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Top Ten Mistakes Made by Startups

Having worked with a large number of startups across a diverse range of industries, I’ve witnessed first hand how some companies manage to reach success almost effortlessly (or so it appears!) while others struggle even to get off the ground, and grind to a halt due to numerous problems.

In addition, my own experience in owning and running several businesses has taught me the hard way about what an organization should focus on, and what it should ignore. I like to joke to myself that in my first year running a business I essentially earned an MBA, as I wasted between $150,000 and $200,000 on simple avoidable mistakes.

So, today I’d like to discuss the top ten most common and damaging errors made by new companies, and how these can be avoided.

1. Thinking that your plan is not a guess.

I believe that all startups would benefit from swapping the word “plan” with “guess” in every context. This means that when you present to your board of directors or set of investors, you present your “business guess” for the next financial year. While you might get some strange looks in the room, the fact that you are calling plans for what they really are - guesses - will go a long way in ensuring that everyone stays aligned on what is really happening, not what’s modeled in your awesome cross-linked spreadsheets.

“Planning is everything, the plan is nothing.” ~ Dwight Eisenhower.

The key here is to understand that you won’t know everything that will happen in the future, and that the process of planning is actually more important than the outcome (i.e. the plan) that it produces.

Plans will always be inaccurate because there are plenty of assumptions being made when planning and also lots of incomplete data sets being used as the data is often not available.

This doesn’t mean that planning itself is completely pointless! It just means that the key overall insights it gives you are far more important than the nitty-gritty bullet points in your business plan/guess.

2. Not Hiring Well

For almost all organizations, and especially startups, hiring should be at the center of what they do. It will be tempting, especially when you’re growing fast, to skip steps in your hiring process and hire people quickly after just an initial chat or two.

By the way, if you don’t have a hiring process already, feel free to check out Mäd’s hiring process in our Standard Operating Procedure for a battle-tested process that will ensure that you remove false-positives (i.e. people who can talk the talk, but can’t walk the walk) from your candidate pool.

I have had the personal experience of hiring 15 people in a month or so, only to have had to then let them all go six months later as they weren’t the team required for the job. It’s better to get it right at the beginning than to make repairs to an already fast-moving car!

Another issue that I hear from many startups is that they do not have the money to compete, both salary and benefit wise, with larger corporations. What they often fail to see, is that they can offer other intangible benefits that larger corporations cannot offer, which can give them a step up.

Think  of things like flex-time, less bullshit regulations, no micro-management, and a worthwhile mission. To the right people, these things can be far more meaningful than a slightly larger paycheck and dental coverage.

3. Trying to act like a large corporation.

Oftentimes, small startups try to appear to be large corporations in an attempt to be seen as more trustworthy and professional. They forget that being small can have a huge number of advantages, and that many large companies would love to have the flexibility and speed of smaller startups.

For instance, having the CEO calling every single new customer is impossible for a large corporation, as that CEO would never finish that particular job. For a small company just getting started, it is completely doable, and it will give customers a “wow” experience that they could not get anywhere else.  Smaller companies can be much closer to their customers, and that’s always fantastic.

The idea behind this is called “doing things that don’t scale”, and it can appear quite counter-intuitive initially, there is some great logic behind it.

Essentially, growth in business should be viewed in terms of relative growth, not absolute growth. So if you’ve got ten customers, and the CEO can personally go and visit another prospect and gain another customer, and so grow the business by 10%, he or she should absolutely do so!

While just one more customer may appear to be nothing important, in actual fact you’ve just grown the business by 10% in a meeting, something that is impossible for larger companies to achieve!

The other key point, is to remember not to start creating bureaucracy as if you’re a large company, and especially avoid committees.

“If you want to kill any idea in the world, get a committee working on it. “ ~ Charles Kettering

The key idea here is that if you’re small, then speed and flexibility to pivot are more important that having consensus with everyone involved, and committees tend to became political very quickly, with lots of different parties looking to get their own way. A far more effective tactic is to constantly communicate your mission and vision, and let people execute against that North Star.

4. Not Making Organizational Learning a Priority.

Nowadays, things are changing so rapidly, that it is often the case that knowledge you might have gained three to five years ago is now already showing its age. This is especially true for any startup where technology plays a large role.

Because of this new reality, it is important to make organizational learning a priority, because everyone will constantly need to refresh what they know and their approach to work, because the nature the work itself is changing.

This is even more true if you’re growing fast, as the people you hire now may need to grow substantially as professionals within 12 to 18 months to take on greater roles and responsibility. That intern you hire now may well lead a team in a few years time!

Some easy ways to ensure that organizational learning is a priority is for the leadership to set an example by constantly sharing new things they learn, and putting aside some dedicated time to do so.  If you have an office, having a library I believe is absolute key, as you can order books on a regular basis and build up a knowledge bank that everyone can access.

At Mäd, we take it one step further and the whole company meets once every two weeks to hear three speakers - our team members - talk about any topic they wish to speak about.

5. Not Dealing with the Brutal Reality

This point is actually very closely linked to #1. Business, in my opinion, is mostly about having a great strategy, and then executing that strategy.

The execution part is where things get quite difficult, because you will inevitably run into problems, lots and lots of problems. Nothing will quite seem to go the way you want it to go, and so you will have to find compromises, work-arounds, hacks, cancel certain plans/guesses, and find new ones.

The absolute worst thing you can do in a startup is not dealing with the brutal reality as it is presented to you. If you choose to ignore, consciously or unconsciously, the way things really are, then you will be less equipped to solve the real root causes of any issues you encounter, and you’re far more likely to let small problems become large fatal ones.

