Starting a company, any kind of company is the hardest thing to do in business. Sez me. It’s also one of the most rewarding and fun, if you’re built for the startup experience–though not everyone is. Technology startups have their own unique challenges. There are many different ways to drive off the road, some of which I will list below. Keep in mind that no startup company is perfect and startup mistakes will be made. The future cannot be seen and in any software or hardware technology startup you’re often initially flying nearly blind without a map, because you are usually trying to do something new and different.
In the end, if you are able to make it through this early phase, overcoming your startup mistakes may be the most satisfying part of the whole startup experience. So keep in mind that it’s almost impossible to play a perfect game. On the other hand, it’s crucial to steer clear of mistakes which are often avoidable–because you only get so many chances to recover from errors.
Here are some of the common, often avoidable startup mistakes to be aware of:
Startup Mistakes: Too little capital
Sometimes this is unavoidable–but if you really don’t have enough capital to get the job done, maybe you shouldn’t start up in the first place. Activities such as software product development are notorious for going way past schedule and over budget, although the cost of developing SaaS or a traditionally licensed software product has plunged in the last 5-10 years. And unfortunately, most products don’t sell like a knife cutting through butter with the first modest promotional campaigns. So build a decent amount of backup money into your capital plan, because things rarely go as planned. If they do, great; you can use the money to accelerate growth. But when things don’t go well, you’ll at least give yourself a fighting chance if you’ve set aside a bit of money for a rainy day.
Don’t try to be a “Big Company” right off the bat
Some startup management teams are jealous of the resources available to their established competitors. These folks can become “Big Company Wannabes”, a classic formula for going out of business early. Don’t spend your precious time and resources on activities that don’t efficiently bring the product into the marketplace or serve to market and sell it. Period. Over-the-top trade show booths, lavish company parties, expensive or large offices, administrative assistants for execs, etc., etc. Be careful of hiring a lot of big company people who don’t have early stage experience–they are particularly prone to the types of costly waste, which your startup budget can’t afford.
No backup plan
It is a startup and you have to expect little margin for error in reaching success. But that’s no excuse for a lack of strategic planning–within the constraints of your resources. A backup plan might be something simple. For example: a software company pivoting to open source if your high-priced promotional strategy meets resistance; a service-oriented revenue strategy with a cheap or free product; heavily utilizing channels rather than building a full sales force; licensing your technology instead of marketing a full product to end users, etc. It depends on your circumstances, but do try to have some type of a contingency plan going in.
The “techies know everything” syndrome
This is a common malady in tech startups, because many new software and hardware tech companies are led by management heavy in experience from the engineering or software development side of the business. Usually these folks are very smart, but in some cases unable to see their own blind spots. Those blind spots often appear in marketing and sales (which every engineer and software developer knows are easy, non-complex activities 🙂 ). The really smart guys quickly figure out those other parts of the business besides the “tech stuff” are difficult as well, and make appropriate adjustments to overcome their startup mistakes through education and bringing in outside experience and expertise.
The “technology is everything” syndrome
This is a corollary to the paragraph directly above. The technology and product is crucial in a tech startup, since it is usually the basis for your competitive advantage. But it’s not everything, and many a startup has failed despite great technology and an exciting new product.
No marketing budget or in-house expertise
Believe it or not, I see a lot of startup and early stage companies with little or no promotional budget. It’s insanity, but they only have enough money to get the product built, apparently thinking “if you build it they will come”. A common symptom of this is after all the money is spent on product development, the founders have no promotion at all and look to hire “commission-only” sales reps. Or they have money, but put it into additional product development without adequately promoting the first product. This is nearly always a failure mode. If there is someone with marketing or sales expertise among the founders, they usually won’t allow this to happen. So secure a marketer on your founding management team, or at least find a close adviser you will feel comfortable listening to, early on.
Under-estimating time to market
This is a very common tech startup mistake. By definition in a tech startup, you are trying to do something new, which isn’t very forecast-able. So don’t believe your own pretty Gantt charts: garbage-in equals garbage-out when it comes to schedules. Don’t count on introducing at that big trade show, commit to costly promotional activities with no recourse, or let the developers all plan ahead to leave for that well-deserved month in Hawaii. Get the product done first. I tell you this with many painful experiences as my teacher, both personally in software and hardware companies, as well as through working with my many startup clients.
Even if you are able to get the product out on time, that doesn’t mean version one will hit the ground running. Initial products often crawl, stumble and fall at first. After all, this is your first opportunity at really accurate market research. Even if the product is right on target, finding the marketing mix that works well is generally trial and error. Many products don’t find success until their second or even third version is released; so have some money in the bank, as well as some emotional bandwidth in reserve for this possibility.
Introducing a “buggy” technology product
This is one of my biggest pet peeves, especially for software products. Most products aren’t fully stable when the developers think it is ready. They work on it so long and hard that human nature wants it to be finished near the end of the “schedule” — and dangerous shortcuts can be the result. Dedicate as many resources as you can muster to ensure a credible, third party evaluation that the product is as stable as it can be, before the market gets the opportunity to “debug it” for you. You only get one chance to make a first impression. If the situation is bad enough, it can cost you your company.
There are my thoughts on some critical startup mistakes to avoid in a technology company. I’m sure many of you have your own lessons and ideas to share. Post a comment to extend the discussion!
Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact PJM Consulting directly at firstname.lastname@example.org
If you liked this post please share it with you colleagues using the “share” buttons below:
Dan Ruchman says
Phil, great article on startup mistakes. I would add another, at least as important and perhaps even more so: No Business Plan.
If a new company has no plan as to where it's going, and no plan as to how it intends to get where it's going, the odds of its ever getting there are significantly reduced. Capital, marketing expertise, solid technology, backup plans and other areas are all critical elements, but they need to be brought together in one place and articulated in writing, in the Business Plan.
The Plan should not be overly detailed nor overly precise; it also, however, needs to be sufficiently detailed and precise as to be actionable and measurable.
The main value of the Plan is not so much in the details of the Plan as in the process of the planning. If you've not put together a business plan before, or if you don't want to do it on your own, get help. But don't not do it.
It's axiomatic in war and in business that "A failure to plan is a plan to fail."
— Dan Ruchman
Ruchman & Associates
Creative and Intelligent Solutions for
Finance, Operations & Strategy
-> Lighting the Path to Profitability <- and… Managing Director, SD
MJF & Associates
Audit, Tax, Consulting — with an edge
Great article. Adding to the above comment is considering Business Plan as a static document rather than a dynamic or a green document. One has to constantly revisit the BP as this document was created in vacuum (assuming that it was created before the product is even out) and with great many assumptions. Once the execution starts that is when the assumptions have to be validated and the model has to be tweaked to meet the realities of the world.
Sheshu, this is a great comment. The moment you actually get started the business plan is often no longer worth the paper its printed on. Being flexible and agile is critical in a startup environment.
Bruce Seidel says
Phil and Dan,
I am right in the middle of my second startup so I really appreciate the content of this thread. From a practical perspective, we are dealing with most of these pitfalls and are 95% through our BP. Our start up has some of these issues however we feel we have to get going based on market timing. So for us, its a question of carrying the issues along and mitigating potential risk. I just wanted to add “timing” to your considerations.
Bruce, excellent point, timing is a huge risk.
Bob Thomas says
Good advice, but not just for startups. I’ve seen some of these mistakes in established companies. The most common is shipping buggy product with the attitude that you’ll fix it later. Meanwhile the customer struggles with an inferior product, and the product gets a bad reputation. A product with buggy reputation causes a lot more work for Product Managers and Sales.
Great article! A lot of this speaks to what we went through & continue to overcome in our own startup. One thing I worry about, is the last one regarding the release of a buggy product. Personally, I think it’s better for a startup to release a buggy product than to spend to long perfecting a product that may need to be drastically changed once it’s in the market, anyways. Then again, I’m sure it’s all a delicate balancing act, dependent on both product and target market. Thanks for the advice!
Thanks for your comments. With respect to buggy software, you are right, it is a delicate balancing act. All software has bugs. It’s like bacteria in your body; you can’t (and wouldn’t want to) get rid of all of them, but it’s very important to get rid of those that can kill you! The one thing I can say is that I find it’s pretty easy to tell the difference between software with some bugs and “buggy” software. It’s ok to have a few bugs which show up in odd circumstances. And certainly you don’t need to have included every last feature the market might ever need prior to going to market. But if the code is truly buggy, it’s a real mistake to release it. You only have one chance to make a first impression.
Simon Marks says
This is a really good sanity check for what to look for, and in starting C-Caller.com most of them came our way. Thankfully nothing has blown up in our face. So we are still on roughly the course we planned, over budget, behind time with less complete market coverage than we would like for our service still waiting to for our big break – but still in there with a chance.
The really encouraging thing about your piece is that it hasn’t flagged up anything that we hadn’t anticipated, so hopefully there will be no nasty surprises.
I wonder if this has anything to do with the fact that having been an interim since 1996 I have been privileged to see lots of business models in different business cycle phases so was able to apply lessons learned to my own start-up. Interims are also more resilient and adaptable which also helps.
Simon, I agree being an interim gives you a great base for your own startup. You see so many things–many of them bad!
A good document for start ups. All the right elements are there with fellow comments. The skills required for a small Co would have to be Sales oriented personality with considerable experience in the field being sold, has some financial knowledge with P&L BS & Cashflow with the ability to manage people.
Its crucial to have sufficient capital to start with but one should additionally able to recognise over capitalisation.
Mike Harris says
Great article Phil. In my work with startups I’ve found the following strategy model helps to surface critical issues quickly:
1. What are the trends?
2. What’s driving them?
3. What are my competitors doing about them?
4. What are we doing about them?
5. What could we be doing with the trends to increase profits?
Excellent advise. Well written article.
Joe Schmelzer says
Really hit all the major points. One I might ad would be:
No exit strategy.
Perhaps a part of the business plan, but I think worth mentioning as a standalone. Business plans don’t always have an exit component. I find having an exit strategy can be a useful tool to frame strategic discussions, that can often be difficult to resolve. It can always be changed, but does provide structure.
Phil Morettini says
Joe, good addition. I agree completely. -Phil
Geoffrey Barnes says
Thanks for putting together this post on Startup Mistakes by Software and Hardware Tech Companies. it is a great read. I particularly find your thoughts about The “techies know everything” syndrome hilarious.
Keep up these insightful posts.
Andrea Mackenzie says
Thanks for sharing.