What are the biggest mistakes made by new tech start-ups?
Most startups fail, so clearly, a lot of things can and do go wrong. Here are the top five mistakes that come to mind:
Not staying maniacally focused on the single most important imperative when running a start-up – finding product-market fit. What demonstrates product-market fit depends on your business model/market, but in enterprise sales, the simplest way to think about the test for product-market fit is whether or not you have a “lather, rinse, repeat” sales motion e.g., when you hire a good sales rep, you know with a high degree on confidence, how much revenue that person will book over time as he/she ramps and at steady state. If you have product-market fit, you have identified a solid market (e.g., big enough and growing fast enough) and you have proven that you have both a product that meets a need for that market and a message clear enough to convince customers to buy consistently and predictably. Thus the term “product-market fit.”
Failing to set and articulate a clear direction. With limited resources and time, it is very important that everyone in a start-up is rowing in the same direction and is generally aligned. This is easier when you are very small and gets more difficult as you add more people and face more obstacles.
Not using these agreed-upon strategic goals or direction to ruthlessly prioritize. Many startups are so hungry for customer traction that they stray to meet the needs of a “hot prospect” and try to do/be too many things for too many prospects. I have seen this be especially problematic when young startups can attract and become beguiled by the attention of big brands/company prospects. If BIG BANK X offers the company’s first $1M deal, but the work to make BIG BANK X happy will take 10 engineers, 12 months and the work is not relevant or is tangential to the majority of the target market, IMHO that deal is probably evil for the start-up no matter how hard it is to turn down.
Not iterating fast enough. No matter how good you are, you will get it wrong and you will face seemingly insurmountable obstacles. A great start-up uses data, including but not limited to customer feedback, to find high quality “signals” and leverage that signal to test, compare, analyze, learn and iterate. This iteration and learning process takes investment in (data collection/analysis) systems, discipline, commitment, drive, and agility. It also takes a learning culture that is not afraid or punitive when you get it wrong, but instead fast and flexible enough to make sure you find the error and fix it as fast as possible.
Underinvesting in defining mission, vision, values, and culture, and then in walking the talk authentically every single day. I view these things as the table-stakes “glue” that keeps it all together. To be in for the long term, employees want to be inspired and know what the leadership team and the company stands for. Getting this stuff right is very high leverage as it makes the four mistakes above (among others) much less likely.
Why do tech companies go public when they’ve reached a high level of success?
“Going Public” or having an “Initial Public Offering” (IPO) is a common way to raise massive amounts of cash in small increments from lots of people quickly without giving up control or ownership of the company. Typically most IPOs have limited the stock pool to just 10%-20% of the equity of the company. It is not always much fun owning a public company. I would never want to be the CEO of a public company, with too many headaches. When we were doing work with Clinical Data (CLDA) I got to see just how much of a headache that was for their CEO. In that case, the private equity guys took the public company private by buying up all the public shares.
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