Written by Scot Chisholm
| October 27, 2023
Just look around the internet for 10 minutes and you’ll see endless “gurus” and get-rich-quick schemes. Even from people that appear credible, like investors and professional coaches. But the reality is, most of these folks have never worked at a startup before, nevermind led one as a founder and CEO!
That’s why – after spending 20+ years operating startups and building a $1B+ portfolio – I decided to debunk the top 10 worst pieces of startup advice.
After reading this post, you’ll know what to look out for, and how to handle each situation like a pro.
Ready? Here we go…
People will tell you this all day long when you’re learning how to build a startup.
The expression comes from the book, The Lean Startup, by Eric Ries. It’s meant to push entrepreneurs to launch their product or service earlier to get customer feedback.
But over time the definition became warped by founders who didn’t have the stomach to fight through challenges. These founders used the “fail fast” motto as a reason to give up on the whole company at any sign of friction.
But the best startup founders know that 99% of success is not giving up, even when failure seems inevitable. In fact, most breakthroughs happened immediately AFTER your lowest points.
Here’s better advice: “Learn fast, quit slow.”
Instead of failing fast, you should be trying to learn as fast as you can. Each cycle of learning brings new feedback that helps you improve your product or service quicker.
“Quit slow” because simply staying in the game increases your chance of success 10-fold. You must persevere long enough to see the breakthroughs on the other side!
Would you rather do business with a complete stranger? I’m on my third company with friends and family and doing just fine.
By choosing to do business with friends over strangers, you’re stepping into the arena with the trust and support you need to succeed.
There’s a reason Y Combinator – the most prestigious startup accelerator in the world – screens applicants for prior relationships as a criteria for acceptance. Because they know that the stronger that relationship is, the higher likelihood of success.
Here’s better advice: “Don’t blindly go into business with a complete stranger.”
Trust is paramount to get through the ups and downs of a startup. Find a co-founder that you have a history with. You’ll inevitably face extreme challenges together, and you’ll be happy you have a relationship to lean on. When one wants to quit, the other keeps them going… and vice versa!
This is a classic line you’ll hear from average investors. If your company can just capture 1% of this insanely large market, you’ll be a home run success!
But this is pretty much crap. In reality, massive markets are nearly impossible to penetrate without tons of funding. Traction is HARD and you end up diluting yourselves to serve the masses.
I’ve seen a lot of founders burn themselves out with bigger markets and abandon the idea completely; when it could have worked in a smaller market with more focus.
Here’s better advice: “Crush a small market, then enter the next.”
Think of your total addressable market (TAM) like an archery target. The middle is your core customers you’re 100% focused on right now. This is the “small market”, your niche.
Then think of each outer ring as a new market (new customer type) that you can enter down the road with essentially the same product.
This is like telling someone they need a DVD player in 2023.
Don’t waste your time on elaborate business plans because they will inevitably change.
Remember: Your first idea is never the idea that sticks. The early days of a startup is about finding right business model, not perfecting the one you wrote down on paper.
Here’s better advice: “Just get started.”
Instead of an elaborate business plan, create a “test plan.”
This can be a one-page executive summary or a short slide deck. Keep it focused on your going-in hypothesis around product market fit (PMF) and how you will test it. Then, use the test plan to organize your thoughts and align internally.
If you’re speaking to investors, the pitch deck should also be super focused on the test plan.
Says the investor with a cushy job and a lot less at stake. 🙄
An effective startup founder can’t be worried about paying their bills. This just adds to the already stressful conditions and deteriorates the founder’s health.
Here’s better advice: “Pay yourself as early as possible.”
Keep your base salary on the low-to-mid side, but don’t shy away from rewarding yourself with a bonus for hitting your goals. As the CEO, 100% of your bonus should be tied to the company achieving its top 3 goals for the year. A typical CEO bonus is 100% of your base salary; so, you can earn double for hitting the top company goals!
If you have a Board of Directors and investors, this should be a no-brainer for them to sign off on. It’s a win-win for you and the company. Cash risk is low and the company pays for performance.
In my 20+ years building businesses, I can’t seem to find that all-encompassing “best practices” library. 🤣
By all means, learn from others. But just remember there’s no set formula or silver bullet for success when learning how to build a startup. What worked for someone 10 to 20 years ago is unlikely to work for you today.
Here’s better advice: “Create your own unique formula for success.”
Pick up pointers from people who have done it before. But consider these to be only inputs to your “success formula”. You’ll want as many inputs as possible so you can create the most unique, most bad-ass formula for your specific situation!
Just remember, their “best practices” are not your “best practices.” Ultimately, no one knows your business better than you.
A large Board of Directors is a layer of bureaucracy you don’t need until much later.
This self-serving advice is commonly given by investors who want a seat on your board. They’ll tell you that it’s “normal” to expand your board to 5, 7, even 9 people in the name of proper governance. Then, inevitably, they’ll recommend themselves to fill the vacant seat! Soon enough, you and your co-founders will have a bloated board and lose majority control.
Here’s better advice: “Keep your Board small and agile.”
In the early stages, you’ll want a 3 person Board – two founders and one independent Director (a person that doesn’t work for the company). This person should have deep market knowledge and actual operating experience.
The independent adds a new ingredient to the discussion and can be extremely helpful in the event of a tie breaker or founder dispute. But ultimately you still have full control, and it’s best to keep it that way for as long as you can.
Seasoned executives come in two flavors. There’s seasoned executives who come from a startup (rare). Then there’s seasoned executives who have never worked for a startup before (very common).
Hiring the later can be detrimental to your company because most of these execs don’t know what it takes to survive and thrive in such a high-paced, dynamic environment. They also tend to be stuck in their ways, and try to implement “big company” practices into a smaller company. This never works.
Here’s better advice: “Don’t over-value executive experience”
Instead, hire the hungriest, smartest mother F’ers around and let them impress you. Sure, they won’t be as polished, but that’s not what counts in a startup.
Eventually you can add more experience to your leadership team; but instead of hiring executives from Microsoft and Google, look for Directors and VPs that have helped build a successful startup. Even better, they were the leaders of their function during the phase of growth that your company is now entering.
Many startup founders opt for fast capital, only to realize it’s like a band-aid on a massive wound. It might buy you some time, but ultimately the quality of your business model will catch up with you.
Here’s better advice: “Bootstrapping breeds the best habits”
It’s much better to raise nothing (or very little) until you reach product-market-fit – that is, you have something people want to buy, and you’re able to sell it consistently.
Bootstrapping keeps you painfully aware of your strengths and weaknesses and forces you to build a robust, enduring business.
Then consider raising money to truly scale your business. This approach will save you equity and investor headaches. And remember: raising money means you now work for someone else too. Don’t take this decision lightly.
There are basically two exit options for a startup:
Sell the company (or your stake in the company)
This is the universal exit plan and it took me roughly 5 seconds to type out.
Here’s better advice: “If someone asks you for an exit plan, run.”
This person is focused on the wrong things. There will come a time when you put more effort into positioning for a sale or IPO, but you don’t need a “plan” for this early on.
Instead, focus on building great partnerships with bigger, synergetic companies in your industry. These can turn into potential acquirers later.
And keep your house in order – from HR to finance to accounting. These are the unsexy things that can make or break an exit down the road.
Building and scaling a startup is a massive challenge that requires adaptability, perseverance and conviction. Be careful about who you take advice from moving forward. And if you run into the ten things above, you’ll now know how to respond!
If you’re a startup founder looking for better advice, here’s three ways I can help you:
November 10, 2023 | Uncategorized
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