6 Early Startup Mistakes to Avoid
Learning from experience is expensive – learning by information, especially through the experiences and knowledge of others, is cheap. Today, I’d like to discuss common early founder mistakes and how to avoid them. I’ve made many of these mistakes myself, and I hope I can use my experience to help you. I’m not going to focus on the nitty-gritty of legal mistakes, company formation mistakes, or things of that nature. These legal/business formations are fixable, even if costly, and many resources out there can speak to these issues better than I could in this post. Instead, I want to dive into mistakes that are easy to make but can be company-killing.
Co-Founder Deal Structure and the Messiness of Being Human
The first mistake comes from not handling what is likely the most important human relationship well. Whether in life or at work, relationships can be messy and complicated. This human messiness shows up the most in the cofounder structure. From the get-go, how you split the company will have serious consequences. In what became my first full-time startup, the cofounder and I split the company 50-50. While this may seem the most intuitive way to do things – if you have two founders, why not split equally? – it did not serve the company or us well. We ended up having fundamental disagreements about the focus and direction of the company.
Neither of us was wrong; we just had different goals for what the company should be. Our views were not aligned on multiple fronts, and it was impossible to move forward with the company split evenly. We struggled to get momentum. The lesson here is that you should be very intentional about structuring the equity split and individual responsibilities with your cofounder. Don’t just go 50-50 because it seems easy, non-confrontational, and straightforward – think about what division will allow your company to move forward because you will need a decision-maker at the end of the day. It should be the first difficult conversation you have and will shed light on your ability to have difficult conversations as a co-founding team going forward.
There are many ideas about structuring the equity split between cofounders and the best mechanisms to execute them. Here are two great resources on how to split founder equity:
I also recommend taking a personality or strengths test with your cofounder to see how you fit together and process feedback. This exercise will serve you, your cofounder, and your company much better than the easy route in the long run.
Not Being Clear on Your First Customer
You need a customer in mind for whom you can provide a simple, differentiated solution.
I often see founders make mistakes because they haven’t clearly defined their first customer and what will differentiate them from other solutions. As I discussed in my last post, you should do your best to build with at least one potential first customer in mind – and this customer, in most cases, shouldn’t be you. Don’t just randomly start building. Get out into the wild by talking to prospects, then identify the pain point you’re trying to address – who is suffering from that pain? Who needs a solution? Once you’ve identified that initial customer profile, the next step is to differentiate yourself for that customer. You need to be a must-have, not a nice-to-have. Look at the existing market and ask yourself what you will do differently. If you can’t do it differently, then make yourself 3x or 5x or even 10x better than the current approach to solving the problem.
Your customer discovery and market research should be focused on how you can solve your customer’s problems in such a novel way that they would be very upset if they couldn’t use your product. It’s a huge mistake to only start building because you think your idea is great. You may build a great product, but no one is compelled to buy it.
Assuming Growth Comes From The Next Magic Feature You Don’t Have Yet
It’s common to see founders mistakenly assume that their lack of growth is because they haven’t built the next great feature. This is particularly common for technical founders. Writing code is what we have control over. I understand this mindset – we think the product we have built is simply not good enough, and if we just build it a little more, we’ll start growing. This thinking kills early-stage momentum. To combat this mindset, I simply forced myself to get out there and sell what I already had, even if I saw so much potential for me to make it better.
As Reid Hoffman says, “If you aren’t embarrassed by the first version of your product, you shipped too late.” As much as possible, find who wants to buy what you have now as-is, then build from there.
Speed is of the essence in the early stages. While your product needs to provide value to the user, it doesn’t need to be the most polished version of itself with all the bells and whistles. Growth requires getting your product into the hands of customers. You may be right about what’s missing to gain traction, but let the market tell you that while you aggressively try to sell what you’ve already built.
We began getting early traction at TheraNest before we built most of what our competitors already built in their solutions. We then actively engaged our trial and paying users on what they wanted to see in the software. Many of them gave us insights into how those features worked in competitor applications including what they would like to do differently. It opened our eyes to new ways of approaching some of our customers' problems while still growing our MRR. While several customers churned because we didn’t have certain features, the churn reasons – which we captured – became data points to help guide the product lifecycle. Our engagement and the speed in which we added requested features based on customer feedback delighted many of those customers and helped reduce churn. There were also features we didn’t build because we weren’t sure how important it was to the broader customer base, even though we may have had loud requests from a few people who made it seem that those features were important and not having them was a deal breaker. In many cases, this turned out not to be true. Not rushing to build those features saved us a lot of wasted time.
Doing Things Without Clarity Around Priority
The fourth common mistake of early founders is poor prioritization. My post on decision-making contains some actionable tips to clarify your priorities, and I won’t spend too much time on it here. The early days of starting a company are hectic and overwhelming. This can force founders into a random fire drill mode, leading to poorly thought-out growth decisions. It’s tempting to fill your time with activities that make you seem busy but lack thought and data. You will be better served by coming up with clear and measurable growth goals, and accompanying actions and then doubling down on these actions consistently and systematically if they show results. In short, be deliberate around your inputs, clearly measure your outputs, and adjust as needed.
Lack of Knowledge Around Cash Flow and Finances
Another mistake is not having a proper grasp of your financial metrics. Founders need to get comfortable with this side of the business to be successful. Blindly proceeding without knowing your burn or projected cash requirement, based on growth rate, leads to disaster.
When it comes to cash, ignorance is not bliss. Your finances will only get scarier the longer you avoid them. Take the time to develop a clear system for understanding the key metrics of the financial state of your business. Here are some to keep in mind. For starters, focus on cash and keep things simple:
Cash Burn: Net of incoming and outgoing cash.
Ending Cash Balance: Net of Prior Cash Balance and cash burn.
Runway: Ending Cash Balance divided by your cash burn rate. This lets you know how long your existing cash will last at your current burn rate.
You want to move towards a situation where the runway extends beyond your time to profitability, and your cash balance exceeds your cash requirement. Beyond cash, get familiar with the most important business metrics.
The Lure of Empire Building
Lastly, don’t use your company as a chance to build an empire. I’ve seen founders get in trouble because being seen as a founder is more important than the business itself. The mistake of empire-building shows up in two primary ways: overhiring (in numbers and type of talent) and office space. I talk about this all the time with my team because I think it’s that important. Don’t use team size to gauge momentum or success. You’ll only put yourself at financial risk without much actual payoff. Focus on hiring as a tool for derisking the company in the early stages. Similarly, don’t hire big talent that you can’t afford just for the sake of having big names. Oftentimes, that big talent may not even like the scrappy startup environment and is unable to adjust to stage zero of company building.
I’ve also seen founders get so attached to the idea of large, cool office space that they put themselves in serious trouble. It’s easy to look at the success stories and think you have to have that big brand and presence from day one. But remember – you’re a founder, not a king. You build teams and products that create happy customers, not empires. Don’t think that starting your company will make you into some big, powerful, highly regarded person. That mindset won’t serve you well, especially early. Focus on building a business, not a temple to yourself.
Mistakes are just a part of the founding journey. I’ve made plenty of mistakes in the past and I know I’ll continue to make them. The important thing is that we learn from our mistakes and do better moving forward.
I hope this post helped you identify some mistakes to avoid as you start your journey. As always, let me know what you think here on Substack or on Twitter (@sotulana).