What do you think are the most common mistakes made by first-time entrepreneurs? originally appeared on Quora - the knowledge sharing network where compelling questions are answered by people with unique insights.
Here's what I see most often:
- Incomplete understanding of business / pricing model. Many first-time founders have a decent understanding of how to charge for their product, but haven't really rolled it up into a strategy to get to $10m, $20m, $100m in ARR. Focus and model often change as what it takes to get to the first $10m gets figured out.
- Too cheap -- once you have something. Cheap is good. Capital is precious. But then a time comes at $1m, $2m, $4m ARR when you have to let it go. You have to pay folks market. You have to hire those extra few reps that we don't really have leads for today. Do that extra trade show. Hire those extra engineers. It's okay ... it resolves itself over time. But first timers tend to lose a chance on the road from $1m to $10m ARR to grow even faster.
- Tough transition from micromanager to "macromanager". Most second-timers have evolved into macromanagers. They know to hire the best folks they can, and let them run. Most first-timers these days are such amazing founders; they can code, sell, support, upsell, and even hack marketing. They can and do continue to do everything. Even once they hire people to do those functions. But once you hire real VPs, you have to stop micromanaging. Great VPs won't be micromanaged. They won't stand for it. Mediocre ones are okay with it, and even prefer it, however.
- VPs a stretch too far. Related to the prior point, stretch VPs are great. But hiring folks that haven't done it at all doesn't scale past a few million in ARR.
- Capital "hubris" (if angel / seed rounds are easy). I don't always see this, but I almost never see it in second-time CEOs. But first-timers that have an easy time raising after Demo Days don't grock that the bar goes up for each round. They also assume their existing investors will bail them out. And they often don't budget enough time for fundraising.
- Too much TechCrunch-ish pattern matching. I know Facebook is a great company. But it doesn't mean an exec there is a good fit for your 16-person company today. We can't help this. But get more advice on your senior hires (and then ignore it if you want, but just get it).
First-timers do just as well, if not better, than second-timers. And they are much more capital efficient. Much, much more capital efficient. And they lack the biases of second-timers.
Basically I only invest in first-timers.
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