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Do this first! – Bad Advice for Startups, Part 1

There are hundreds of sites, blogs and courses offering ‘help and advice for startups and entrepreneurs’.

But be extra careful where you get your advice when crafting your business strategy.

When my wife was pregnant, she received a lot of unwanted, unsolicited, weird, baseless ‘advice’ and comments – curiously mixed in with some helpful advice, too. From both strangers and family.  The need for good advice was so great, a book was written, and sold millions of copies.

And if you’ve ever told someone you’re “on a diet”, well you know how it goes  — enduring a barrage of “sure-fire tips” that will guarantee you success. (And leave you drowning in water.)

Unfortunately, startups and even later-stage businesses, may face a similar experience of questionable feedback.

Interestingly, annual spending on consulting is close to $13B in the USA and $6B in the UK. Businesses of all sizes, not just startups, do need advice and guidance.

But not all advice is good for you. So what’s a founder to do?

Well, here is my list of Bad Advice for Startups and Entrepreneurs.

“First, find a good accountant and a good lawyer.” 

This one irritates me, because it’s only partly true. This does not need to be the first thing an aspiring entrepreneur must do.Yes, engaging accounting and legal services is very important – at some point. But don’t spend your bootstrap budget on those services first. Founders will have their hands full long before they need an accountant. And besides, why is the advice to find a good lawyer…. would you be looking for a bad one?

The founders of google received a check from their first investor for $250,000 but had trouble depositing it. Why? The check was made out to Google, Inc. and they hadn’t even opened a bank account yet.  They had been very busy creating awesomeness. Not saying that’s an ideal situation, I’m just sayin’.

Consider this instead: Budget $5,000 for legal and accounting fees to formalize your entity and operating agreements. More if you have outside investors. And more when you need contractor or employee agreements, and employee equity-sharing arrangements.

Oh, and you’ll need to budget some time to negotiate details with partners and investors. But you don’t need to spend this money first. To start, keep track of money in and out by using the most simple online versions of Quickbooks, Xero, Freshbooks or similar.

Those are easy and quick to set up and you can give access to multiple persons.

You can sort of hack the legal and accounting to get started. Most jurisdictions allow creation of an company entity online for under $100 which you can use to open a company bank account. To make the most of limited time and funds, you can download company forms and documents from RocketLawyer, which also offers limited low-cost legal advice. Add a clause where all parties agree to sign more formal documents provided by the Company’s lawyer within 90 days. The lawyer can use the documents signed as a guideline to prepare formal documents, saving a great deal of time and money.

Meanwhile, the few of you can spend your energy creating the beta of a fantastic service.

“Do Something Else – your idea isn’t unique enough.”

Obviously not every random idea can be turned in to a viable business. But “not being unique enough” isn’t a reason to abandon your dream. After all, a market isn’t usually considered established until there are three providers in play.The scenario usually goes like this: a) you’ve thought the idea through and you’re loving how it looks, b) you’ve started designing your product, service or app, c) you have at least one co-founder or employee/team member and, d) you feel strongly that you have a better way to do something. You have that gut feeling that tells you this is going to be big.

But then, you ask others for their opinions and your idea gets shot down. You hear many ‘reasons’ why your idea won’t work. And some negativity; possibly even suggestions to get a good job for now. Hey, don’t get discouraged.Consider this Instead:  Validate your idea early. Validating your business idea was a theme of when I participated in the UK’ 2016 You want to do this for your own reasons as well. You can quick feedback and validation using social media.

The Startupbus teams received quick responses from a wide range of potential users by tweeting a link to a survey. They also utilized various social media including twitter and facebook to promote their ideas. Very encouraging to get responses from potential users, sponsors and advertisers.

If you don’t get the validation you sought, perhaps you would benefit from tweaking your product offering.  Even AirBnB was turned down by eight investors for various reasons by those who didn’t really ‘get it’.

It’s ok to test your idea  on various friends, family and others. But don’t let someone who gave up on their dream, talk you out of yours.

