I had no idea what I was getting into when I joined a friend's startup. I had a successful background in consulting and leading a technology group for a super-regional bank. I went from a company of 90,000 to being employee number three.
None of our team had any startup experience. We learned how to think and work like a startup and as a team as we went. We made significant mistakes in company formation, fundraising, personal relationships, and a hundred other areas.
Of all the mistakes we made in starting and building a company, there are five key things I will do differently next time.
5 Things I Wish I Knew:
- Get everything in writing. When I joined our startup, I came in right behind the two co-founders. There was little discussion of equity and vesting schedules and lots of dreaming. At the outset, we failed to sign non-competes, vesting schedules, buy/sell agreements or ownership documents. We also did not have any documentation for those who joined the team later.
The lack of legal agreements caused tension as the company began to grow and enjoy some initial success. As we faltered, the tension exploded. Having legal documentation in place would have set expectations more realistically, clarified equity ownership and saved us tremendous strife. Our friendships soured and disintegrated. Only a few of those friendships survived, and they are forever changed.
- Clarify each person’s roles. As we grew, we stepped on each other’s toes quite a bit. All of us were/are Type A’s that take the initiative and just start doing. We could have been far more effective as a team if we had agreed upon and then focused on our primary roles.
We also could have communicated better what we were focused on each day, or at a minimum, each week. In some cases, we intentionally worked in parallel but separately, attempting to prove our position about a tactic or strategy. That never worked out, and more importantly, it failed to serve the company’s or our customers’ needs.
- Hire great talent, not good friends. We made strategic hiring mistakes that cost us time, money, and traction. On the bright side, we hired friends with industry experience. They could do the jobs that needed done at the early stages of the company. Problems arose as the company grew, and our friends were ill-suited to change and grow with the company.
We compounded our mistake of hiring friends by not having the courage to fire those same friends. This inability to move someone out of a role that no longer suited them consumed significant time the company did not have. We delayed having the right talent in place, and the company suffered. Hiring friends resulted in failing to hire the talent necessary to take the company to the next levels of success.
- Focus on customers and sales. We focused a lot of our limited resources on building our product. We built into it features that were useful to a few existing customers but that did not help us acquire more customers after the base functionality of the system was in place. In retrospect, we should have stopped adding features about two years before we stopped development. Instead of an MVP, we had something much more complex.
We should have been closer to our initial customers and developed a deeper understanding of their needs before building so far beyond our MVP. While all of the system was used by at least a few customers, much of what we built those last two years served the wants of a few, not the needs of the many. We thought it would help us attract new customers and sell more, but we had little evidence that continued feature additions increased sales.
- Become a student of funding. We were all novices in the startup world and had little understanding of funding processes and investor mindsets. Being novices hurt us both from a fundraising perspective and from an ownership perspective when we brought in two angel investors (we raised about $1.5 Million).
Had we understood valuations, principles of ownership, and investor needs we would have been far more disciplined in raising funds and building a viable business. We raised money for us, not for the business and not for the investors. What I mean is that we were focused solely on what the funds could do for us in the business, and not on the long-term needs of the business or the investors.
We should have placed the business first, investors second and our team a distant third in all of our fundraising activities.
I am confident our startup would have fared better had we avoided these five mistakes. We made plenty more mistakes, so avoiding only these five might not have changed our success significantly. What it would have done for us though, was reduce our infighting and confusion. It also would have meant our primary focus was on customers and that we had a better understanding of fundraising and investor mindsets.
What mistakes have you made or avoided in your startup? Please share your knowledge in the comments below and help a fellow entrepreneur.