SEASON CLOSING

During the last 20 weeks we have covered three main sections in my blog: a selection of outstanding entrepreneurs, the top common skills found in successful entrepreneurs and the top common mistakes that entrepreneurs usually make in their new ventures.

It has been a great and interesting exercise. I am happy to see how the number or readers following my posts has been increasing steadily. I have received positive feedback and several ideas for improving future posts. In particular a comment made by one of my loyal followers points out the fact that it is great to read about all those concepts but he needs something more concrete, something practical that he can actually apply to particular situations. I thought that it was a great feedback and I plan to take it into account as probably many others would also appreciate this practical approach.

I have decided to take some time off to prepare and elaborate a set of study cases specifically oriented towards providing good practical training for startups. I am not sure at this point which is going to be the best format to implement this idea but I will figure it out during the next few weeks. I will probably "build a prototype" and test it before we go into “production”.

Based on this idea I will share with you my posts after the summer break. Thanks for your support during the last four months. I will be back early next September.

Have a great summer and all the best with your new ventures.

ENTREPRENEURS TOP COMMON MISTAKES (5) – running out of cash

We are at the end of the “common mistakes” section. This week I am going to present the most common among all the common mistakes: running out of cash.

You may remember that I already categorized this mistake in the section’s introduction post as the most critical one. So you realize that it is a dramatic combination: most common + most critical.

Cash management is not fun for most of us, yet it is essential. Protect your cash as a jewel. It is the most necessary instrument to continue pursuing your dream. It is actually the sap of your dream. Keep cash management in your top priority to do list.

When it comes to cash flow planning you have to make some important decisions related with how to finance your venture: Are you going to put your own equity to start operating? Do you need investors? Which portion of your business are you going to share? Are you going to be able to open some credit lines with your banks to mitigate punctual liquidity problems?

Each venture requires a specific analysis and specific solutions but there are some general concepts that can be applied in most of the cases:

1. Start lean. Apply lean management concepts. Don’t spend a single dollar that is not required. You CAN do more with less. Create a lean culture maximizing the output of every dime you spend.

2. Focus on developing and establishing your revenue stream. Spending money is pretty easy. For a new venture, generating revenues is much harder.

3. Don’t rush to escalate and grow. In some cases, after a first quick success, startups raise a significant amount of money from Venture Capital firms or other investors to support ambitious plans for growth. I haven’t seen a single company going into bankruptcy because they were not able to grow and escalate fast enough. I have seen many escalating WAY too fast without an established and sound revenue stream.

4. Set up a reliable method to measure and control cash. In cash management you cannot afford bad surprises. Follow up regularly. At least on a monthly basis. Much better if you follow up on a bi-weekly or even weekly basis.

The season is coming to an end… Next week I will focus the post on evaluating the last 20 weeks and start planning for the next 20.

For those who are following the blog:

Any advice or suggestions for the next season will be welcomed.

ENTREPRENEURS TOP COMMON MISTAKES (4) - Hiring the wrong people

If you have been following my posts you probably remember that the ability to build strong teams was one of the common skills of successful entrepreneurs. Nevertheless hiring the right people is a problem for many entrepreneurs. Let’s try to shed some light on this problem.

Usually the startup’s demands are enormous during its initial stages. The entrepreneur is probably covering five jobs at the same time. She is extremely busy and she needs urgent support in terms of human resources. As a consequence, she has to add a new task to the list: hiring people. And you know what? “This is something that has to be resolved quickly!!” The entrepreneur rushes to hire some folks to help her to grow the business. Companies are hiring people all the time… “Come on… it cannot be that complex!” Yet, it is very difficult to find the correct person for a specific job. You need to spend time and effort to do it right. If you are lucky it will take you a couple of weeks. In many other occasions you will have to keep actively looking for the correct fit for months. Yes, that’s right: months!!!

Make sure you don’t look only at the candidate’s ability to do the job. You have to find the correct attitude, correct culture, and correct values for your venture. This is important for every single company at any moment but is particularly critical for a startup during its early stages.

Take five minutes to watch this video clip in YouTube and think about the hiring process required to select this flight attendant. Believe me! This is not just an exception. If you have had an opportunity to fly with Southwest I am sure you would have experienced something similar:

https://www.youtube.com/watch?v=Jy0Yf1CAsuQ

Do you think they were looking for someone who could just do the job?

Let me share with you some of the rules I have applied during my career:

1. Never compromise. Define clearly what you are looking for and search and search and search until you KNOW that you have found THE candidate.