“You have to get a Mentor ASAP”Mentors and consultants can be very valuable. (I even offer my time as a mentor to startups and a consultant to businesses.)

But don’t stress out over this one.

There’s no need to act too quickly and choose just anyone who holds themselves out as a mentor or consultant. Mentors or consultants can be super helpful, long before you launch. But I don’t consider this a ‘first thing’ to do.

At the very early stages you’re going to be very busy and time is your most precious asset. You’ll be focused on formulating and refining your idea and a developing a monetization strategy. It’ll take a lot of energy and time to put an initial team together and agree on your code base and infrastructure preferences. And some long nights with pizza, coffee and Red Bull. More than once we hit Pete’s Kitchen Diner at 3 am. And all of this while creating a beta version of the product or service.

You’ll want to get close with your mentor(s) and share inside info with them, some of it personal. So take time to select a mentor that’s a good match for you and your business goals. Only work with experts related to your technology or market to get feedback and advice in crucial areas of your business. A mentor/ consultant can be excellent in one area but not prepared to give the best advice in different area.

If you get conflicting feedback take a break and mull it over. Trust your gut feelings for direction.

“You must get a patent first” Another variation is, “you’ll never get an investor if you don’t have a patent”.  That’s discouraging to hear, but don’t worry. It’s not true.Most startups launch and get investment without a patent. And, most business ideas don’t qualify for a patent or need one. For example a food delivery app doesn’t need a patent for the business idea. They might benefit from a patent and if they have developed new type of technology or method. But filing for a full patent can cost $12,000 to $20,000, depending on how much work you do yourself. It takes a lot of your precious time, too.

Focus on speed to market, execution and a growing customer base — that’s more important early on. Most important to you, and, to any investors you might approach.

Consider this instead:  Mostly, you can ignore that input at the beginning. If there is critical IP to protect, file what is called a Provisional Patent * for a cost of less than $2,000 using a lawyer and 20 hours of your time. That will give you one-year of protection during which you can share details of your patent without losing the exclusivity. And it gives you nine months to decide how business-critical a patent is, considering the cash outlay.  * in the USA.

“Raise as much money as you can up front.” Sure, all startups have unicorn dreams that includes hundreds of millions of dollars involved.But raising a lot of money right up front, is bad advice in most cases. Raising money always comes with strings, and usually requires giving up an outsized equity % while your valuation is still low. And early on, it’s difficult to not appear vulnerable or desperate and you aren’t in the best position to call the shots and negotiate the best terms.It may seem glorious to raise $1M before launching. Perhaps it seems like the ultimate score and validation. No more Ramen noodles 3x a day. But if the company is as successful as you believe it will be, you will have given away multi-millions of share value.

Also, early investors may want to meddle in your business plan, use up your time with frequent meetings and tend to provide a lot of advice they pressure you to follow, even if they aren’t experts in your market. Stress ensues and you can lose your focus.

Consider this instead: Go lean. Be as frugal as you can for as long as you can. Spend only what you absolutely must at the moment; cloud infrastructure is low-cost and scales on demand. Outsource any non-core aspects of your business using a virtual staff, contractors and hire part-time when possible. Create a financial projection covering the first few months that it will take you to launch. Then get creative on scraping up that money. The $10,000 brass espresso maker from Italy can wait.Maybe you will decide to take on a seed investor in exchange for a tiny slice of equity. But look under every rock before you do that – friends and family, credit cards, co-founders and employees. Sometimes, even potential customers. Resist the gotta go big, fast mentality if it requires giving up much equity. 

Well, ultimately you have to make a decision on who to depend on for advice, to be your mentor. Maybe you don’t even like what you read above. That’s ok, no mentor should insist that every piece of advice is perfect for every situation.

But my hope is that if you don’t completely agree, at least you were provoked into thinking about the topics.

Now, go do great things.

This was Bad Advice for Startups

All the best of success to you, Gregory  –   t: @StrategyAcad


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