By Marc Alessi
Network. Find a mentor. Take risks. From bookstores to blogs, the market is saturated with advice and how-to books on how to achieve success with a new business venture. While those tips can be invaluable, I also think there’s something to be said for learning what not to do. From my own entrepreneurial endeavors to my work with the creative minds powering Long Island’s entrepreneurial ecosystem, I’ve made and seen mistakes that I now know belong in the “avoid” category.
Sageworks chairman and co-founder Brian Hamilton recently published his own “don’t do this” list on Entrepreneur.com, appropriately entitled “6 Ways to Kill Your Startup.” If you’re an entrepreneur, I share his advice with you here as a starting point for a conversation I’d love to have with you one-on-one as you navigate through the early stages of your startup.
6 Ways to Kill Your Startup
By Brian Hamilton
http://www.entrepreneur.com/article/269792
Sometimes the best way to learn how to do something is to understand how NOT to do something—to think of things in reverse. Ben Stein (of Ferris Bueller fame) achieved this with great effect with his book, How to Ruin Your Life. Buried in the book’s tongue-in-cheek humor and masked by its sardonic tone were some life lessons that I’ve actually found to be quite valuable.
In homage to Ben, I’m hoping to take a similar approach in my advice to entrepreneurs in the early stages of their businesses. Below is a list of seven ways to ruin your startup. I hope that, by doing the exact opposite of the points below, you’ll find some valuable lessons on running and starting a business effectively.
1. Borrow money early.
As an entrepreneur, one thing that you definitely want to have is structured payments that are due regularly stacked against cash flow that is unpredictable and unreliable. By the way, be sure to borrow money when a bank will lend it to you. If a banker is willing to make a loan, you should assume that you, by default, have the ability to pay it back. Borrow as much as you can and be sure to do it early in the business’ life.
2. Hire as many people as quickly as you can.
The key here is to have a very high overhead rate so that you have to keep making more and more sales. You also want to hire people when your business model is not truly proven so that you have fixed salaries to pay with uneven sales.
3. Focus on doing a business plan.
Now what you really want to do in the first few years in business is think globally. Focus your energy on creating a dynamic, MBA-style business plan; revenue and customers can wait. What you need is a fully-fleshed out plan of attack that would place highly in a competition held by Wharton. The most important thing you can do in a startup is plan heavily. Business is about planning, not execution. Operate under the assumption that a good plan will automatically lead to sales. On that note, be sure to have a good looking website and nice office space from day one.
4. Get a management team in place.
Be sure you have a CFO, COO, CTO, CIO and CMO from your company’s inception. It is important to have a full management team when you are starting and building a business. A full management team provides structure in the business and, more importantly, an impressive “Executives” page on your website. The added benefit of having C-level executives in a startup is that they’re very expensive, so you will ensure that your overhead costs are very high.
5. Focus on perception.
Spend a lot of resources on an accounting system, HR technology, office furniture, insurance and ping pong tables and games. What you want are the trappings of success, not tangible things like customers, revenue and profits. Image is important. Look at other companies like Apple and Google and compare yourself to those companies. Use them as benchmarks. You have to spend money to make money, so spend as much as you can. Customers and revenue can wait, but you only get one chance to make a first impression.
6. Spend a lot of time seeking venture capital and private equity money.
VC firms fund about one percent of the deals that they look at, which represents a good risk vs. return ratio for you. Don’t worry about the quality of the product/service you offer. Assume that will take care of itself. Because the market is efficient and customers tend to make intelligent choices, you don’t need to worry about the quality of your product or service when you are growing your company. Customers should be honored that you are willing to provide them with your product or service. Your time is better spent on planning and thinking and having a lot of meetings with your employees. Preferably, link venture capital money with a poor product and service, and assume that lots of capital and a bad product will really escalate your results.
This is (hopefully) the worst advice you’ll ever receive on starting and running a business. For guidance that you actually should follow, see The 5 Best Pieces of Advice I’ve Ever Received.