Entrepreneurship - 10 common mistakes in start-up

I do in my spare time some philanthropic activities with the Chamber of Commerce. I do help young entrepreneur to prepare their Business Cases and I do consultative coaching in the start-up phase of their adventure…

These are the 10 most common mistakes I serially see in those interesting meetings.

1. Setup the new company on the base of 2 people idea, splitting the ownership to 50% each.  A lot of new startup begin with 2 friends having a brilliant idea and deciding to invest together to make it real. Usually people make the assumption that having one strong friendship will translate into a similar energy in the working arena. It’s wrong!!! Better will be to have 3 to 5 associates to build real democracy in taking decisions. Have seen may start-up failing the first year because of that.
2. A single Customer with a weight of more than 30% of revenue. This is a typical case for all those start-up that get created with a need that has been expressed by a Client. It look great to start it with an existing Client. The issue is that the focus of building new clients get defocus by the need of delivering to the first one. In less than a blink the start-up get too dependent from the initial client and at the minimum market condition change the start-up is out of business.
3. Who does what? Every start-up must have the right choice of the associates. It is fine to dream about getting together as friends and revolutionize the world. Most of the start-up born in this way… Defining what each one is going to do is fundamentally critical!!!  It looks simple but it is one of the spotted issues I found when I’m helping young entrepreneurs. Let’s start with a magic number of 3 associates, this is the ideal situation with 3 operational associates taking care of the 3 key functions: Production, Sales and Administration. The 3 associates must be different in their personal skills, but similar from the cultural extraction. The decision of who does what must be driven by their personal characteristics, so the sales owner will be personable, optimistic and will have good reaction to negative answers. He’ll be a good communicator and planner. The production owner will be the one with technical expertise, leadership and a good sense of timing. The Administration one will be the rational guy, less influenced by the excitement of the sales person and very strict on the production promises.  He/she will put on the table continuously the reality check between costs and benefits of any activities.
4. Pricing strategy. This is historically a big debated area. I see continuously new start-up doing the same mistake of entering the market with a very competitive price. Most of the new companies believe that having a low price will help in capturing clients from competitors. This is very rarely a good strategy as the existing competitors can endorse a price war for longer than a start-up. Frequently the same range prices (sometimes even a bit higher), help in establish brand recognition, especially when the market awareness is made around a value proposition that create a real differentiation.
5. Capital Risk. Starting a new company with not enough money it is a typical mistake. The positive and optimistic mindset required to initiate this type of adventure is not compatible with the grounded need of cash in the initial phases of the new born company. A good rule of thumb I use to judge and help new business plan submitted are to double the required initial capital and to divide by half the estimated expected revenue in the initial 3 years. If the assumption allow to have the business plan not getting dark red… it is feasible…
6. Lack of Focus. At the beginning it is easy to jump on any opportunity if this produce revenue… a start-up need to define ahead what are the core competencies for them and to understand that only with a focused approach it is possible to develop a knowhow that will help the company to differentiate. The start-up must think long term and select opportunities with a good trade off for what is necessary in the short term and what is a good business for the long run…
7. The right team. Frequently the founders of a start-up do not invest the right level of time and energy in the workforce selection. The starting block rush and the willingness to rapidly produce results bring sometimes the wrong mixture in the equation. We may want a guy with a strong experience in the domain and so we may look for someone that has at least 7 years experience. We may just hire this person and discover that those 7 years are 1 year in 7 companies.  We must make sure that we do hire the best candidates, and it make sense to get experienced help in this domain. Another area is the investment in training and development… if you want to get someone highly motivated and comfortable in a continuous changing environment (like a start-up), it is fundamental to make sure your people get the best help to succeed
8. Market Inertia. Most of the start-up believe that it will not be difficult to find new clients and believes that they will be capable to capture new clients from competition. This is a real nightmare, because there are multiple aspects that make an existing relationship strong, and most of those are not visible, here some of them:
   – Penalties in case of broken contract
   – Service obtained satisfactory
   – Prices in the relationship discounted for old clients, making the start-up prices higher
   – Customer not really sensible to price point
   – Change management from one provider to another too expensive
   – Customer preferences difficult to change
   – Change resistance from top management due to personal relationship with existing provider
9. Growth crisis. If thing go right at the beginning it is not impossible to see growth rate of 50% year over year. This growth require new addition of workforce. In a new company with a not consolidated corporate culture this can be the beginning of the end… cost control can be lost and usually high growing periods run in parallel with low profit. The objective must be to be profitable even if it does mean lower grow rates.
10. Public relation. This is one of the area that more than other still surprise me. The believes that as we have a good product, clients will come and buy… it was probably true 30 years ago, but today it is very much important to use any media is possible to convey the message, the value proposition for the clients. Events, meetings, forums, conventions and all the digital approach of social networks must be used to create opinions and to express externally why the new start-up is different. It is fundamental to build knowledge and awareness using any opportunity to make sure the new player and the product is recognized. This associated with a branding will be the best communication tool.  My advice is to make any employee  the ambassador of the company, at different level and scale each person is a potential dispatcher of  the right message.

Hope you found it useful…

let me know what you think…

Stefano Burbui