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7 Deadly Sins of Start-ups

Don't fall prey to one of these common entrepreneur mistakes. You'll be much more likely to avert a swift start-up death.
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Now that I have you fired up about why you should start a company, it's time for me to bring you back down to earth.

Starting a company will be one of the hardest things you ever do. It's you versus the world. And the world usually wins, as more than 65% of all businesses fail.

So what are the major mistakes you will make that will lead to the demise of your business? Here are my 7 deadly sins of start-ups.

1. Pick the wrong market

There's a great line in Marcus Luttrell's Lone Survivor: The Eyewitness Account of Operation Redwing and the Lost Heroes of Seal Team 10 about picking the right opportunities. Marcus quotes his risk-taking entrepreneurial father, "I'd rather shoot for a star and hit a stump than shoot for a stump and miss." 

Shoot for the stars. Pick a large market with room for many large winners. Choosing a good market can make up for a lot of operational mistakes. Choosing the wrong market can turn the game of business into a game of roulette in which each chamber has a bullet.

2. Choose the wrong co-founder

The fastest way to ruin a friendship is to start a business with him. Just because you are friends doesn't mean you can work well together. The booby prize for winning a fight with a co-founder? A failed business.

Two dudes can be best buds for 20 years. Put a big pile of potential money in the middle of them, and watch the worse character traits of each come out. It often makes The Apprentice look tame.

Just like in marriage, opposites attract in co-founders. Don't start a business with someone whose skill set matches yours. Find someone whose strengths are your weaknesses, and whose weaknesses are your strengths. Divide and conquer together. And trust each other. 

3. Wait too long to launch

Business school classes (so I've heard from friends who spent a small fortune to lose 2 years of their professional lives) talk about finding a "product-market fit." In the real world, we call that building a product or creating a service people will pay for.

The only way to really know if your offering has a future is to actually go to real people and ask them to buy, or use it—soon.

Everything comes up roses in spreadsheets. I've never met an entrepreneur whose projections weren't "conservative" or whose financial model wasn't "rock solid." But I've met many, many entrepreneurs whose businesses have failed, many very publicly and with flair.

The gap between what you think will happen during your planning phase and what actually happens when you are in market selling your product or service is often huge. So launch early to get the feedback you need to iterate, iterate, and iterate some more.

4. Spend too much too soon

Most entrepreneurs fail for one simple reason: They run out of money. Your job as the founder is to ensure that your business gets into orbit before it runs out of money.

The easiest way to run out of money, I assure you, is to increase spending too fast.

Entrepreneurs love to turn on the gas before the business model is fine-tuned.  This is a mistake. Spend as little money as possible as you try to find your business model.

If you are selling a product to businesses, don't hire your second sales person until your first is generating at least two times her annual salary. Don't market aggressively until you know that people will buy your products.

5. Hire the wrong people

Your business model is your race horse. Your people are your jockeys. And the difference between a winner and a loser is usually not the horse, but the person riding it. Great people will get you into first place. The wrong hires will ensure suboptimal performance.

Too often, entrepreneurs try to just fill positions so they can "move on" to what they think are more important tasks. Let me tell you a little secret all great entrepreneurs know: Hiring isn't a task on your to-do list. It's the lifeblood of your company. It is your company.

The most important hires are your first 20. They are the soul of your business. They set the tone for all future hires. If they are awesome, awesome people will follow them, and join your company. If they suck, future hires will suck as well.

6. Don't fire the wrong people

All first-time entrepreneurs and managers hire the wrong people. Many serial entrepreneurs hire the wrong people. I've done it dozens of times and still do it regularly. Both parties go into the transaction with the best intentions, but it doesn't work out for various reasons.

What happens next is critical. Do you let the wrong people fester at the company, attract more wrong people, kill your company morale, and create more and more problems? Or do you fire them and part ways?

The right answer is simple: You should fire them. But operationalizing this truth is not easy. Entrepreneurs are eternal optimists. We're driven by fear. Telling people that today is your last day is the last thing any of us want to do when we get to the office.

But you have to do it. Not firing the company misfits does the company and its employees a disservice. And it will cost you tons of money in the end. Each hour of lost productivity dealing with internal issues created by the wrong hires is another hour spent not building a better product, selling it or supporting it with excellence. These are hours you can't afford to lose.

7. Ignore your gut

Entrepreneurs who train themselves to listen to their gut in making key decisions generate a tremendous amount of the world's wealth.

Just look at Mark Zuckerberg. His gut told him that students would love a service to connect them seamlessly to each other at their campus. And each of his product decisions, from the newsfeed to photo tagging, also came from gut decisions.

Steve Jobs, Michael Dell, Warren Buffett, Richard Branson. They all learned very early on to listen to their initial instinct.

If your gut tells you that a potential hire is not a fit with the ethics and values you set, don't hire him. If your gut tells you that your product will never gain one customer, let alone customer traction at scale, change and do something else. If your gut tells you that an investor will probably screw you down the line, don't take her money.

When was the last time someone told you that they shouldn't have listened to their gut? Exactly.

Last updated: Apr 4, 2012




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