Juggling many responsibilities, founders of nascent businesses tend to make bad decisions early on. While some mistakes may be minor, others—like spending venture capital too quickly—can contribute to a young company's demise.
The Wall Street Journal's The Accelerators blog asked a group of startup mentors—experienced venture capitalists and entrepreneurs—to name some of the worst mistakes founders are likely to make in 2013. Edited excerpts:
Choose an Investor Who's Right for Your Startup
Over-optimizing on valuation is a mistake that can end up costing you much more than you'll gain. By focusing too much on price, you run the risk of driving away the best investors. Sure, you might maximize the valuation, but you'll minimize other factors that are ultimately more critical to the success of your startup.
Angel investing is still so hot right now that you might be able to find someone who is willing to overpay. But this only creates new problems when it's time for the next round. The bar will be set too high, and you'll be stuck trying to defend an "up round" to the next investors.
-- David Cohen, co-founder of TechStars
Founders Can Lose Focus On What Matters Most
I've started four companies and I have invested in 25 more. And I can say that I have made or seen almost every mistake possible. None of these are fun to live through. But they aren't nearly as fatal to a young company as the No. 1 mistake entrepreneurs make: focusing on the wrong priorities.
Successful entrepreneurs focus exclusively on efforts that matter, and are able to tune out the rest.
Here is an exercise I use with entrepreneurs. I ask a very simple question: What are the top three things you need to accomplish in the next six to 12 months to give the company the best chance of long-term success?
Most entrepreneurs I speak to can't name their priorities right away. If an entrepreneur can't do this without hesitating, how will the rest of the company know? It's bad enough for a founder to work on the wrong projects. But if the entire company is not focusing in the right areas, it's game over.
-- Michael Lazerow, founder of Buddy Media
Burning Through That First Round
Every founder makes mistakes, and you can only learn from yours. I believe one of the biggest mistakes is spending that first round of capital too quickly. The key to getting through the first round of capital is to come out with a bigger and better business.
Be realistic about your business model and hire accordingly. It is so easy to feel freer once the initial cash is in the bank. Don't make the mistake of revving up that monthly burn because you will end up having to cut back and raise money again sooner than you planned.
-- Joanne Wilson, startup investor
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Originally published April 18, 2013
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