Mistakes Startups Make: Part Three
Top-ranked law firm, Lowenstein Sandler hosted a Mistakes Startups Make panel at Umbel’s office in Austin, TX, featuring panelists Jon Bassett, Kin Gill, Kathi Rawnsley, Steve Sachs, Valeska Pederson Hintz and myself, Lisa Pearson.
Part three of the series covers execution.
What are the biggest mistakes you see startups make in execution?
In the execution phase you need to genuinely assess the market fit for a startup’s product. A common issue we see happening is there is a highly technical founder, who builds an amazing piece of technology, but lacks the companion piece, which is a deep understanding of who you are going to sell this technology to, how much they’ll pay for it, what else they are buying, whether or not you replace something or augment it, what their tech stack looks like and what their buying center looks like. If you have an incredible piece of technology, but you don’t know how to answer those questions, then you don’t have what is commonly referred to as product market fit. Market insight is often underinvested in by founders simply because they don’t have the time. They are doing so many things at once; they miss this critical step to consider who is ultimately consuming the technology. As an entrepreneur, product market fit is something you need to understand.
Although it’s a common mistake, it’s a fixable thing. You don’t have to have customers from the get-go. You need a network of people (outside of family) and make the time to go talk and discover what business outcomes you can solve for them. Jon noted that he has a much-loved t-shirt that says, “Your mom does not equal product market fit.”
It’s very tempting for founders to focus less on business outcomes and more on what I call vanity metrics. At a cocktail party, it’s not that compelling to talk about reducing customer acquisition cost or raising MRR, so instead you see people talk about the number of employees hired, or dollar amounts raised as key success indicators. Business owners are experiencing an increasing pressure to gain familiarity with business metrics and to show a responsible growth path. There’s an appreciation for a company managing their capital more than announcing hiring growth or amount raised.
When building out a startup’s core team, what are important things to keep in mind?
Build a team with diverse capabilities and a deep bench of experience and perspectives (marketing, business development, sales, finance, etc.) so you aren’t under-representing non-technical functions in leadership. In terms of management and board members, attempt to break insularity to achieve a dimensioned perspective.
Hire to your weaknesses. Figure out what you know well and then hire people who know more about the areas where you don’t have deep expertise. If you’re highly technical, make sure you are bolstering your team with marketing and sales expertise. If you are strong in sales but weak in operations, make sure that focus is represented. Consider building relationships across geographies. You don’t only need board members to live in your town. Look for gender and racial diversity and break the startup stereotypes of all white male teams.
Where do you see startups overspending and underspending?
There is no blueprint uniform answer, as it varies depending on your market and/or location.
Founders sometimes seemingly overspend on real estate, but you may be in a hyper competitive market where you absolutely need to attract employees and location really matters. It’s also easy to say founders spend too much money on marketing, but sometimes it’s a breakneck paced race to market and you need to invest in building your brand.
The best thing you can do is instilling in employees a sense that every dollar spent feels like it’s coming out of their own personal wallet. Every dollar saved extends the runway for the company to have the chance to be successful. If founders instill this as THE culture, teams will spend responsibly, therefore allowing you to put less governance around it.
As you grow, if you have 10 + people on the team invest in a VP of Finance. Financial metrics are one of the only objective gauges an investor has for performance of the company.
Once a year have this person give you a list of every expense you’ve had over a certain dollar amount. Look at these with a group and see how to eliminate, cut or renegotiate an expense. If it extends your runway even by a month, there is value.
In the execution phase, when you make a decision or instill a change, have conviction. Balancing your spending and attempting not to make these mistakes from the start will help your startup make headway in a sea of great ideas. Use the tips in fundraising, financing and execution and you’ll be a startup with limited mistakes and growing pains. The ultimate goal.
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