8 Mistakes First-Time Founders Make When Starting A Business
July 27, 2022
By Mitch Zuklie
I love first-time founders. They're true believers focused on creating a better future powered by better ideas. They are ready to start a business, possessed with the passion and the grit to enter the arena and do battle with the specters of failure and loss. When they succeed, they often really do change the world—and the bank balances of a lot of people around them.
As a lawyer who's worked with clients to complete hundreds of venture financings and related company making—and breaking—transactions, watching first-time founders launch their dream can feel like I'm watching them amble into a busy street. They can be unaware of the nearby dangers, don't have good insight into what to avoid staying safe, and make the same life-threatening mistakes as a lot of other founders who've wandered into the same busy road. Which, of course, can get companies killed.
So, playing crossing guard, here are some common mistakes first-time founders should seek to avoid as they head eagerly into the traffic flow:
1. Ignoring market risk when starting a business - Ignoring or downplaying market risk is the single biggest reason companies fail. Most founders put too much emphasis on perfecting their technology platforms—which is understandable, given that many founders are passionate technologists—and not enough on making sure those platforms deliver real business value.
2. Taking the wrong advice - When taking advice, consider the source, and weight your response proportionally.
3. Ignoring constructive feedback - Founders should be wary of ignoring the feedback of a venture capitalist or a potential customer who has engaged deeply with your firm, but ultimately decided to pass on either investing in it or buying your product right now.
4. Going too fast - Most commentators on startups suggest you must go first and go fast — get to market first, stockpile the best talent, and full steam ahead while shoveling capital into the boiler. And sometimes that is right, but I have seen far more companies fail from growing too quickly. "Take one step at a time and be sure to celebrate the major accomplishments and milestones along the way."
5. Hiring the wrong team - most first-time entrepreneurs hire the wrong people. They hire their head of sales too quickly and their head of product too late. They also tend to hire key staff with too little experience, being overly impressed by time spent at a successful start-up or tech giant. It's important to sort the pile according to company needs, not flashiest resumes.
6. Overestimating the challenge of seed funding - It's not that hard to raise seed capital, so founders should not be too self-congratulatory that a hot seed fund has invested. Very few companies have ever succeeded just because they had the right names in their cap table.
7. Underestimating the challenge of raising Series A funding - Series A funding is the milestone where the founder finally can move beyond bootstrapping to building their vision. It also marks the advent of a relationship that's crucial to the firm's success—a VC partner. (And remember, the individual partner is more important than the fund to the company's success.)
8. Mental fatigue - That's natural given that many of them work 80-hour-plus weeks and can't get through a full night's sleep without waking up in a cold sweat. They're often overworked, lonely, and stressed out, and that takes a toll on both creative and analytical capacity that they often don't sense until it's too late. Founders need ballast—something to care about that's unrelated to work—so that the inevitable disappointments don't become crisis points.