The seven deadly sins of the startup psyche.

Ever since my days at the Bell Labs New Ventures Group (during the first “.com” boom), I've enjoyed mentoring start-ups. Over the years, arguably I have worked with probably more than 25 start-ups in various stages of birth and decline. Much of this work is pro bono so I tend to approach it with brutally quick yet kind candor.

In the past 60 days, I had been working with three different types of start-up in three very different spaces and I noticed a stunning similarity in thinking that was consistently naive and lacking in some pretty basic business planning modeling. It seems the current venturing exuberance is just too uncomfortably reminiscent of the last bust. No wonder I am twitching.

So given this concentrated dose of entrepreneur fever, I've been inspired (o.k. more like irritated) to share what I believe are the top seven deadly sins that I see start-ups committing with more regularity than I was expecting (yup — I recognize the drama queen tone here — but this IS serious).

1. Think beyond the iPad PLEASE (or a beautiful iPad UE is no panacea for a weak product!)

One of the ventures was trying to explain to me their basic concept which, after about 10 minutes I still did not understand. They pleaded with me to let them show me the iPad application. I refused because I knew if I saw the actual iPad application I would fall in love with the user interface rather than the actual core value of the application.

I asked them instead to give me an idea of who would use it beyond iPad users but they couldn't. TBH all they had was a pretty way to present lots of real time information useful only on an iPad — it wasn't useful on a mobile and not needed on a PC. As pretty as it was, one pretty iPad dress does not a business make.

DO THE NUMBERS PLEASE!

2. Stop with the platform fetish already — not every app is a platform!

Virtually every new venture seems to have illusions of platform grandeur without understanding what a technology platform really is. There are a few flavors but no matter how you define a platform it’s not hard to realize an app that lets you find the nearest spot to buy a particular brand of beer does not a platform make.

DO THE NUMBERS PLEASE!

3. To scale up is not free.

I can’t tell you how many times I've heard a startup CEO describe monetization in terms of scale. The basic idea is that once said product or service or application actually takes off — then monetization takes off because in volume lies profitable scale. Nice idea as long as one realizes that to scale up is not cost free — it ain’t cheap either.

To scale up requires additional hardware that’s expensive, service plans that are even more expensive, and people to run all of it which is the most costly of all. Perhaps technological scaling is cheaper than people powered scale, but too often startup CEOs underestimate significantly the real costs to scale up to a profitable level.

DO THE NUMBERS PLEASE!

4. Assume “there’s no competition” or that you are smarter/ cooler than the other guys.

I am continually stumped by the anemic competitive treatment in new venture business plans especially compared to the pages and pages waxing poetically about the multiple revenue streams from their “platform.” Sheesh! A little more paranoia seems warranted folks.

Here’s a secret — in all likelihood — your competition is at least as smart as you and not unlikely smarter! So don’t for a second believe you don’t have competition. If you are not sure who you are aiming at then you can’t know what revenue stream you are aiming for or plan for the possible black swan event that could put a venture under.

DO THE NUMBERS PLEASE!

5. Remember the world is wider than your circle of friends.

I love that someone as young as 19 or 22 can create an application given the low barriers to entry. I love that their circle of peers would love to use the app as well. The only trouble is businesses need wide appeal if they are to monetize well. That basic point often seems lost on younger entrepreneurs when they exuberantly explain how ALL their friends would use the service.

New ventures should worry about launching a narrowly targeted solution. If they take a bit of time, and they ask 20 people outside their circle about the service (no cheating by asking loving and supportive family members please) and if four or five of them say yes –then keep going. If not — then keep thinking.

DO THE NUMBERS PLEASE!

6. User adoption curves are not one-way, upward trend lines.

So here I am working through the financial projections for some of these ventures and I notice all assume a steady, incremental upward trend in user adoption. This is flawed on two counts. First it assumes a steady inflow of users without accounting for the churn factor which can be as dramatic as 90% in the first 30 days. Second, unless there is a conscious marketing effort (requiring precious resources) to acclimate new users to the service, they are unlikely to start using monetizable features. This is especially an issue for freemium models. Too often, new ventures overestimate user growth projections and significantly underestimate user churn. A bad combination all around.

DO THE NUMBERS PLEASE!

7. The last deadly sin is the sin of; “Just because you can doesn't mean you should.”

Given the diversity of social, mobile and local technologies, there are virtually endless combinations; local promotions with real time content; check-in type services with topic-based communities or local events tied to local promotions. But just because one can combine a few features does not necessarily mean you can make a business of it.

In a recent conversation with a startup that had developed a combination that they failed to get me to see the benefit of, I blurted out: “Just because you could put a phone on a vacuum doesn't mean you should.”

The founding CEO looked crestfallen and it was not at my kindest moment but it exhibited my frustration at new ventures who don’t seem to realize that just because clever combination are possible; it doesn't necessarily translate to revenue or monetization potential.

DO THE NUMBERS PLEASE!

So often I see business plans with wonderful language about being disruptive and changing the world. That is awesome and inspiring. But is sharpening the ‘ol pencil before you take your leap of faith too much of a buzz killer?

It seems it is.

Judy Shapiro

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