting on those mistakes that can end up being costly. Entrepreneurs are by definition blinkered. Carrying the vision forward is your job. Removing obstacles and meeting any challenge front-on is a prerequisite for success.
It is easy to see those well-meaning comments and opinions on your venture as distractions, and I know I certainly did a lot of the time. Challenging as it may be, listening to other people can be the difference between success and failure. The point is not about right or wrong, but about being able to constantly evaluate and analyse the business, the market, the products and the money and people that you need around you to make it happen.
In short, the more people you listen to along the way, the more support you will find, and the more likely you will be to succeed.
2. Establish a well-functioning board (of advisors)
It took me a while to admit it to myself, but failing to establish a board of people that can provide strong advice from day one was one of my biggest mistakes. I was happy that the board “took care of itself” as many of the shareholders were keen to be involved at that level.
As Julia Roberts said in Pretty Woman: “Mistake, big mistake; HUGE.” And as Richard Geere’s character would no doubt agree, having shareholders on your board is fine, but being a shareholder doesn’t in itself qualify you for a board position! Whether you are setting up a formal board of directors or an advisory board, make sure it consists of people that have diverse experience in areas related to your venture, and that they are prepared to challenge your wisdom and question your plans.
As a matter of fact, having an advisory board can be much more useful than a formal board, as it is much easier to recruit competent people to contribute as an advisor rather than as a director. Being a director carries a huge responsibility and with it considerable risk (just ask the directors of James Hardie), so the people you want may not wish to be involved in that capacity.
3. Investors don’t necessarily agree with how much money you need
Another reason for not having a board dominated by investors is that it may well cloud their judgement when it is time to raise more capital. Particularly if things aren’t going exactly to plan in the early stages, and they rarely do, you may find resistance to getting your board to raise sufficient capital for the next stage at a reasonable valuation. “Reasonable” may well be below the initial expectations that you set, and the fear of being diluted can easily lead to irrational decisions being made by a board consisting mostly of your investors.
4. Don’t put a value on your business – the market takes care of that
There is no such thing as successful entrepreneur who hasn’t, at one time or another, had an eye on the pot of gold at the end of the rainbow. But whatever expectation you have, reality will be quite different one way or another (just ask Steve Jobs).
When presenting your idea and your vision it is all too easy to dazzle the audience with the size of the market, the uniqueness of the product, the future growth curves and the substantial profits to be expected within a few years of starting up.
The investors that “buy” your numbers are in all likelihood not the investors that you want. Any savvy venture capitalist or private investor will make their own assessment regardless of what you say, and valuation (surprisingly for many) is relatively low on their list of investment criteria. They’ll look at you and your key colleagues and business partners, they’ll look at the market potential for sure, and they’ll make sure they understand the risks. If they do decide to invest, the value of your business is merely what they are prepared to pay, plus some room to negotiate, of course.
Don’t fall into the trap of using future valuation as your negotiating tactic, it can so easily come back to bite you further down the track when you may need more money. And, in all likelihood, you will need more money.
5. Numbers mean nothing until delivered
The same goes for your budget numbers. There is a reason that more and more public companies shy away from giving revenue and profit guidance to the stock market. It creates an expectation that cannot be undone once published.
I am not for a moment advocating that you should not budget, but focus on budgeting for what you need to get the business to break-even, then double the expenses and halve the revenue. And avoid setting lofty budget goals for what you’ll achieve in two or three years. Starting up a business is all about focusing on what needs to happen now to fulfil your vision for tomorrow. And a vision that is only about numbers does not have enough depth to be taken seriously.
6. Pay attention to the details
There are some entrepreneurs out there who can create amazing things through the extraordinary force of their personality and vision – Richard Branson is a particular hero of mine who seems to be able to create new businesses through the glint in his eyes. But most of us mere mortals cannot do that. We need to focus on the details of the business to make it happen, otherwise it won’t.
And truth be told, Branson’s books tell a story of a man that was obsessed with the minutest detail in his early careers, and probably still is.
If I had my time again with MobileSelect, I would have spent a lot more time on the development of our applications, systems and the website, but instead I spent too much time planning, budgeting, reporting, attending board meetings and thinking about “the big picture”.
7. Know what you don’t know
In retrospect, I also know that I was missing some key skills – or, rather, I was relying too much on learning on the job and flying by the seat of my pants.
Hindsight is a wonderful thing, and I know now that my biggest contribution to the business was the idea itself, as well as selling it to the business partners we relied on to make it happen (the mobile carriers). We lacked skills in some key development areas, and the end result was a product that, although it may have fulfilled “the vision”, in reality was a sub-standard service that our website visitors found difficult to use.
So make sure you know what you need to make it happen, and be absolutely certain to identify your own shortcomings. Nobody is good at everything.
8. Act early and decisively – admit mistakes and move on
Having our “version one” of the online service we offered being less than fantastic wasn’t in itself the end of the world, and it happens more often than not. However, not doing something about it can be a fatal mistake.
No startup can afford to hesitate before rectifying a mistake. If things don’t work, be it related to the product, the market, your sales process or the people you employ, don’t wait. Don’t expect it to sort itself out. Be decisive. Make changes. You are much better off risking a new mistake than trying to persevere with the one you already made.
9. Strive for what is possible – leave perfection to those who can afford it
Striving for perfection is a luxury accorded only to companies with deep pockets in mature and regulated industries. One of my early business mentors, a Norwegian entrepreneur with several very successful startups behind him, used to urge me to decide what was “good enough” to do the job – a state typically obtained long before perfection. (Or, as Bill Gates would say, bug-free software is obsolete!)
It was good advice then, and it still is. It requires a degree of leadership to tell your designers, your developers or your engineers that today is the day we “go live”, open the doors to the public, start selling and then hope for the best. Finding that balance between being “finished” and being “ready” can make or break a budding startup.
10. And finally… be prepared – leave something in the bank
I am a recreational sailor. I spend most Saturdays on a yacht on Port Phillip Bay. One of the things you learn going into the wind towards the windward mark, trying to get the boat to travel less distance while maximising speed, is that you have to leave something “in the bank”. Go a bit higher into the wind just in case there is a wind-shift before you get there.
The margins can be small in sailing, but missing the mark only reduces bragging rights in the bar after the race. Risky, but not terminal for most of us. Sailing too close to the wind in business is much more dangerous, not just because you may run out of water (money, that is), but being in shallow water reduces your options when you most need them.
So make sure you have at least three or four months of negative cash-flow left at any time. Anything less can cost you not just bragging rights, but the key to the bar!
Kim Wingerei sells mobile phones and telco services online. He works to live, is easily distracted and likes sailing.