The Downside of Startups: Watch out for these pitfalls in your entrepreneurship saga

The most valuable lessons you can have as a startup CEO those that come on the back of failure. Here are some pointers at what you can expect and how you can reengineer success from failure

Serial entrepreneur, Speaker and author

The role of CEO / founder in a startup is probably one of the most diverse jobs it is possible to have. You do everything from buying the printer paper, to paying the bills, to developing the strategy. But the diversity is also the reward as you see your whole business grow and appreciate what went into that success. In this series I will consider some of the things I have learned over 35 years in and around startups, and share some advice for new CEOs.

This month, we look at what happens when things don’t go to plan, how to deal with this, and how it makes you stronger.

COCK UP

It’s human to sometimes get this wrong. But that’s all part of the learning experience of being an entrepreneur. Within your team, try and foster a culture of ‘trying, failing, learning, and then doing it right’. Only through experimentation will innovation thrive. And not every experiment will be successful. Punishing failure will be counter-productive in the long run.

CHAK UP

When things go wrong, chalk them up to experience, learn from them, and move on.

At my first startup, we won a huge order for one of our products. It was fairly simple; two floppy disks (remember them?), a manual, and a registration card, in a box. Our customer wanted thousands of copies, in batches, over a number of months.

The first batch of a couple of thousand, we assembled ourselves, creating a production line in our small office and dragging in some friends to help, paid for in pizza! It took us a couple of days and was great fun (for a while).

We shipped the completed items and our customer bundled them with their product for sale. During a random quality inspection of their finished product, they found that two disks in one of our boxes were identical! Cleary, we had made a mistake during assembly.

They called us and told us we had to go through all their products and find the matching box with the other two disks. And also check that there were no more cases where the disks were misassembled.

This took us days, sitting in their warehouse undoing the outer product packaging, finding our box, opening it and checking the labels. Then we had to reassemble their product again, without damaging anything. We eventually found our mistaken box, and amazingly there were no other errors.

After this experience, we outsourced the assembly of our product so any future issues became theirs to fix, and we could concentrate on our core business

CRACK UP

Being CEO of a startup is stressful. You are responsible for the livelihood of many people, returns on investment of many investors, satisfaction of (hopefully) many customers.

Making sure you don’t crack up under the pressure is vital. Some people thrive on stress. If you don’t, make sure you continue to participate in your favourite de-stressing activity. The company needs you!

Many successful CEOs I know are also passionate about other things; cars, flying, fitness, food. They find time to participate in activities totally away from the business that allows their brains to recover, and often their subconscious solves problems for them.

BREAK UP

Being in partnership with others as co-founders of a startup is like being married, especially if there is no one natural leader in the group to take on the role of CEO. Being with partners is great. It provides a natural collective support group for when times are tough. It allows frank discussion about the state of the business as everyone is sharing the pain.

But it also means decisions have to be taken collectively and often there is no natural leader to push through a final result. The more partners that join – as you grow the company and merge with others – the harder it can get. Eventually, there will be a breakup, a divorce, and that could be messy.

My first startup was formed by two people, swiftly followed by a third person joining. After a couple of years, we merged with another team and ended up with seven ‘equal’ partners. Things went smoothly enough for another three years but eventually getting strategic decisions made became very difficult. So I left. But because we didn’t have any partnership agreements in place, there was no way for me to take out any value from the business.

If you are going to be co-founders  partners, always make sure you have the ‘pre-nup’, the Partnership Agreement agreed, written and signed before you start making the big decisions. That way everyone knows how they can get out, and what it means for the equity of the business. Investors will insist on such an agreement being in place.

SCREW UP

Every now and then you will screw something up. Your code will crash and you’ll lose the data of a key customer. Your investor pitch will fail, and you’ll miss out on that round you thought you needed to survive. A key employee will forget a vital sales meeting and you’ll lose the business to a competitor.

These things happen. But unless your business is directly controlling nuclear weapons, the chances are you can overcome the mistakes. Sometimes you will need to fire someone. Sometimes you will need to forgive someone. Every time you will need to put the event behind you rapidly and move forward.

There are many more ‘Ups’ (Heads up, Free up, Light up, Make up etc) in his book Upstart Ninja: So, you want to be a startup CEO? and at https://upstart.ninja

David can be reached at davidphtee@gmail.com

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