Written by Scot Chisholm
| October 20, 2023
But in this post, I’m going to do the opposite.
I founded a software company at 24 years old, and spent the next 15 years growing it from $0 to $100M and a team of over 300 people.
Now I coach startup founders and have worked with hundreds of CEOs ever since.
This gives me a unique view of the most common mistakes that we make building companies.
Below I dissect the top 7 mistakes startup founders make (including me), with actionable advice on how to avoid making them yourself.
Buckle in, here we go. 👇
One of the biggest mistakes CEOs make is saying “yes” to everything. This leads to having too many “good” ideas and no system in place to effectively filter them down.
I put too many of these “good ideas” into play, which only confused and distracted my team. They had no clue how to prioritize everything!
Now I have a system for organizing and prioritizing my ideas. It looks something like this:
It’s the same when other people bring you their ideas too. Always try to align their ideas to the company’s vision & annual goals.Challenge them to filter their own ideas in the same way BEFORE bringing them to you.Does it help the company get to where it’s going, or not?Check out my seven proven steps to set and achieve your goals.
Setting company goals is a powerful tool to align your organization and drive progress.
But, when it comes to goal-setting… less is more.
In the early years, I used to have between five and 10 annual company goals.
This led to confusion and competing priorities.
And by the end of the first quarter, no one even remembered what the goals were!
My Hard Rule: Create three (or less) annual company goals. Never more.
Remember, your company goals don’t need to encompass everything you do as an organization.
Your company goals are the 3 most important things for the year that the organization will dedicate ~80% of its time on.
There are lots of goal frameworks out there: OKRs, SMART Goals, etc.
I used OKRs for over five years and found them to be fatally flawed.
Check out the flaws I’ve discovered with OKRs and how to fix them.
But regardless of the goal framework you use, here’s what’s most important:
Once the company’s goals are clearly outlined, have everyone on the team create their own goals that align with the company’s.
If you want to go deeper, I recommend checking out the book Essentialism by Greg McKeown Not a book on goals per se, but a fantastic primer on the importance of focus.
I used to believe that great products sold themselves. How wrong I was.
I wasted years of growth relying on the product to win customers.
So when is the right time to for a startup founder to hire sales?
First start with founder-led sales. It’s incredibly important that the CEO knows how to sell her own product. The learnings from this alone are priceless (product improvements, product positioning, etc.).
Once you prove that people actually want your product, then it’s time to hire sales.
Start with two sales reps, reporting directly to you as the CEO.
Why two? If you only hire one sales rep, and they struggle, you could draw the wrong conclusions about the market.
With two sales reps, you can treat it like an A/B test.
Use this time to design and fine-tune sales rep compensation, quota, attainment and early sales economics (how long it takes you to pay back your cost of acquiring a new customer).
If these sales reps are finding success, then hire a sales manager and fill the team to 5-7 sales reps. This becomes your first full sales pod.
Make sure your marketing engine helps feed the team warm leads; but also keep the reps prospecting too.
Optimize the output of this pod until most of the reps are hitting quota on a quarterly basis (80%+). Once you’ve done that, it’s time to consider adding another pod!
“Fire fast” is a well-known saying amongst startup founders and CEOs.
But it’s often wrong.
Most startup founders are inexperienced managers. I certainly was.
And that usually means we aren’t great coaches at first. We don’t know how to effectively give feedback or challenge someone in the right way.
So when someone on your team starts to struggle, it’s easy to go back to the old adage “fire fast” and quickly remove that person from the organization.
But looking back on my 20 years managing teams, I would estimate that at least 50% of the people I let go could have worked out just fine with better support and coaching.
Part of my issue was that I was afraid to coach people with more experience than me. I would bring in deeply experienced team members or executives and assume they must have it all figured out.
But I eventually learned that you don’t need to be an expert to be an effective coach.
Really you just need to focus on the following:
Coach them on where you want the business to go, not on the specifics of how they should do their job. More often than not, struggle happens due to lack of direction, not lack of functional skill.
If you’re looking to go deeper to improve your coaching skills:
There’s naturally a tug-of-war for resources in any given year.
It’s common to invest heavily in product early on, and then shift to sales & marketing.
But once I had my sales engine rolling, I failed to keep my product development investment at the right levels.
What ended up happening? Sales outpaced product innovation.
And when that happens, you end up in a negative cycle that eventually leads to:
Keep this in mind: Product should lead sales, not the other way around.
Your product roadmap should not be a collection of requests from the sales team.
Of course the folks on the front line should have some input. But when this gets out of whack, you’ll end up with a grab bag of features just to win deals.
Instead, continue to invest in product development equally to sales. Make sure the stream of innovation continues as you scale. Use new features and product announcements to soften the beach for the sales team.
This will make it MUCH easier for them to win deals and create a positive cycle within the company.
In the early days, everyone on the team wears the company’s values like a badge of honor.
You hardly have to write them down, people just FEEL them and operate by them.
It guides everything from hiring to strategic decision making.
But as you grow your team, the need to codify your values becomes more and more important.
Not just to remind people what they are, but to let them know what they actually MEAN.
After we crossed 50+ people, we started to see the culture change. In some ways it was good. New people bring new perspectives and diversity to the team. More of a positive evolution than a sharp turn.
But in some ways it was really challenging. Some newer employees were attempting to take our culture in directions that we felt were out of alignment with our values.
Instead of blaming them, we took a look in the mirror. And we realized that our values weren’t defined enough. We had them well documented like:
But we weren’t teaching people what these values actually meant. We hadn’t defined them well enough.
So here’s what we did:
Here’s an example of the three defining bullets for “Lead by Example”:
I saved the biggest mistake for last.
I was only 24 when founding my first company, so I had no idea how to vet investors.
And even after raising my Series A and Series B from great investors (I got lucky)… I still violated the #1 fundraising rule once I got to my Series C:
“Don’t chase the highest valuation.”
Because you might end up with bad-fit investors who don’t share your vision, or even worse… your values.
Whoops. Ya, that one hurt.
We had multiple offers, but I chose the highest valuation from a bad-fit firm.
This wasn’t obvious at the time, but there were many red flags that I missed (or ignored). It’s easy to get enamored with price and look at the deal through rose colored glasses.
Now I vet investors just like I would vet a new hire. I create strict criteria and narrow my list accordingly. I interview them in a way that tests their values just as much as their experience.
And most importantly, I go and talk to other founders who have them on their cap table. But not the companies they recommend, I choose different ones. What you’re looking for is this: How did this investor act during the hard times? Did they support the company, or did they make hard times even harder.
That’s what happened at my company. We hit a rough patch, and instead of the investor being supportive, they tried to kick the founding team out of the company and replace us with a more “experienced” leadership team.
Don’t let this happen to you. Choose your investors wisely.
Mistakes happen… clearly!
But what matters most is how we learn and grow from them.
As you continue your entrepreneurial journey, actively seek to learn from your mistakes. Even look for opportunities that might be hidden in there.
The better you get at this – turning mistakes into opportunities – the stronger you and your company will become!
November 10, 2023 | Uncategorized
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