2. All in agreement. As soon as you have two or three people in your team ask them to participate in the hiring process. If any of the interviewers considers that it is a NO, it is a NO for all.

3. Avoid, if possible, full-time employees outright. Find a way to test how they perform and how they fit your organization before entering into a full-time contract.

4. If despite all your efforts and attention, you make a mistake, correct it immediately. Keep in mind that attitudes are almost impossible to change.

Thanks for reading!

ENTREPRENEURS TOP COMMON MISTAKES (3) – Living in your silo

Last week we explored the risks of “going blind by your own desires”. This week we are going to review the next top common mistake in my list that I have come to call ‘living in your silo’.

Living in your silo clearly jeopardizes your ability to see and understand what is going on outside. We all are usually inclined to stay within our comfort zone. This comfort zone creates a feeling of security. We know how things work there and we have certain degree of control over what is going on.

I would tell you that as soon as you feel comfortable it is time to get out of there. I haven’t seen any startups flourishing in a comfortable, calm and friendly silo. What I’ve seen are successful entrepreneurs getting out of their small rental offices or house garages and talking to clients to learn and understand more about their products and services. They have the ability to learn directly from customers which are the corrections that they have to apply to their original plan.

I would encourage anyone who really wants to increase the odds of being successful to collect as much feedback as possible and as soon as possible. If you want a valid and accurate piece of information about your offer in the market you have to ask the right questions. Don’t ask the questions to get the answers that you want to hear.

I’ll give you an example.

Someone who wants to have a useful and valid response would ask:

“Would you pay $100 on a monthly basis during two years for using the app that you just tried?” (Of course you have developed a prototype that your potential customers can try)

If the potential client is honest you will have a valid data point.

On the other hand, someone who wants to hear what she already knows would ask:

“Did you like how quickly the app shows the info requested?”

If the response time is decent your potential customer will probably say yes. And you will conclude that the guy will pay a subscription of $100 USD a month for ever. “I am positive he will pay it. Come on… the guy was fascinated with the power of the algorithms I was able to develop. I knew he would love it...”

This may sound like a pretty stupid example, but unfortunately it is much closer to reality than it should be. Think about it and try to extrapolate the example to your real world. You need to know if the client will buy it; and why; and for how long; and what you could improve to make it more attractive; and any other aspect that could help you to present a better product in the market.

Remember to leave your comfortable silo, jump into the arena, ask the right questions and listen carefully and mindfully to any piece of information coming from those who will make you successful.

ENTREPRENEURS TOP COMMON MISTAKES (2) - Going blind because of your own dreams

I am particularly interested in this common mistake because, somehow, it requires a more detailed explanation than others.

If you have an idea that you feel passionate about, you sell it everywhere to everybody, you put together a great team, you are creative and adaptable, and you persevere in your path until you achieve your goal… It seems that there is no way you can fail…Yet, most of the startups fail. This is the REALITY.

I recently revisited the well-known book “Good to Great” by Jim Collins. In this book Mr. Collins presents the critical concepts which differentiate “good” from “great” companies. One of the concepts used in his book is totally applicable to our analysis:

“You always have to confront the brutal facts”

This doesn’t mean that you should lose faith, but YOU CANNOT LOSE SIGHT OF REALITY. Any entrepreneur should embrace what Mr. Collins come to call in his book the Stockdale Paradox:

“you must maintain unwavering faith that you can and you will prevail in the end, regardless of the difficulties, and at the same time, have the discipline to confront the most brutal facts of your current reality, whatever they might be”

In some cases, regardless of the entrepreneurs’ effort and dedication the project cannot be successful. There are many external factors that cannot be controlled: political or economic abrupt crisis; deep changes in regulation; even natural disasters. They may create new obstacles never considered before. In these circumstances, the entrepreneur has to be able to confront the facts, contain damages and reserve energy and resources for the next venture.

In some other cases there is no external negative factor and it is just the blindness of the entrepreneur not willing to see the REALITY that creates the obstacle. You remember that one of the most important skills required to be successful was creativity and adaptability. As soon as the entrepreneur recognizes one obstacle in her path, she has to be able to adapt the tactics of the battle being as creative as possible. In most of the cases the entrepreneur’s original dream HAS to be adapted to the reality of the industry and the market in which it operates.

I would like to suggest that you have a look at a video clip in YouTube related to our analysis. Please pay special attention to Guy Kawasaky presenting the idea of “building a prototype”.

https://www.youtube.com/watch?v=HHjgK6p4nrw

Although he is speaking about the software industry, the concept is applicable to any other area of business. We will talk about it in future posts…

Thanks for reading!

