SAN FRANCISCO — Building a company from scratch is a Herculean task that requires navigating innumerable hazards. Here are seven of the biggest mistakes that startups make, according to a panel at Inman Connect.
SAN FRANCISCO — Building a company from scratch is a Herculean task that requires navigating innumerable hazards.
Here are seven of the biggest mistakes that startups make, according to a panel at Inman Connect.
1. Choosing bad investors
Startups often focus too much on nabbing the highest possible valuation rather than the quality of their investors, panelists said.
“If you get the wrong investor in your company, it can just make things twice as hard,” said angel investor John Helm, who has founded two real estate tech companies in the past.
Do your due diligence and talk to other CEOs to find out how a prospective investor treats startups when they miss their goals or make mistakes, he said.
If the investor is a large firm, make sure you get to know the representative who will actually sit on your board, he added.
2. Running out of money
Rich Boyle, a general partner at Canaan Partners, said a commercial real estate tech company he founded, LoopNet, was on the verge of bankruptcy three times.
Be careful “not to fall into the trap of thinking where you’ll be five years from now,” he said. Instead, focus on what you need to demonstrate over the next 18 months to close another round.
3. Not knowing the problem you’re solving
“You really want to be clear about what you’re building and the problem you’re solving,” Boyle said.
4. Hiring the wrong people
Helm said he once hired someone with a stellar resume, even though he had an inkling the person might not be a good fit. His instincts turned out to be right, and his company “lost literally nine months,” Helm said.
“The best way to hire, again, is to reference check,” he said.
5. Handing out ‘vice president’ positions too lightly
In the beginning, it can be tempting to dish out vice president titles to early hires.
But often “12 months later you’ve outgrown those people,” Helm said. You find yourself wanting to bring on a vice president with more experience, but also wanting to keep the existing vice president.
Try to resist handing out vice president titles like candy. Best to give hires less prestigious titles and set the expectation that they may end up with a divisional superior in the future.
6. Adopting without testing
“Test, test, test,” before ever replacing an old platform with a new one, Helm said.
His startup once made a clean switch without doing that. He then discovered the company’s website was down in the middle of trying to negotiate the sale of his startup.
“I personally experienced that,” he said. “It’s not fun.”
7. Doing too much at once
Some startups try to take on too many projects at once, and their core offering suffers as a result.
“As you continue to grow your product, you want to keep the integrity of the product,” said Nicole Solari, a team leader at Fairfield, California-based Re/Max Gold. “Don’t let your product fail; don’t let your product become second to all of the other stuff you have to deal with internally.”