6. Opaque Communication

There are so many client companies that I have worked with that when I speak to the on-the-ground staff, they have no idea of what is going on across the company, what the strategy is, or even what the company stands for.

This is because the company leadership fails to communicate the key “why” of the organization, and if they don’t do it, nobody else will.

I am often surprised at how much one needs to over-communicate when you’re in a startup, especially about the basics. This is because there is so much noise going on, as you most likely don’t have all the resources (time, money, people) that you would like, so everyone is running around trying to play catch up.

This actually makes it even more important to communicate the basics! I’ve gone over the Mäd flywheel, our main strategic plan, with my team so many times that I hear groans every time I bring it up, but at least I know that it is slowly becoming ingrained.

7. Not Understanding Millennials and Generation X

This point is directly linked to #2. Because you need to understand your workers and make sure they are the right fit for any task you give them.

First, it is important to know the difference that someone from Gen X can have with a millennial. Someone in Gen X is born between 1965 and 1980. Which means they grew up right before the internet, cellphone and social media boom. On the other hand, millennials, born between 19812 and 1997, grew up  with these things as a part of their every day lives. These differences in their childhood and adulthood really affects how they work and also how they are at different life stages and have some different priorities.

Someone born into Gen X will have a slight difference from a Millennial. for example they are more prone to have a more solid life plan and tend to stay at their job a bit more than a millennial would. this and many other key factors should be known to you as per the people you hire. Knowing how they work, when they were brought up, as well as many other small things will allow for better understanding of each-other as well as to know how they work. Get to know those around you.

8. Not Understanding the two types of decision making.

I’ve seen many companies make important decision rashly, and conversely, taking a long time to make trivial decisions.  This is due to something now know as Parkinson’s Law of Triviality.

I’ll give a brilliant example:

In the third chapter, "High Finance, or the Point of Vanishing Interest", Parkinson writes about a fictional finance committee meeting with a three-item agenda: The first is the signing of a $300 million contract to build a reactor, the second a proposal to build a $10,000 bicycle shed for the clerical staff, and the third proposes $600 a year to supply refreshments for the Joint Welfare Committee.
The $100 million number is too big and too technical, and it passes in two and a half minutes. One committee member proposes a completely different plan, which nobody is willing to accept as planning is advanced, and another who understands the topic has concerns, but does not feel that he can explain his concerns to the others on the committee.
The bicycle shed is a subject understood by the board, and the amount within their life experience, so committee member Mr Softleigh says that an aluminium roof is too expensive and they should use asbestos. Mr Holdfast wants galvanized iron. Mr Daring questions the need for the shed at all. Holdfast disagrees. Parkinson then writes: "The debate is fairly launched. A sum of $10,000 is well within everybody's comprehension. Everyone can visualise a bicycle shed. Discussion goes on, therefore, for forty-five minutes, with the possible result of saving some $1,000. Members at length sit back with a feeling of accomplishment."
Parkinson then described the third agenda item, writing: "There may be members of the committee who might fail to distinguish between asbestos and galvanized iron, but every man there knows about coffee – what it is, how it should be made, where it should be bought – and whether indeed it should be bought at all. This item on the agenda will occupy the members for an hour and a quarter, and they will end by asking the secretary to procure further information, leaving the matter to be decided at the next meeting.

So, one has two realize that there are two types of decision that can be made:

  1. Decisions you can reverse - Type I decisions.
  2. Decisions you cannot reverse.  - Type II decisions.

Type I decisions should be made even when there isn’t enough information to reach a conclusive “right” answer, because you can always reverse your choice and go with what eventually is shown to be the right course of action. Speed of decision making and the opportunity cost of spending time on this type of decision are more important than the outcome of the decision itself.

The Type II decisions, they are the ones that you should take lots of time and effort to understand, because they are the type of decision that cannot be reversed. It may be a fleeting opportunity that will be lost forever, or a key pivot point in your strategic road map. Whatever the case, ensure that you dig deep in these cases, and don’t fall into debating trivial things at length, and let the big decisions just happen by themselves.

9. Tolerating Assholes

Inevitably, we are going to spend a lot of time at work, especially at the beginning of something new. This means that work needs to be enjoyable, otherwise what’s the point?

Working with great colleagues that challenge you is good, and you should have a level of friendship when there is only a few dozen of you in a company.

The worst possible thing that you can do is allow someone who is brilliant but an asshole, to join the company. Things will turn toxic faster than you’ll realize, and morale and effectiveness will go downhill.

If you realize that you’ve hired an asshole, just fire them as quickly as you can. It might seem harsh, but it is the least worst option.

10. Not Understanding Free Cash Flow

It is often said that a company lives or dies on its sales or profit, but that’s not actually precise.  Many “profitable’ companies have gone bankrupt because they could not generate enough cash to run their operations, even while they were, on paper, turning over a profit.

The difference between when a contract is signed or a sale is made, and when the cash is actually paid can be of huge importance. The best types of businesses are those that operate on a negative cash flow cycle, which means that they get paid by their customers before they have to pay their suppliers or have any associated cost of sale. This means that as the company grows their revenue they end up having larger and larger amounts of cash in the bank that they can use invest back into further growth.

Other types of businesses operate on a positive cash flow cycle, which means that they need to fund the cost of sale prior to the customer purchasing the goods or services. An example of this are steel manufacturers, which typically need to spend 50 cents on the dollar to make a sale, which means that the only way they can grow is by taking loans from the bank.

The key thing is understanding what type of business you are now, and what type of business you want to become in the future.

Emanuele Faja

Emanuele Faja

CEO at Mäd. Emanuele brings on board a passion for minimalist Italian design and a 21st-century management approach. He consistently helps clients create and maintain market leader positions.

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Top Ten Mistakes Made by Startups
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