ENTREPRENEURS TOP COMMON MISTAKES (1) - Co-founding with the wrong partner.

When you are ready to start a new venture, you should consider very carefully the possibility of sharing your project with someone else. Co-founding has several advantages versus starting up alone, although the selection of your co-founder becomes a critical task.

Co-founding allows you to increase your initial startup capital. You can also look for someone whose skills complement yours. Co-founding with the correct partner generates a team work spirit which will be very beneficial during the first phase of your project. Your partner will be always ready to back you up in the case that you have any problem during this critical step.

When looking for your co-founder you can consider the following advice:

Make sure your personalities and skills are compatible.

Probably the most important attribute that you have to find is compatibility. You do not want to partner with someone who you can't get along easily with and you want to make sure that you share the same vision for your new company.

Define as early as possible how to share the equity.

You need to think about how much of the company you want to give to your co-founder. There is not a clear formula when determining how much equity you should give. It will be very dependent on what you really need from your partner and what she has to offer.

Consider a vesting schedule if possible.

When you offer a share to a co-founder, you can utilize stock options. This person doesn't receive the options immediately, but rather on a vesting schedule. She will receive a portion the first year, more the second year and so on.

Startup shares usually vest over a period of four years which means that you and your co-founder are making a long-term commitment.

Headstart Foundation, a non-profit focused on fostering entrepreneurship, has created a database, which helps entrepreneurs to identify potential co-founders. It now has more than 600 entrepreneurs registered with it. Arpit Agarwal, a director at Headstart, believes it is important to write down a co-founder agreement that includes each founder's stake and specifies what happens if a founder leaves.

Most investors are now pushing for a clear definition of stakes and roles to help deal with disagreements or break-ups.

Finding the correct co-founder may be a hard task.

Make sure you finally chose someone who you can definitely trust.

ENTREPRENEURS TOP COMMON MISTAKES – INTRODUCTION

Let's continue turning the wheel…

I am happy with the good progress that we are making:

I made some introductions in the first few posts. I presented several examples of outstanding entrepreneurs and I just finalized my selection of top common skills found in successful entrepreneurs last week. Now we are ready to review some of the basic mistakes that startups usually fall into. We need to learn as much as possible from them. Entrepreneurship is not about taking risks, it is about pursuing dreams by minimizing and controlling the risks as much as we can. Let’s do our best to avoid these frequent mistakes.

Here is my selection of top common mistakes:

1. Co-founding with the wrong partner.

Finding the right partner is a critical question. If you make a mistake with this selection you are likely to suffer a lot of bad and painful headaches. You need someone who you can work with, someone who you can openly disagree with and at the same time have constructive discussions.

If you are able to find the correct partner you have a great opportunity to complement your skills. Nevertheless keep in mind that is better to be alone than to have a partner who you are not able to work effectively with.

2. Getting blind by your own dreams.

Launching your new venture should be a conscious decision. This decision should be exempt of any emotions and it should be based on facts. Getting emotionally attached to your business idea may jeopardize the whole project. Get your idea validated with facts rather that counting only on your gut instinct to move forward.

If you find signs telling you that it won't work, pay sufficient attention to them. Perhaps it is the moment to redefine your strategy or even minimize your losses and start thinking about the next opportunity. Don’t lose objectivity!

3. Living in your silo.

Get out of your office and talk to potential customers. Ask for feedback constantly. Normally they have the key which allows you to discover what is going to work and what isn’t. Don’t stay in your comfortable silo pretending that you know that everything is going to work out. Your customers have to let you know…

4. Hiring the wrong people.

Do you feel that you spend more time explaining how to do things than the time it would actually take you to do it?

Do you suffer problems aligning your employees or partners with your vision?

Do you get overwhelmed with personnel problems when you should be focusing on your clients?

You may have hired the wrong people for your venture…

Unfortunately this is a common problem in many startups.

5. Running out of cash.

This is the most critical mistake among all those presented. If you run out of cash, the game is over: R.I.P.! In business there is a very limited tolerance to this problem.

This is something pretty obvious for everyone yet it is one of the most frequent reasons why companies have to close the door. If your income or cost forecasts are shown to be wrong and you don’t have enough reserves to offset the difference your situation will probably be very precarious.

During the following five posts we are going to analyze each of them in more detail. Let’s start thinking about what my ideal co-founder partner would look like…