Talking to Entrepreneurs - “Learnings from Mistakes”

29th Jun 2012
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I have been sharing some of my learnings over the last 5-6 months, which comes from having participated in 5 startups over the past 15+ years with its own share of success and failures, on my Facebook page. The idea behind the endeavor is to share 100 mistakes and 400 “tips” to startups over a 2 year period. Currently the number stands at 22 mistakes and 10 tips on the page.

This piece of mine is based on some of the tips and mistakes (in the 22/10 metric) that have found resonance through likes and shares on the Facebook page. I have culled them out, a total of 7 on the possible 32 based on crowd sourcing i.e. maximum number of likes!

1. Trust and you shall receive trust in return------People react to the person and very few are universally unfair.

This looks pretty intuitive but actually I find it the one tip that most of us find very difficult to implement. My experience has always been that most people behave in a manner in which you behave with them. So as a startup founder if you exhibit trust in them and post explaining their job and its impact you leave them to their work with minimal interference you are better off in getting the best from your team. Anyway in a startup you really don’t have time to monitor performance so if you don’t have people who need to be monitored closely then you have just made a wrong hire in the first place!

2. Idea obsession and not execution obsession

This one is really deadly and it causes a startup CEO to spend a long time mentally defending what he or she thought as this world beating idea. My take is that every idea needs a small test and a 6 month deliverable cycle with clearly defined and measureable goals. Yes I know that some ideas can take some more time to generate money or revenue but NO idea (unless it is in medical research or pure R&D green field) can be something that cant be broken down into clear and smaller intermediary goals , even if non monetary. You need to be fair if you don’t hit those goals abandon the idea and seek something else.

3. Too many Freebies to customers and lack of bottom-line focus

I can understand that one needs to test a new concept and in the test one doesn’t want to charge very high or sometimes even give it away free. The problem is that one cant run a business by giving away stuff for free so any test for free is NOT a test at all. Further if you get the customer used to freebies then changing his or her behavior pattern at a later stage is very difficult. This means that what would have normally taken you 12 months to achieve from a profit perspective will take you 24 or even 36. There may be stuff that you read on “capturing market share and how profit is not a goal for a startup”, well let me wake you up from slumber, the people who say or write that have never done business with their own money!

4. Extrapolation problem

A lot of startup entrepreneurs begin by trying to solve a problem that they are facing. This “problem solving” transforms into a business. There is nothing wrong with this method but you need to make sure that you don’t obsess yourself with the idea that just because you have this problem, so do 100,000 other people. There will always be problems that could be unique and therefore cant be made into a sustainable business.

5. The lone ranger and the problem of the first 5

Super humans only exist in fantasy land. In reality one person can only be good at a finite number of things. Getting a co founder who can balance your skill set is a must. Further not sharing equity with at least some of the key employees who join as the first 5 and think that they will work with full commitment is also a mistake.

6. Salary and asset creation

As an entrepreneur you are creating an asset which will give you money once it is ready to be “encashed”. As a promoter - even if you can afford it - paying yourself a high salary in the first 2-3 years is a mistake. Asset creation takes time and investing money into the asset is a far better idea than taking money out of it. Once the business crosses 4 years you can start affording a lifestyle to match your business but in the initial years it must be all about re-investment.

7. Getting carried away by small victories and overextending on debt

Business, like life, is a sine curve and so after a peak there will be a trough. In the start up years there will be times when you would have made a lot of money due to one big order. This does not mean that you overextend yourself in your investments or take debt thinking that this “capital” will be normal. There will be a fall as the sine curve comes to the trough phase and at that time you would need the capital to survive. A business takes 4-5 years to achieve some kind of predictability in revenue so don’t get carried away by “small victories”.

About the author: 

Gautam Sinha runs MyFirstCheque, a seed fund. It will help first generation entrepreneurs by providing the initial investment into their companies and also provide guidance and mentorship in the start up years.

 

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