Launching a Startup? Don't Make These 9 Mistakes

Originally published in Inc. on March 20, 2018

Launching a new business can be daunting. Growing a business is even harder. The early decisions you make as a founder set the trajectory for your company, either in the right or wrong direction. It's critical that you make smart decisions early on to mitigate your risk and increase your likelihood of success as an entrepreneur.

The list below is not just a compilation--these are some (OK, all) of the mistakes I made as a first-time founder and had to learn the hard way.

1. Don't start a tech company without a technical co-founder.

While finding a quality chief technology officer is never easy, your efforts will pay off in spades if you do. Ask for referrals, attend meetups, and network aggressively. Now rinse and repeat. Don't rush into a relationship with the first technical person you meet--take your time and find the best partner.

2. Don't solve a problem in a niche market.

That idea you had for electrolyte tablets for male athletes over 50 with gym memberships? Don't do it. The market is too small. How about a sports product for athletes of all ages, but differentiated from current alternatives? Much better. Dream big: Look for a mass market opportunity.

3. Insist on a four-year founder vesting.

Issuing equity to founders up front can be the death knell of your startup. Relationships can sour, and in a worst-case scenario, your business partner gets hit by a bus one week in. A proper vesting schedule incentivizes founders and protects all parties involved. Also consider a "cliff"--a delay (six months to one year) before the vesting process begins.

4. Don't split equity 50/50 or 33/33/33.

Not all founders are created equal. While it's tempting to split equity down the middle, it's also dangerous. When two people start a business, one of them is almost always driving more value. The key is to assess the perceived value drivers in your business and negotiate accordingly.

5. Stop asking people for money. Solve a problem and get paid for it.

I know how tempting it is to think that if only you had "X" amount in funding, you could launch your business and take over the world. This is a generally the wrong mindset when starting up. Resilient founders build a product or service first and generate revenue through customer sales. If you build something and sell it, the money will come to you.

6. Don't boil the ocean--just do one thing extraordinarily well.

Oracle today ($200 billion market cap) sells a fully integrated solution--database, middleware, and business applications. But when Larry Ellison started the company in 1977, he sold one thing only: a really good database. You should put all your effort into developing one initial product or service, and making it truly exceptional.

7. Don't get emotionally attached to your first business model.

In all likelihood, your first business model will fail. YouTube started out as a video dating site. Twitter was originally a podcasting network. The key is to pivot until you find product/market fit. Be open to drastic change and commit to solving a problem people care about; not your first business model.

8. Generate recurring revenue early on.

The opposite of recurring revenue is project-based revenue. Projects start and stop and require you to constantly acquire new customers. A better approach is to maintain every customer you acquire by selling a product or service with monthly recurring revenue. Recurring revenue gives your business predictability, consistency, and increases your valuation.

9. When revenues are growing, keep your expenses in check.

You've been at it for years, pivoted more than once, and finally, your business is taking off. Word to the wise: Don't party like it's 1999. It's easy to overspend when you're cash-flow positive and aren't used to having excess working capital. Be disciplined and frugal with your hard-earned cash--you never know when you might need it.  

Last but not least: Buckle up and enjoy the ride. It's going to be a long one. Please share your top lessons learned in the comments below.

Darren Marble is the CEO of CrowdfundX (CfX), a FinTech marketing firm that markets Reg A+ IPOs and security token offerings (STOs.) We provide our clients with the tools and resources necessary to execute successful and compliant offerings, while reducing the cost and complexity of acquiring both institutional and retail investors.

CfX marketed historic Reg A+ IPOs to NASDAQ (FAT Brands), NYSE (Myomo) and OTC Markets Group (Elio Motors). Our STO clients include KodakCoin and tZERO.