Growth5 Blog

Wednesday, September 9, 2009

Common Startup Mistakes

On his Both Sides of the Table blog, Mark Suster put together an interesting post on common early startup mistakes. The highlights (in bold):
1. Moonlight Responsibly - If you are still employed please be very careful not to use your company’s resources to produce your product and please do not work on your next idea during business hours.
-We have worked with startups where founders were moonlighting and some where they weren't. It's a trade between cash drag and having enough time to run the business right. As with many things, it comes down to timing. Working with people that can look at your business objectively (your board, if you have one that early) is a great resource to help with the "when do we leave our day jobs?" question.
2. Register a company. If you don't, the problem is that you’re opening yourself up to a claim by one of these people that you somehow stole their ideas.
-Suster uses the Facebook story as a great example of this common mistake.
3. Pick the founding members correctly... this is one of the single most important areas for you to preserve your future wealth creation opportunity... your founding team should never have more than 2 people total (including you).
-The smaller the better in most cases. Try getting any four people you know to decide quickly on where to go to lunch, never mind corporate governance issues. Although, for me personally, the first company we started under what is now The Five Group umbrella -- Design by Five -- has five founders. We've worked together swimmingly for seven years. I couldn't have asked for four easier people to work with. Chemistry is incredibly important.
4. Research your market. Make sure that you’ve identified a problem that you believe exists. Calculate how much time or money this is causing the people involved. Sketch out your solution. Find out what solutions they’re using today. Use all of this for the basis of a plan that defines your company strategy. DO NOT start with product, start with the market.
-What a great point. So many entrepreneurs are convinced they have the product of all products and the world will come to it, buy it, use it, pay whatever for it and then we all retire. If you build it, they won't come so you better find the market first and bring the fantastic solution they are longing for directly to them.
5. Get customer input. This is another big mistake. People design their products in a box assuming that they’ll show customers later and get feedback. Get feedback before you start building anything.
-Find out what your audience is longing for and how they want it delivered to them.
6. Build prototypes and/or product. Start building out your product. If you need a cheap way to get a prototype built consider the following options: student interns, people willing to work for stock options rather than cash or some mix, doing the work through oDesk, eLance or Rentacoder.com.
-Sure, measure a couple times and then cut. But also let your audience help you measure again, and then re-shape, cut again, more measuring with your audience. Repeat.
7. Make sure you own your IP. This is a BIG mistake many early stage companies make. They have developers or friends help code their software without having legal agreements in place. Otherwise you run the risk that in the future somebody claims that the programming work that they did for you represents their IP and not yours.
-Pick your attorney wisely.
8. Assemble a team. As you know my preferred route is to the start the company, register it, get the basic plan in place, sketch out wireframes and/or start getting your product built AND THEN assemble your team. Teams create companies – not individuals. Teams raise money – not superstar CEO’s. Start building your team early.
-It's tough to do it all alone. Be patient though, it's better to pick the right team over time than pick any team quickly.
9. Founder vesting. You should implement restricted stock with vesting at the earliest stages in your company -even before the VC’s ask. Founder vesting is an insurance policy for all team members involved.
-Some entrepreneurs will resist Founder vesting, but I agree that if you can get it, it's better to have it than not. Four years with acceleration upon change of control.

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