Startup founders forget more than most workers learn in a typical year. Eventually, they learn that some things are more important to remember than others.
Serial entrepreneur and investor Steve Streit, who ran a billion-dollar fintech business for years before launching a venture capital firm focused on early- and late-stage startups, warns founders to commit these five things, in particular, to memory. Here’s why.
- Talent Needs a Purpose
Many founders focus on staffing up quickly to the exclusion of nearly everything else. The impulse is understandable, Streit says, but it’s all for naught if you don’t have anything for newly onboarded talent to do.
“Sooner or later, most startups discover the tension between ‘staffing for volume’ — hiring for the sales pipeline you hope to have in two years — and making efficient use of human resources,” Streit says. Successful startups tend to be those that realize the need for deliberate hiring, or what Streit calls “hiring slow to get it right.”
- Your “Burn Rate” Is a Speed Limit on Your Business Growth
Do you know how to calculate your company’s burn rate? If not — or, let’s be honest, if you’re not even sure how to define “burn rate” — then it’s time for a crash course.
Most startups spend the first years of their lives burning through cash, but it’s critically important how fast this happens and to what end. As with hiring, some founders take a “more is more” approach and aim to “invest” like there’s no tomorrow, reasoning that a dollar spent now is worth two in the future. Others are overly cautious and fail to make necessary investments while they can still make a difference.
Finding that middle ground is key, Streit says. So is recognizing that your burn rate directly impacts your business’s long-term growth trajectory, whether by causing it to run out of resources before reaching profitability or by choking off its growth too soon.
- Launching Too Early Can Damage Your Brand
The first stages of every startup’s life involve a race to deploy a minimum viable product. As serial founder Alex Ponamarev notes, defining your minimum viable product — let alone quantifying it — is more difficult than generally appreciated.
Confusion over what your MVP should be and how to know when you’ve achieved it can lead to premature or overdelayed deployment, says Maksym Babych, founder and CEO of SpdLoad.
“You can balance your timing by creating a service with minimalistic features and limiting it to a specific niche or geographical area,” Babych says. “This requires less financial and labor demand.”
In other words, the key is to find a happy medium that allows you to get something out the door quickly — but not so quickly that it fails to do what it promises, damaging your brand in the process.
- Your Equity Is Worth Fighting For
It’s all well and good to keep your shares close to the vest as your company enters takeoff phase. But what happens when you desperately need a capital infusion to sustain that growth — and support those shares’ value? When equity investors come calling, all bets are off.
You probably can’t avoid parting with some amount of your stake in what you’re building, but mind the rule of thumb: 10% for your employees, 15% for outside investors, and 75% for yourself. If anything, be more generous with the employees’ share of the pie and less so (for as long as you can bear) with outside investors’. Better to have well-compensated employees working harder for you than marginally attached passive shareholders.
- Discounting Can Be a Sign of Weakness
Savvy founders avoid price wars at all costs. They know that a race to the bottom benefits no one, and that buyers interpret visible discounting as a sign of market weakness.
Instead, startups focus on value-based pricing. In the SaaS sector, it’s typical to set product prices at 10% to 20% of total economic value, according to Andy Rooks, founder of Price Theory. That is: 10% to 20% of the direct cost savings, employee time savings, and other forms of value-add enabled by your product.
Keep Your Priorities Straight
This is only the tip of the iceberg. The list of mistakes to avoid as a founder is a lot longer than the list of things to make sure you get right. We could spend all day talking about the various pitfalls early-stage companies face.
One mistake we haven’t discussed yet that does deserve a mention is the folly of making unrealistic comparisons to incredibly successful startups. No shame if you’ve fallen back on calling your company (or business idea) the “Uber of X” or the “Airbnb of Y” in the past, but that’s not a great habit to follow long-term.
Those companies are exceptions to the rule that startup success takes many grueling years to achieve. And, to be clear, it took years for Uber and Airbnb to really take off worldwide.
Sure, your company could one day claim the “unicorn” mantle. Then again, you may decide to exit in one way or another long before reaching that point. And even if you do get there, it won’t be easy.
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