I’ll be giving a small presentation to a startup education group. Many of the founders are working on revising their pitches and models to get seed funding, so I want to help them prepare for the next steps, especially because they don’t know seem to know much about what I call Life After Funding. There are a lot of trip wires for seed-funded companies, and many ways to mis-allocate money. What are the biggest mistakes that must be avoided for seed-funded companies?
I recommend they do the fundraising course that Co-Founders offer. I found it enormously useful and they addressed the issue you are asking about. One of the major traps is "big shot syndrome"
Loosely defined as: The founders get the money and then get a swanky, expensive office address, or take large salaries too soon, buy new computers when they can start with refurbished ones etc.
I think the message is start and continue frugally until the business starts to show some revenue and cash growth. Even then keep a tight lid on expenses. Expenses & cost creep is one of the silent killers of early stage companies.
Just went through this exercise with a bunch of investors who were trying to determine what to look for in startup. What makes some startups succeed and others fail? Of course, everyone agreed that it was NOT the idea. The general consensus was that is was a functional team that made good decisions, with a emphasis on FUNCTIONAL and GOOD DECISIONS. Most teams are not functional and most do not make good decisions.
What does a functional team look like? As a starting point, read Patrick Lencioni's books.
Other common mistakes:
- You do not have to do everything yourself. Focus on your core, and spend your time talking to customers and influencers - outsource everything else.
- Best to market wins - not first to market. Focus on the best people and the best processes.
- Always be validating! Your product will not survive first contact with the customer.
The number one mistake is not managing finance correctly. You can fix a lot of mistakes and keep moving forward as long as you have enough money in the bank. As a leader of a startup, tight control of the runway: knowing exactly how much you have, what you can afford, and how long before you need to start your next round are critical to the success of your startup
I see a lot of founders allocating too much of their limited resources to look-feel, premature / complicated workflows, etc. I often advise on focusing your efforts on getting data re: product/market fit; proving or disproving core assumptions; etc. I suggest going out more "scrappy" and focused on the numbers than "polished".
In my opinion, one of them is to delegate all sales to an outsider. It is very important that startups keep their sales in-house at the beginning, so that they can have a clear understanding of what can be imrpoved, canned or added to their product/service.
No seed money is just as bad a having seed money. One causes people to make promises and take risks because they do not afford a less risky approach.
Having seed money result thinking they know more then they do so spend that money on production tooling.
I have more then once told someone they purchase tooling before they had a product customers would buy. I include entrepreneur businesses when I worked for a consulting firm and everyone of the corporations I worked for. I am talking it seem to be human nature. Only professional and seasoned entrepreneurs that have seen or failed themselves understand both problems.
Wasting money on those things that aren't in the Plan. I've seen too many entrepreneurs squander money on ego-driven items (e.g., cars, toys, trips, etc.), instead of spending it on what was intended. If you have a good plan, invest in it - as intended - and THEN enjoy a LIFE if throwing your money away (instead of just a few months).