Doing It Right the First Time: The 15 Most Common, but Avoidable, Mistakes Made by High Growth Start-ups

Imagine you are half-way through due diligence on your Series A round and the venture fund’s counsel realizes that you never complied with federal and state securities laws when you raised angel money.  Or, imagine your early CTO hire does not have the level of experience he/she professed in the interview or on his/her resume and the company is going to lose 3 months of product development while trying to fill that position.  Or, imagine that you’ve blown through $150,000 of friends and family money only to realize there are no customers for that great piece of technology you built.  Talk to anyone involved in the start-up and venture community and each one will have a horror story to share about a start-up or emerging growth company.  Sometimes these early blunders can be fixed, but the remedy may draw significant time and money resources at a time when you need to be building value.  Other times, these blunders are a death blow – unrecoverable mistakes that sideline your once promising company for good.

Most serial entrepreneurs know how to steer clear and avoid these mistakes.  Why?  Because they’ve been through it already.  They know the landmines and can generally avoid them.  But first time entrepreneurs, although having a great concept and skills to back it up, most likely have no clue how to get started.  You need to learn from other’s mistakes and avoid making them yourself.  Here’s my list of the 15 most common, but avoidable, mistakes made by high growth start-ups.  The goal here is to have you spending your time building value, and not wasting resources fixing what may be obvious to others.

1.       Making poor early hires and not firing fast enough – I don’t have enough fingers on both hands to count the number of times I’ve seen this happen.  The effect can be minimal or enormous, depending on the position, timing of hire, responsibilities, etc.  Two mistakes I see most often: 

  • The C-level hire with an incredible resume of large company, Fortune 500-type experience, but that has absolutely “zero” start-up or emerging growth experience.  Certainly, you want to hire people that have great experience.  There’s no arguing that point.  At the same time, however, you want to make sure that the individual can utilize their skill set in a start-up environment.  Some individuals have built their careers operating under budgets stuffed with positive cash flow – the anti-thesis of a start-up environment.  Never hire someone solely on the basis that listing their former employer on your pitch slides looks great or because you think the company will grow into their skill set (you may turnover a couple of individuals in their role before you reach that size); and
  • The hire that claims he/she brings something strategic with them, something that will only come into the fold because of their presence in the company.  I am not talking here about someone that brings a great rolodex, or a specific programming skill or the like.  I am talking about someone that says they have the contacts to help you raise $3M or someone that claims they have the prior relationships to land the 10 largest clients in your target market.  If someone lays claim to something so specific and strategic, and they are to receive a fulsome compensation package based on those claims, then condition some of that package on delivering on the promise.  X options for X amount raised, or X options for every top 10 client you bring in that signs an agreement. 

Consider the real reasons why you are making the hire and consider whether or not such individual may better serve the company at the advisory board level as they may bring significant industry contacts and the like.  Otherwise, just make sure you enter the hiring process knowing the traps that exist.  If you do end up hiring someone that clearly is not working out, then move on quickly.  It may cost you, but not as much as it would in the long run by leaving them in place. 

2.       Failing to assemble the correct management team – the management team that you form is incredibly important.  There are many schools of thought, but I invest in the jockey over the horse.  That’s not to say that the business model and having a large market aren’t important, they are.  Otherwise, you may not be able to develop the kind of return your investor is looking for.  But the team is uniquely important for two reasons: 

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