7 Reasons Investment Startups Fail
Just because Bill Gates invests in your business, doesn't guarantee your success. Getting the money is the easy part, but after that it takes mountains of work to back up your pitch and even more restraint when you see 7+ figures in your bank account.
These are the biggest lessons I learned while running the operations of a Silicon Valley startup.
1. Using Investor Money for Personal Expenses
This is a loan and does not belong to you or even your company. Until you have a product that has gone to market and is making money that is 100% profit after you have paid back your investors does it then belong to you. Investor money should only be used to hire, develop, grow and learn for your company not furnish your rental house for you and your friends, pay your home expenses, or pay for hundreds of dollars in dinners at 5 star restaurants 2-3 nights a week.
2. Using Investor Money for Unnecessary Company Purchases
Treating your team to a nice dinner to celebrate a milestone in product development is one thing but spending lavishly in order to sway new hires to join or quell unhappy employees is not the answer. Company retreats, a brand new 20,000 sqft office lease for less than 12 employees, endless high end swag, top of line tech accessories and $300 a week in fresh pressed juice deliveries do not qualify as important company expenses.
This money should be used to hire the right people and give them what they need with nice creature comforts like ergonomic setups, healthy/junk snack selection and a decent office to fit the needs over the next year until Series A. Once you have more time and man hours under your belt (plus an additional funding round of $500m) should you be splurging on anything and even then, using tons of restraint.
3. Hiring a Resume, Instead of an Attitude
Save the egos and hype for sporting events. Just because they're hot stuff at their past companies or have a reputation in an industry, does not make them good team players or even good people. If the attitude is not there or anyone has a bad experience with them, see it as a red flag not a misunderstanding. Nothing kills off good employees quicker than watching you tolerate a terrible one.
A resume is easy to find, but hiring a team player who cares and is happy just to be a part of something, even when they know they are better than a startup, is more valuable than gold.
4. Not Listening When More Than One Employee Tells You a Person, Contract or Situation is Bad
You have a trusted team at your side that you have already invested time and energy getting to know, so why when they collectively agree that something is off do you choose to ignore them? Just as I pointed out in number three, anyone can put on a customer service voice and schmooze even the smartest into believing in them, but others may have more intuitive instincts that you need to trust. Unfortunately when a founding team makes up the members of the hiring team and have the final say even when presented hard facts, they can be blinded by the next shiny sticker and willing to overlook certain red flags in people, contracts, and even the overall direction of the company. But for the rest of the team this is our livelihood we have entrusted to you and we will do anything to preserve that. We want it more than you because at the end of the day we don't have investors to fall back on.
5. Allowing Remoras to Suck You Dry of Resources
Isn't it funny that as soon as you get some money in the bank, all the naysayers and haters immediately come crawling back? This is great (and satisfying) but this is where it becomes even more crucial that you keep your guard up. Allowing your ego to make your decisions for you will allow a lot of awful people just looking to milk you dry, step into the picture. Beware of the "consultants" whether they come heavily recommended or not. They always have an ulterior motive and that is money. They don't answer your 47 calls a day just because they like you.
They're wolves in sheep’s clothing, waiting to pounce on the next sucker they can con into paying them exorbitant amounts of money with bare minimum effort and little to no actual results.
This does not count for all consultants, but if they claim to be an expert at something, yet cannot back up their claim when it comes time to "walk the walk," fire them, ASAP.
6. Hiring with Huge Salaries Before You Even Have a Product
If you do not have a product that is within 2 years of going to market let alone 5, why would you hire someone for a $300k per years position for Business Development? We are once again at the "do not count your chickens before they have hatched" cliché. At the two year mark your product will be at a phase where massive architectural/design overhauls are no longer a big reality and safe to begin reaching out to companies who could use your product. But 5 years out when you can't even agree on the math to test the first round of test products is a huge waste of resources. Things change so quickly with technology and design that relying on anyone to sell something that hasn't even successfully tested in a controlled environment is suicide. It is also a dangerous game to steal someone away from a company paying more money than you on the promise of an even bigger return only to fire them because you realized at the last moment that they're not needed and you just cannot afford to pay a useless salary. It leaves a bad taste in people's mouths and the right guy can say the wrong thing and end your run for good. Just don't do it.
7. Not Listening to Your Operations Team
I have seen this at every company I have ever worked for. You hire someone to run the backend, the day to day, the crucial but time consuming company business that is too small for the CEO but too big for a receptionist. They run your staff, your IT, your office, your HR your payroll, your accounting, and even run your business and personal life. They have years of experience but for some reason the CEO just doesn't listen when they suggest that a program or system will be better than current practice. Weird.
However, when someone who has no company operation related experience suggests a program or system so wildly inappropriate or just flat out bad, the CEO jumps all over it and despite your pleas and explanations with fact as to why it will not work, they insist anyways. Now why would a CEO hire an operations team for this exact matter only to ignore them thus wasting $20,000 and endless hours on a useless program that the operations team was vehemently against? The world may never know.
Just don't do it. Unless you have worked in a company backend/operational setting and have the know how and true experience of trial and error, let the professionals do their job.
I don’t claim to be a business or startup expert but I have worked in a two person small business to a top 10 Global firm, from a part time receptionist to a CEO position. I understand the bottom of the barrel, baseline groundwork all the way up to the top of the food chain decision making and everything in between. I never allow my ego to make my decisions for me, and I always think how any decision will affect not just my company, but my team as well.
I always trust the kid that has done the grunt work, worked their way up from mail runner to upper management, not the kid with the flashy degree with only a summer internship doing exactly what the degree required. Give the degree a project but give the experience the control.
While I have made mistakes, I have always come out stronger and smarter than I was before, because I chose to listen and learn. That is why I am successful now.
If you don't know the basic building blocks of business and you fail to not only hire someone who does, but fail to listen to them, your company will fail too.