Recently we reported on a phenomenon called F***Up Nights. A simple idea with a NSFW name, the concept is to gather members of your entrepreneurial community together regularly to share your biggest screwups and the wisdom (painfully) gained from them. But what if your area doesn't have such a meet-up, or you're short of founder connections willing to share their missteps?
Then turn to question-and-answer site Quora, where someone basically organized a virtual version of a F***Up Night by asking "What are your biggest lessons as a founder from a startup failure?" A variety of entrepreneurs and startup watchers generously agreed to offer advice learned the hard way, and several key themes emerged.
1. Don't go after funding unless you really need it.
"Chasing funding when you are not ready for it is a waste of time that could be spent working on your product," says Ben Rodda, an engineer and self-described "startup junkie."
He's not the only one offering this advice. "Don't make funding a priority until you absolutely need it," writes Alexandre Mouravskiy, head of creative and strategy at A Content Marketing Experience. "A lot of small startups start chasing investors way too early in the process. Not only is this a huge waste of time, it's also going to make you seriously depressed and will make you start questioning everything you're doing." Several other posters vehemently agreed.
2. Get a good attorney and accountant early.
Bookkeeping and wading through legalese may not be the sexiest parts of starting up (or the aspects you most enjoy), but ignore them at your peril. "Get a good attorney and a good accountant, both with extensive experience working with startups, funding, and tax implications," recommends one anonymous poster. "Talk to some of their clients." "The first two people that a startup needs on retainer are a good lawyer and a good accountant," agrees Rodda.
3. Build what you can sell.
You probably got into your startup because you were excited about a particular idea or solving a particular problem. Great, but don't let your enthusiasm for the product or problem blind you to the necessity of actually selling what you build. You need to get real people to pay real money for it.
"Focus on building something you can sell, not something you think people probably want," urges Mary Haskett, serial entrepreneur and current founder of BeehiveID. "Don't get distracted by all the things that feel like progress but are not progress. Measure progress in terms of revenue. If you are loving what you do but aren't making any money, what you have is a hobby, not a business. Focus early on sales and discovering what your market will pay for." "The only way to validate your product is if people are actually paying you," adds Developer Visionaire co-founder Angelo Cordon. "Otherwise you'll build something that nobody will want, and you'll waste your time and drive it into the ground."
4. Be thoughtful about equity.
This was a big one, with many people addressing questions around equity and vesting, though respondents approached the topic from a variety of angles. Several noted that co-founders having equal stakes in a business is a bad idea. "Make sure that one person has more equity than the others," writes Rodda. "Three founders each with 33.3 percent is bad. Two with 33 percent and one with 34 percent is better." Cordon explains why: "Don't have equal equity among founders; one person needs to have majority...This is so you don't get stuck arguing what color your logo should be."
No one wants things to go south with a co-founder, but a couple of answers stressed making sure you're protected, just in case. "Sign an operational agreement with your co-founders to ensure that all IP they develop belongs to the company," says Rodda, "and that you all have a normal four year with a one year cliff vesting." "Protect yourself!" concurs Jeremy Cooley, founder and CEO of WannaYum. "Vest your co-founders' shares (four year with one year cliff)."
5. Ensure you can't lose control of the company.
Another common thread was to be extremely cautious of the possibility of losing control of the company. "Don't sign an agreement in which the founder could lose control of the company," writes one anonymous poster, for instance. "This can happen with the conversion of accrued interest, warrants, or if the initial funding level is too low and you have to renegotiate a deal to keep the company operating."
The results of messing up here can be nasty, according to Mouravskiy: "I've seen a couple of people make a misstep and have everything they've worked for dumped because they accidentally gave away too much equity too soon. A friend of mine lost her startup and had it dumped in the refuse bin despite high six-figure revenue because she gave a large controlling stake to her employer in exchange for financial and technical support. She was also turned down by several major VCs because she didn't control enough of the company. It sucked pretty hard."
Do any experienced founders have others lessons to add to this list?