Part 2: 10 Traps 90% of all Founders step into

Just before Christmas I have shared some of my insights into mistakes founders often make. I wrote this article and promised to reveal “10 Traps 90% of all founders step into”, but only covered five at that time.

If you've missed Part I, here is the link:

https://www.dhirubhai.net/pulse/10-traps-90-all-founders-step-jasper-ettema/

If you're up for Part II, keep reading: Today I will to cover the rest! (This will be a 10 minutes read max.)

 During Part I, I covered followoing five traps:

1. Single Founder Trap
2. Product Development Trap
3. Customising Trap
4. User Base trap
5. Management by Democracy trap

 Now for Part II

Trap Six: The Managing Owners Trap

Once your team grows fast, you have to define strategies and delegate responsibilities (not just tasks!) to keep up with the pace. If your team sets up their management roles and responsibilities the right way, the leaders will need management skills and leadership skills.

At this point, some teams think, every founder will automatically have to become a manager. This will cause problems since some founder, especially with technical backgrounds, just don‘t develop the necessary skills, especially social skills, to actually manage a group of people. And there you are in the middle of the Managing Owners trap!

 At some point, three out of four founders will feel they have matured into their new management roles but still have to drag their fourth co-founder along. This is a predestined clash! The only way to solve this is early discussions about the separation between management and ownership. Discuss the question about if your individual skill set is suited for the result of growth, and what is it each founder likes to contribute to the company, once it has grown.

Being an owner, and not managing the company is fully okay.

Trap Seven: The Pitch Competition Trap

The next trap is one I'm familiar with and what I see with a lot of startups. You get invited to join a pitch competition, and off course are very honoured. You participate in the application, and win… 2 tickets for the event and a pitch on a side stage. So you join the party, hoping you will meet some investors. After all the organisers promoted that they provide a large network at the event. This way you will spend all April and May and all of October and November paying money for flights and hotels, without proper results.

My advise: don‘t participate in competitions when you would not visit the event if you would have to pay for it. Visit events that align with your Sales, Marketing and Fundraising strategies. If you decide to visit an event, then preparation will need more time then the event itself. If you are not able to prepare, and don’t have an agenda full of pre-set meetings in advance, it mostly does not make sense to go there.

Trap Eight: The Hockey Stick Trap.

Imagine, you gained some cash from a grant or business angel. Maybe you even had some first traction and your budget results from paying customers. Now you decide to go after the hockey stick! So you set up your marketing strategy, hire some additional skills and resources, define the marketing and sales measures….

You are ALL-IN!

Your traction goes up immediately and you can see this working amazingly well! Customer feedback gives you inputs for a next version. And then you realize, that to keep the acceleratioin going, you would evene have to enlarge your marketing efforst each month. And if you stop marketing now to develop your V2.0, your curve will flatten. You don’t have funds to cover both development and marketing, so what do you do?

Welcome to the Hockey Stick trap!

The flattened curve will turn off investors, thinking your trend is over, or something’s wrong. This might even turn into a downward spiral. And it’s all because you didn’t align your market entrance strategy with fundraising. To avoid this, do proper planing each quarter and aling your poduct develoment, marketing and sales with fundraising.

Trap Nine: The Sweat Money Trap

At this point, or at any other given point in time a busines angel steps up with this ?amazing network.“ He helps a little, but actually to little to solve any issues. Basically he tells you what to do but does not take anything of your workload, and does not introduce you to proper investors as well. However you have signed a sweat deal, so he insists to get his shares. There you go straight into the captable mess up. 

When you finally find a proper investor this guy will be hard to get rid of. Basically, he is in there for the free lunch. In my experience, any business angel invested with real cash will do exactly the same for you, without the sweat deal. This is in his own interest. So don’t do deals focussed on sweat money and without any cash. 

Trap Tean: The Fundraising Trap

The last trap I want to show you is the most relevant one. Since the only thing startups really need is cash, any founder will start fundraising activities. Mostly it is easier to get some investor meetings then it is to get proper paid customers. The amounts dicussed are higher and invites for follow-up meetings seem to display initial success, so the focus turns to fundraising fast. And then all of a sudden you find yourself chasing a list of 100plus contacts, of which most don’t even invest. Welcome to the Fundraising Trap, which is obviously very close to the Pitch Competition Trap!

On your list you will have several of such people. They say they invest, and say they can leverage further investments by others… Well, this is hardly ever true, simply due to the fact that no one will let others determine what to do with their money!

So how do you identify the ones with real cash? By asking four simple questions within the first meeting:

-     what topics do you invest in?

-     what ticket size do you usually do?

-     what was the last thing you invested in? how much?

-     what's your most promising portfolio company?

If you don’t get straight answers here, keep your hands off, and invest your efforts on someone else.

End of Part II

So now you seen the traps, I’ve showed you the minefield.

But you still have to walk the walk yourself.

To help you with that, I will turn the ten traps into three general guideline to avoid them.

THX

Credits:

• Thanks for my colleague and buddy Jay (https://www.dhirubhai.net/in/jernejdekleva/) , for helping me on this.
• Thanks for all the great creators at www.unsplash.com for providing the images.