Start-ups face some unique challenges and circumstances. A good chunk of the customer-base of the Fusebill Subscription Management and Recurring Billing Platform include SaaS start-ups. After two decades of working with these never-say-die (until they do) businesses, I wanted to highlight some of my experiences and observations.
Here are the Top 10 Start-up mistakes:
1. Title Inflation: Here a VP, there a VP, everywhere a VP.
Sometimes, people that join a start-up’s initial team are given inflated job titles such as VP of Department X, for the purposes of showing that the company has an executive team.
In reality, this individual may have little or no executive experience, or more importantly, executive acumen. Then as the company grows and they need to add seasoned executives to support this growth, the start-up is in a position where they have a significant discrepancy between the original “executive” and an actual executive.
This puts the start-up in a position of either demoting or releasing the original “executive” to resolve this discrepancy. Not only does this set the wrong expectations for the company and the individual, but this ‘VP’ now has a title on their resume that they may not be able to live up to.
Instead, start-ups should reserve senior titles to allow an individual to first prove their executive ability or to ensure there is room to add executive experience at a later date.
2 . Self-Inflicted, Top Heavy Organization: The bigger they are, the harder the fall.
We have seen numerous examples where a start-up gets Venture Capital (VC) funding and then they go out and hire executives for every possible department they have in their organization.
In every case, this creates a very top-heavy org chart with an executive-to-employee ratio that is wildly unbalanced. This gets compounded when these executives then hire the “doers” required to execute and get things done.
As financial realities start kicking in, the start-up then finds themselves in a situation where they need to consolidate headcount and executives resulting in the org chart they should have had in the first place.
3. Lack of Start-Up Experience: Too big to fail to grow.
Many start-ups will hire seasoned executives who gained their experiences in larger organizations and have never previously been an executive at a start-up before.
Although there are exceptions, this often can be a damaging mistake. These people are used to working for larger organizations with an entourage to get things done. Instead, start-ups need people with good experience but who understand the constraints of a start-up. They need to be willing to roll up their sleeves and get stuff done.
If a start-up were a train, an executive has to decide where to lay tracks, which direction to go in, and what kind of train is required to go down those tracks. In comparison, the larger company executive works in an environment where the track is already known and the executive is just jumping on the train that is already moving down these well-established tracks.
These are vastly different, although important, skill sets. When hiring that key executive, make sure you know which one you are hiring.
4 . Selling to the Elephants: Big hat, no cattle.
Rarely should start-ups sell to the large enterprises (the elephants) from the get-go, but if you have recruited those non-start-up executives, they will revert to what they know, which are larger enterprises. Consequently, they will direct the start-up to focus on hunting elephants.
More often than not, elephant hunting means big cash burn with not enough volume of sales success that would make it worth the effort. It is far better to close many smaller deals, grow your market credibility and solidify your solution before you start chasing down the bigger game.
5. Revenue Protection: Win that pie-eating contest one bite at a time.
With most start-ups, there is near-exclusive attention directed at new client growth, often at the expense of giving the appropriate attention to revenue protection and maintaining clients. This is a dangerous scenario for any company, let alone a start-up who needs to gain credibility with a reference-able, low churn, client base.
6. Sometimes the Shoe Does Not Fit: Remember how it turned out for Cinderella’s stepsisters.
Start-ups often find clients who do not adequately fit their solution. Since they desperately need new clients, they spend enormous amounts of time trying to fix or alter their solution to fit a specific client.
It is critical for start-ups to realize early on if the solution does not fit the client’s needs, they need to remove those potential clients immediately from their leads, opportunity pipeline, and customer list. Focus on those that fit. Don’t waste the time, money, and energy to force-fit a client.
7 . Too Development-Heavy: Done is better than perfect.
Many start-ups put too much emphasis (in ratio) on product development rather than on building the market and ensuring that someone is going to pay for all that development. Let’s say a start-up was a plane. Some start-ups would wait until the airplane is completely finished before they even think to look for a runway for takeoff.
Unfortunately, most start-ups that are looking for funding have great technology with no proven market. In reality, a start-up should be building the plane in flight. Create the minimal effective solution and continue to build from there, while the trip is underway.
Once in the air, they can more easily adjust the direction, speed, altitude, etc. Ultimately, it is important to be nimble when addressing the market opportunity.
8. MarComm is NOT Marketing: Pretty PDFs are not enough to sell products.
This is not limited to start-ups, but it bears discussion here. Too many start-ups don’t understand the difference between marketing and marketing communications (MarComm).
They hire VPs of Marketing (who are really VPs of MarComm) when they really need marketers who understand how to identify the target market, create effective messaging for that target market and understand how to position the company in its target space.
This is very different from MarComm, whose primary role is to create marketing materials and write collateral and communications. MarComm delivers on what marketing produces. Know what you need and hire accordingly.
9. Loss of Financial Discipline: Dream passionately but spend carefully.
Receiving funding does not mean throwing out financial discipline. If anything, you should be more disciplined than you were beforehand because that funding came with strings. Every dollar of that funding should be going towards the growth of the company.
That means you still need to be smart about who and when to hire, what equipment you purchase (everyone in your company does not need to get the latest laptop or smartphone) keeping an eye on travel expenses, etc. Every VC dollar spent should have a direct connection to growth.
10. Don’t Go It Alone: It takes a village to raise a start-up.
Oftentimes, start-ups think they can conquer the entire market themselves. In reality, though, the market is too big, there are too many players, and there is too much competition to go it alone. It is all about the company that you keep. Start-ups need to establish strong partnerships and strong personal networks based on a deep understanding of their market.
Very rarely does a “go it alone” strategy work. Strong partnerships make you look bigger than you are and will increase your credibility in your target market.
People who start companies do so because they have a dream, whether it’s improving an existing solution, filling a need or bettering peoples’ lives. Keep the momentum of that dream going, but balance it out with prudence to ensure your start-up’s success.