Image credit: Sin from Shutterstock
By Tom Walker, president & CEO of Rev1 Ventures
There’s a lot of focus these days on teaching entrepreneurs how to do startups right: Validate the market before you build a prototype. Conserve cash. Meet milestones. If you have to fail, fail fast.
One of my favorite quotes from the late, great Yogi Berra (I’m a huge baseball fan) sets up a different perspective: “We made too many wrong mistakes,” the best catcher in all of baseball said.
The truth is, there are “wrong” mistakes that entrepreneurs can make early in the game, mistakes that will impact a startup’s ability to attract capital investment later on.
Here are tips to recognize and short-circuit seven behaviors that are sure to jeopardize your equity funding later on. It’s hard enough to start a company without self-inflicted pain.
1. Starting a company for the wrong reason.
There’s nothing glamorous about being an entrepreneur. It just plain hard. The Shark Tank moments are very few and far between. Count on 80-hour weeks at no pay. If your motivation is not having a boss, the freedom to manage your own calendar, or getting out of the corporate environment—anything other than a driving passion to solve an industry problem with your big idea—don’t take the leap.
2. Forgetting that perception is reality.
Investors invest in entrepreneurs. Your actions have consequences. Every interaction is an opportunity to increase your credibility. Seemingly small things, like ordering alcohol at a lunch meeting with investors can send a bad signal.
3. Not being coachable, or even truly understanding what being coachable means.
Most good entrepreneurs are experts in something—a particular technology, an industry, or a skill. Ask questions. Seek advice. Engage trusted service professionals (attorney and CPA) who have worked with startups before. Cultivate mentors and advisors. Listen more than you talk. Remind yourself that you don’t know what you don’t know. Don’t confuse arrogance with confidence.
4. Thinking too big or thinking too small. Acting before you think at all.
Investors consider business plans that show the potential to solve big problems for big markets. Sure, your plan needs to include pro formas and cash flow projections, but if you want to seal the deal, show how you have validated your concept with real customers. Demonstrate that you’ve modified your solution based on feedback from beta clients.
5. Delegating sales to someone else.
Thou shalt not! This is perhaps the most challenging aspect of early-state growth for entrepreneurs—particularly those with technical backgrounds. Get over it. Think about sales as the opportunity to help a customer solve a problem. If your solution doesn’t help potential customers reduce cost, increase sales, or improve their service to their customers, you don’t have a business anyway. And if it does, why wouldn’t you want to help customers gain those advantages? Besides, company founders have to learn first-hand what it takes to win over customers. How else can you define a sales process or know what to look for when you hire a sales manager or seek distribution partnerships? If you dread calling on customers, you can’t be a successful entrepreneur. Get a different job.
6. Thinking that all investors are the same.
They aren’t. It depends on the stage of your company. Incubators and economic development agencies may invest at the concept stage. Angel and other seed fund investors fund prototypes. Most VCs don’t invest pre-revenue. To be successful, your business plan must match milestones to the sources of capital.
7. Failing to accept that when you bring investors on, it will change your world.
If you can’t accept this, you aren’t ready to take on investment. You may never have even been to a Board meeting, even as an observer, and now you report to one. Investors are there to help you with more than capital. Your Board can be a remarkable source of contacts and expertise. Learn how to work with them. Set out goals and metrics for your business. Manage to those metrics and use that as a framework to communicate. Report your progress against those metrics every month.
And then there is this poison pill: Integrity wins the day. Telling half-truths or the slightest whisper of insincerity can break trust and kill any deal. There is no antidote.
A final quote from Yogi that sums it all up, “You’ve got to be very careful if you don’t know where you are going because you might not get there.”
Tom Walker, president & CEO of Rev1 Ventures, has been helping entrepreneurs build great companies for most of his career. First from the corporate sector within Battelle – and then regionally, building innovation and startup support systems in Oklahoma, Ohio and advising several regions of the United States and the United Kingdom. He’s formed multiple venture capital funds, founded angel groups, and is an angel investor. Tom is also the author of “The Entrepreneur’s Path: A Handbook for High-Growth Companies”.