Starting a new business is a long, hard process, and I can’t blame any founder for looking for shortcuts. I’ve taken a few myself, and I know how much work they can save, as well as how painful some can be in retrospect. When you are trying new things, there are plenty of new problems to go around, so why would you want to re-experience the pain of others?
As a new business advisor and angel investor, I have assembled my own favorite list of shortcuts to avoid, in the hope of saving you from learning these lessons the hard way:
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Be satisfied with verbal or handshake partner agreements. This shortcut to avoid hard discussions and signed documents leads to more dysfunctional businesses and broken relationships than you could imagine. Early partners often drop out due to differences, but they don’t forget your original promises when you go public or hit it big.
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Wait until you have investors before incorporating your business. This is the classic “chicken and egg” problem of which comes first. I assure you that most investors will not take you seriously if you don’t have a real company, so you may wait forever.
I recommend starting early with a cheap and simple Limited Liability Corporation (LLC), and converting later to a C-Corporation, if required. This protects your personal assets from liability immediately, and allows you to avoid being taxed on your founder shares.
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Count on family members and friends to grow the business. In the heat of scaling the business, it’s tempting to skip the cost and time of finding qualified job candidates, and enlist those close at hand, without paying them a competitive wage for the hard work and commitment you need. Remember the old adage that you get what you pay for.
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Reduce stress by hiring people who don’t challenge you. Very few people are experts in all facets of a new business, including finance, sales, marketing, and operations. The best strategy is to hire people who are smarter than you (in their domain), and allow you to learn from them, rather than the other way around. Moderate business conflict is constructive and should be embraced.
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Retain maximum equity by requesting minimal funding. Of course, you shouldn’t give away ownership, but squeezing yourself to failure, benefits no one. Size your funding requests to cover the next 18 months, and then buffer the amount by at least 25 percent. Things cost more than you expect, and cash-flow problems often are not recoverable.
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Focus on products and customers, and trust your accountant. New business owners should be signing every check, and managing every expense. The accountant may accurately record every transaction, but only you can make the strategic tradeoffs on marketing costs versus customer revenue, product quality versus support, and so forth.
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Maintain required control by not delegating decisions. Effective delegation is a skill that must be learned early by every business owner. There just are not enough hours in a day as the business grows for you to make every decision. To get business growth, you need team growth and loyalty, driven by letting them make decisions and do their job.
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Refusing to pivot from your initial business strategy. The strength of every new business is that it has no legacy, and being small, can adapt quickly and easily to new information and new customers. Your initial strategy will be wrong, no matter how carefully you worked it out. Refine your strategy at least quarterly, and relish changes.
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Spend all your time putting out fires, rather than planning. It takes effort and focus to drive the business, rather than let the business drive you. In every business there are crises every day that can prevent you from seeing the more important issues – including customer acquisition costs, competitive challenges, and new market opportunities.
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Never taking the time to enlist and learn from advisors. Too many business owners are convinced that listening to an advisory board or Board of Directors is a waste of time and money. As a result, they repeat the mistakes of peers, and also tend to repeat their own mistakes. Advisors and mentors enhance the learning and effectiveness of even the best business leaders.
I’m sure all you experienced business owners can add one or two more key items to this list. The reality is that making mistakes is a necessary part of every successful business growth effort, as long as you avoid the mistakes of others, and don’t keep making the same mistakes over and over again.
The other extreme shortcut is never trying anything new, which is always a mistake in business. You can’t win if you don’t try to push the limits. Work hard, but work smart.
