1. Realizing you have the wrong people, but still holding onto them
It doesn’t matter if you have 4 people or 200, you can never let people go soon enough if they aren’t a fit in your organization. Of course, the problem is greatly magnified in smaller companies.
Think of this example: What if you have 3 people in a company of 15 that are no longer a good fit? That means 20% of your company is out of sync!
Replacing those three with individuals that are stronger could help drive the company to success quicker. As another benefit, making needed adjustments like this will positively impact the rest of the employees in the company. They may have been hoping someone would recognize the problem and fix it.
Even if those people are not replaced, but just let go, remember that sometimes subtraction can be an addition in itself.
2. Taking too much money from VCs early on
Some entrepreneurs think that it is important to raise a significant amount of money early on even while the company might be just an idea. So, some companies out there will raise $4 million on a $4 million pre-money valuation and in turn, give away ½ of their company. But if the team had raised a smaller amount like $1 million or even $500k, the company might end up giving away less ownership to the investor so early on in the process. Under this scenario, the company could use the $500k - $1 million by proving out the idea, further building their business and maybe hunting down a couple of potential customers. With that lined up, the valuation increases and when the company needs money again to really accelerate the company’s growth, the valuation is higher. Now the entrepreneurs are in a position to give up less of the company.
3. Building a product without the customer in mind
We obviously see a lot of very interesting technologies built by very bright people, but the big question mark is – who will buy it? It may seem somewhat routine, but when thinking about starting a company, building out technology or even features, remember the person or company that is going to buy it. Is it important to the buyer? Ask them. Successful entrepreneurs stay close to their potential customers while they are building their technology so they receive critical input. It is free help. Plus, the potential customer loves being tied into putting something together that is important to them – or they wouldn’t spend time in the first place on that project.
4. Giving away the product for free
We are not really supportive of giving away products for free initially. What ends up happening is that the product can become “cheapened” in the customer’s eyes. I spoke with a company here in Research Triangle Park the other day about an interesting technology he is using from a company up in the Northern Virginia area. He was supposed to be on a free trial for 30 days. He is still using it for free a year later! He thinks of the product as being free now. It will be hard changing that mindset.
For companies thinking about giving away the product for free to help increase distribution, we usually recommend giving out a limited feature version for free, something that reduces the full value. Then it is important to make sure there is a plan in place to upsell the customer to the full version quickly.
5. Not focused on hiring great sales people; Hiring sales people without a bonus plan
One of the many common characteristics that link successful companies is they all have great sales people. They are worth their weight in gold and the truly great ones are in very short supply. Find people that are incredibly competitive and driven by making more money. Make sure they have the right incentives. Don't hire a sales person with a base salary and without a very nice bonus plan in place. If they agree to work without a bonus, it isn't the right person. The sales team drives the success of the entire company so make sure they are adequately compensated.
brilliant stuff, some classic problems there
Posted by: company formations | November 25, 2009 at 08:10 AM
In the search marketing world, there are more than a few startups who are offering incredibly low % of spend fees in order to win deals. They are doing that because #5 is also a problem for them, and giving the product away from close to free seems the most expedient way to grow.
Posted by: Chris Zaharias | February 26, 2006 at 10:42 AM
Jason, great blog.
I think item #5 is essential. There's a saying: sales cures all problems. Hiring the right sales guys can make the difference between success and failure of a start-up.
Posted by: Paul McNamara | February 10, 2006 at 07:18 PM