From the simplest consumer product to the most complicated technology solution, the same mistakes often repeat themselves when starting new companies. These mistakes make up the majority of the thorns in every entrepreneur’s side.
Find a Mentor
To cut down on the inherent problems associated with starting anything new, a set of guidelines can help simplify processes. Restaurateurs follow “formulas,” doctors refer to medical journals, and lawyers refer to case law. But entrepreneurs rarely have a common set of standards or literature to guide them, which is why it is crucial to listen to and learn from other people’s experience. What you’ll learn from their enormously challenging moments behind the scenes is not what you’ll typically read about in the success stories.
Very few people really know what it takes to be an entrepreneur. Gaining trusted, personal advice from a seasoned mentor or diversified investor can be an entrepreneur’s “case law” or “Bible.”
Be smart with investors’ money
Since the beginning of the Industrial Revolution, companies have had to spend years building a customer base before they could allocate expenditures beyond sales. Until your company has proven itself in this manner, don’t act or assume that you are profitable. This translates to cheaper business cards, small salaries, low-rent office space and a dedicated and focused group of employees that can afford low pay while mutually betting on the company’s future with equity potential – having some “skin in the game” means you are willing to postpone immediate gratification for a bigger payoff in the future.
Awarding founders with six-figure salaries before any revenues are created is not often the best way to treat investors’ money. A big salary is a reward for making a company profitable. If you can’t afford to wait, or don’t agree with this premise, then being an entrepreneur may not be for you. You must honor the risk and be humbled by the time that investors have put into your company until they are made whole on the risk they are taking in you.
Raise, then spend
Raising capital is one of the toughest things that a CEO can do, and in today’s economic conditions, it’s almost impossible to build a company without it. The failure rate for companies that raise money and spend it in tranches as the investments come in is almost 85%. Imagine building a house and only raising money for the foundation, and then trying to finish the raise going into the winter to pay for the framing. A better strategy would be to raise money and hold it “in escrow” while focusing solely on execution so as not to lose any market timing opportunities.
Learning from others’ mistakes and successes, and treating others’ investments of time and money with deep respect, are keys to success for the young entrepreneur. Hopefully – by the time you’re 30 – you’ll have learned so much from others that you’ll be able to turn around and help those less experienced.
Michael Abdy attends the University Of Colorado and manages a Venture Fund that has invested in dozens of companies and currently advises Start-up’s throughout the United States. He is the President and COO of TeQuity Capital & Communications. Abdy is also an angel investor focused on disruptive technologies.