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13 Fatal Mistakes Entrepreneurs Should Avoid---But Often Don't

Jan 27 2014, 10:25am CST | by

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13 Fatal Mistakes Entrepreneurs Should Avoid---But Often Don't
 
 

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13 Fatal Mistakes Entrepreneurs Should Avoid---But Often Don't

Success inspires; failure instructs.

If you run a company, you’re probably long on inspiration. Wisdom? We all could use more of that.

That’s why I asked a slew of seasoned entrepreneurs and small-business advisors to share their hard-earned epiphanies about why things go horribly wrong. (In their not-so-spare time, these experts—from marketing consultants to venture capitalists—volunteer as mentors at Jumpstart Foundary, a demanding new-biz accelerator in Nashville, Tenn.) Result: 13 company-crushing miscalculations every entrepreneur should avoid.

Take heed.

1) Ignoring the Intangibles

Venture capital firms invest in less than 3% of all deals they see. Raising an initial round of funding takes a lot of determination and a great business model, but many entrepreneurs forget that it also requires building relationships and credibility—and that process starts well in advance of actually needing the money. As with any sale, a warm introduction is the best way to get a foot in the door. Then, to build credibility, entrepreneurs should tell VCs the three goals they aim to accomplish before coming back for a serious discussion about funding.  — — Landon Gibbs, Managing Director, Rolling Hills Ventures (an angel fund within Clayton Associates, a venture capital firm)

2) Underestimating the Effort Required to Change Customer Behavior

My health care IT firm intended to streamline the genetic-test ordering process between clinicians and laboratories. We beta tested our software with 1,000 clinicians, but they were used to researching online and then ordering through a tedious manual process—just like shoppers used to look for books on Amazon.com but bought them at a real store. That’s why traffic to our site grew fast but actual orders lagged. We eventually realized that while clinicians are the primary users, buying decisions are made at the institutional level. We ended up spending nine extra months tweaking the software so that hospital laboratory managers and administrators could use it, too. The other challenge: integrating with hospitals’ electronic health records (EHR). We’ve secured several EHR contracts; when we roll them out, we will be the genetic-test ordering portal for 150,000 clinicians. Lesson: Stay nimble and shift your strategy as the market opportunity evolves.  — — Mark Harris, CEO, NextGxDx

3) Not Defining A Sensible Go-To-Market Strategy

I’ve never met an entrepreneur who thinks small. Having a world-changing idea is good, but what comes next is a difficult journey through the valley of reality to define a specific product that solves a simple problem that someone will pay for. In short: You have to start small. — — Bob Strachan,  Chief Business Developer, Metacake, a digital design firm

4) Using Marketing as a Megaphone Rather Than a Radar

A tech startup in the Bay Area hired an expensive public relations firm to “get their story out.” It worked—in the sense that a variety of exciting media outlets took notice. But because the startup hadn’t yet done the work to figure out how to tell the story of its product in a way that would resonate with its target users, all the media attention and server-spiking traffic quieted pretty quickly—and without yielding much insight about the startup’s core customers. Lesson: Use early marketing dollars to focus on insight rather than exposure. — — Kate O’Neill, Founder and CEO, Metamarketer, a digital marketing agency

5) Building the Hovercraft

I have watched very clever engineers hole up and develop a host of whiz-bang features before they ever talk to a customer. We tell entrepreneurs to speak to customers early and often, and put a minimally viable product in their hands quickly to get feedback. Many times new companies spend precious time and money to give customers a hovercraft when all they want is a red Radio Flyer wagon. — — Julia Polk, Senior Vice President of Early Stage Ventures, W Squared, a business-infrastructure outsourcing firm

6) Not Bothering To Get A Patent “Freedom to Operate” Opinion

A medical-device startup developed a disposable item for use during surgical procedures.  The product immediately gained recognition as a superior surgical aid. Although the startup was wise to file its own patent applications, the company failed to take the next step and investigate whether the new device might infringe any third-party patents. After spending significant investor money tooling up for production, the company was hit with a patent infringement lawsuit by a little-known foreign competitor. A routine “Freedom to Operate” investigation by a patent attorney would have revealed the competitor’s U.S. patent, allowing the startup to redesign the product and avoid infringement. Sadly, the company could not afford to start over and ultimately failed. — — Matthew Cox, patent attorney, Waddey & Patterson, an intellectual property law firm

7) Believing—Or At Least Pretending—There Is No Competition

It may be true that nobody does exactly what you do. But you better know who else does something similar, is well-funded and already has a strong enough distribution network to beat you to market. — — Julia Polk

8) Pleasing Investors, Not Customers

Fail on a small stage—often, if necessary—to make a product that customers truly love. Raising capital before you’ve proven your concept is like pouring gas on wet leaves, yet many entrepreneurs try. Build what your customers want, then use investor capital to sell it. — — Bryan Clayton, Co-Founder, GreenPal, a digital lawn-care company

9) Making Poor Hires For Even Poorer Reasons

The CEO of a company that sold supplemental health insurance raised capital to market his service and staff up a call center.  The VC firm requested (read: required) the CEO to hire someone who had run a call center for another company the VC had invested in. The day before the nationwide mass-marketing launch, the CEO learned that the guy in charge of the call center had forgotten to get his staff legally licensed to sell insurance in all of the states where the ads would be running. Because the call-center staff couldn’t close deals over the phone when customers called, the marketing campaign failed miserably and the company went out of business. Lesson: Take charge of your hiring process. — — Brian Fox, CPA, Founder and President, Capital Confirmation, an online audit-confirmation firm

10) Glossing Over Magical Financial Projections

Many entrepreneurs can’t translate their ambitions into basic, useful financial models. One crucial piece of advice: Keep monthly tabs in the early years when cash-flow is negative—if you don’t, you’ll miss the dips that come with surprise outlays, revenue seasonality, additions to fixed overhead and the relentless drain on working capital. — — Julia Polk

11) Mistaking An Entrepreneur For A CEO

This is an old story I’ve seen too many times: The founder knows his product inside and out yet hasn’t a clue about finding customers, dealing with suppliers, minding the financials, recruiting talent and all of the other fundamental aspects of building a real company. The fact is not all founders are CEOs. If you aren’t—and you know who you are!—try not to let your ego get in the way of progress. Handing someone else the reins may be the smartest thing you’ve ever done. — Stephanie Sawyer Fletcher, Founder of SawyerFletcher Consulting, a small-business consulting firm

12) Testing The Tax Man

I’ve talked to freelance designers and programmers who thought they were swimming in money—unaware that as self-employed individuals they were required to pay the employer’s portion of the tax bill. Lesson: Get yourself a qualified, reputable and proactive accountant. — — Chris Blanz, serial entrepreneur, founder of Cabedge, a digital-design firm

13) Leaning Too Hard On One Customer

I led a call-center-services provider that landed a dream customer early on. As the client grew, so did we. But when our whale got swallowed by a larger competitor (one that could do the same work in-house) we lost 27% of our revenue in 30 days. It took almost two years to get back to where we were, in terms of sales and profits. — John Prather, Director of Business Development, Bridge Digital, a data-storage company

For a look at seven newly minted Jumpstart Foundary alums and what they learned during their 14-week grind, check out Pain-Saving Insights From Seven Promising Startups.”

####

Have any small-biz wisdom to share with those who could use it? Please share your comments.

See also:

The 23 Most Important Questions In Business

Ten Things They Don’t Tell You In Business School

“Shark Tank”: What Seven-Million Fans Should Know About Betting On Startups

A Radical Way Of Building New Companies (Not Just Web Startups), Creating Jobs and Boosting The Economy

Source: Forbes

 

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