Avoid the Fatal Startup Mistakes

Gurbaksh Chahal | Avoid the Top Four Fatal Startup Mistakes of 2013

ByGurbaksh Chahal Updated on Business
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Startups stand little chance of making it. Sadly, three out of four companies are doomed to fail. But not your company. You’re going to be one of the 25 percent that succeed — If you’re willing to listen to some advice and steer clear of some fundamental and fatal mistakes that many entrepreneurs make.
I’ve made my share of mistakes, but I’m glad to say I’ve learned from them. I’ve grown as an entrepreneur and business leader as my businesses have grown. I started my first Internet company as an eager and hardworking 16-year-old, and sold it two years later for $40 million. My second company sold to Yahoo for $300 million. My fourth company, Focus on managed growth over a hiring frenzy
Ever heard of Clinkle? It’s a mobile payment startup that would love to topple Square. Founded by a 21-year-old Stanford University student, it’s famous for raising $25 million prelaunch, the largest seed round of capital in the history of Silicon Valley.
Even before launching its app, the company seems to have gone on a hiring spree. With all that money at its disposal, Clinkle spared no expense building out a high-profile executive team, including former Barry McCarthy, former CFO of Netflix. But within months, according to news reports, it issued pink slips to 25 percent of its workforce, with disgruntled employees going online to openly vent their anger amid allegations of mismanagement.
There’s a cautionary lesson here: Always manage growth over aggressive hiring. When I started my first company, there was only one employee for the longest time, and that was me. I was cautious in the speed at which I recruited new people, but I did learn as I expanded that it pays to hire the best, and to reward them accordingly.
Innovate or die
In the fall of 2012, most analysts were writing obituary reports for Netflix. The company had experienced an 88 percent plunge in third-quarter profits. It seemed to be drifting. But then it took a bold step and created its own content, the series “House of Cards.” The company’s turnaround strategy: Turn itself into a “premium television network” like HBO.
It worked famously. Netflix’s own drama series quickly skyrocketed to become the most-streamed content in the U.S. and 40 other countries. Netflix made history, becoming the first non-TV network to win Emmy awards. Its documentary movie, “The Square,” was nominated for an Oscar this year. Netflix took a chance, disrupted the traditional television industry forever, and added $18 billion to its market cap in just 16 months.
Of course, Netflix had a wealth of audience data at its fingertips and was confident that launching its own content would succeed. And therein lies the lesson: Take calculated risks as you adapt and innovate. In my own case, I have always “built a better mousetrap” based on solid experience.
Shout it from the rooftops
It’s always tempting to want to operate in stealth mode. You don’t want someone else to steal your brainchild, after all. But you can take secrecy too far, as reportedly happened to Preetam Mukherjee, who started online video-hosting site, Marcellus.tv. By the time he had launched, there were many other video platforms that had beaten him to the punch — with better features. He recovered and built a loyal customer base.
In comparison, Alex Turnbull, founder of Groove, repeatedly blogged last year about his company’s journey to $100,000 in revenue for its customer-support software. His posts were packed with insider detail. It looked like he was giving too much away. But his readers — fellow entrepreneurs, marketers and engineers — jumped in with useful free advice.
If you’re open to being open, you may well find that customer feedback prevents you from making mistakes, or gives you ideas for features you had not considered. Once you’re visible, you may well hear about potential competitors you never knew existed. You also need to know that being first to market isn’t what it’s all cracked up to be, as your competitors will learn from your pioneering screwups. And there are other good reasons for openly revealing your plans: You may well unearth angel investors, and being out there, revealing who you are to the world, lets your honesty shine through.
Personally, I engage as many social media platforms as I can, and as often as I can, because I want to get my message out there and help as many budding entrepreneurs as I can.
Communicate with your customers
Some companies assume that they — and not the customer — know best. But successful companies have to learn how to listen. With social media, an unhappy customer (or anyone else, for that matter) can broadcast their discontent to the world in a matter of seconds. Whether it’s true or not (and often it’s not) the damage is done, unless you can rapidly respond with real facts.
Southwest Airlines has a very active social media program, with about 30 regular employee-bloggers and many other occasional contributors. Southwest has a reputation for being a fun, people-oriented company, and it shows through in the blog posts about what it’s like working for the company. It’s personalized and authentic. The company employs a social media staff of six, but mostly lets the bloggers speak in their own voices.
Where Southwest’s social media communications really comes into its own is when there are challenges to address (flight delays, for instance), or controversies (for example, when they kicked an overweight passenger off a plane). They monitor and respond to comments — and get the company’s message out fast. Congratulations to them.
Startups can learn from these experiences. You might not yet have millions of customers to handle, but you should act and respond like you’re a big company. Hopefully, you don’t have too many employees, you believe in openness and frequent communication and, in particular, you can adapt as needed. To paraphrase Charles Darwin: “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.”