From naught to exit: what I learned playing the startup game
Being an entrepreneur is hard. Numerous decisions have to be taken in any single day. Sometimes you will make the right decisions, sometimes you will make the wrong ones. Do not be afraid of making decisions, often a bad decision is better than no decision, and it can almost always be changed later.
At Comufy, we made many such decisions. Many bad decisions in fact. Fortunately, we learned from our mistakes and also made some good decisions, which allowed us to survive, and eventually thrive.
This post is not politically correct, is very real, and hopefully it is honest and contains some important lessons.
Below I share our 20 biggest mistakes and learnings from surviving the startup world.
#1 What is your business model?
Too often, tech entrepreneurs think of the technical product rather than the target audience or the business model.
When we first started, we made a business plan. It was a thick business plan to be sure (70 pages or so), but in hindsight it had little value as it made too many non-backed up assumptions. The predicted revenue numbers were a joke, but to our defence, who really has any idea what kind of money they will be making in 5 years time without having a product, let alone a customer? To make matters worse, we failed to answer the most basic of question: “how will you make money?” By answering “We will display some ads on the site”, we took the convenient answer, avoiding having to think too hard about this question. Eventually when we realised that somebody was going to have to pay for the service and ads was not going to cut it we had a big problem. This lead to a giant pivot from B2C to B2B2C, and the acknowledgement that most of the work that we did for the previous two years was to be thrown away.
Lesson: Think hard about your business model before you start. The “Lean Canvas”, this is a great way to start.
#2 So you have no product, no traction and you want to find investors?
Reading startup blogs from day on end may bring you to believe that raising money is easy. The truth however, is that for a first-time entrepreneur, raising money is hard, especially if you live outside of the Silicon Valley. If you do not have a product, it is harder still. At Comufy, early in the life of the business, we spent a good 6 months trying to raise money. These were full-on months where we worked and re-worked presentation, met any investor who would meet us, and pitched and pitched. We became increasingly worried that we were not managing to close the investment round. Instead of working on growing the business and closing customers, we spent all of our energy trying to close investors. When we started focusing on getting traction instead of investment, investment naturally followed.
Lesson: Focus on getting traction before you go for investment.
#3 Being agile
When we first started up in 2008, the lean/agile movement was not what it is now, and we were just doing what we could. In hindsight, we were failing to engage customers sufficiently to get feedback and iterate.
Today, the agile movement is strong and you can find plenty of resources on the Internet to help you be leaner. If you do not know what agile is, pick up a copy of “The Lean Startup” by Eric Ries, and you will learn all that there is to know.
Lesson: in 2017 there are no excuses for not being agile.
#4 Scope creep
We started with an idea that was meant to take 3 months to implement. As we advanced in the development of the product, we did what many first-time founders do: we kept adding features.
We wanted the product to be perfect. Nearly 2 years later, having burned most of our money without ever releasing, we gave up this product and pivoted to enterprise.
I once saw a Q&A session with Brent Hoberman where he was asked what his biggest mistake and his best decision were while building lastminute.com. He replied “Launching too early” to both questions. He went on to explain that when launching lastminute.com, people would come to the site, which was very unstable and would crash frequently, frustrating early users. At the same time, it allowed him and his team to learn quickly and improve the product.
Lesson: Release early as soon as you have a Minimum Viable Product (MVP), get feedback and iterate. Do not wait for the perfect product, that time will never come.
#5 Technology looking for a problem
After we ran out of money in 2011, we realised that we had to make money to survive (Yes, we are geniuses like that). We therefore looked for opportunities to reuse our technology to solve a different problem — a problem that we could get paid for solving. We pivoted to the enterprise and iterated until we found the right product/market fit. This was no easy task, we had what is a called a “solution looking for a problem”, and this is far from ideal. The problems that we found were not an exact fit for our technology, so we kept changing target, while changing the product at the same time. If you can avoid it, do!
Lesson: The most successful businesses start with a purpose, and then build the technology, in that order.
#6 Unpaid employees and equity
It is often said that the first test of an entrepreneur is to build a following, a team that believes in you and your idea. As a first-time entrepreneur, money is tight, so the only way that you can “pay” those early employees is by giving them shares. At Comufy, we wanted to fair to our employees.
We figured that each founder had invested X money and man days of his/her life into the business, and so each month that an employee remained unpaid, his/her percentage of the company would go up proportionally. In hindsight, this was a terrible way of rewarding people as the more time went by, the more the equity of the employee would go up, hereby reducing incentives to make the company succeed. It also led to a couple of pretty ugly scenes where two team members banded together to demand yet higher equity.
Also, we made the mistake of giving straight non-vested shares, meaning that when an employee eventually leaved, he/she would take the shares with him/her, benefiting from the effort of those remaining in the business without adding value himself.
Lesson: You are the boss, this is your business. Be straight with people, agree on a number of vested shares with them for their involvement and be done with it. Do not play the game of changing ownership percentage based on time spent.
#7 Hiring arseholes
We once made a terrible recruitment mistake.
We hired someone without properly vetting if that person would fit well in the team. It turned out that this person would spend a large part of the day undermining other people, creating an enormous amount of tension. Tension of this intensity can eat your business from the inside, destroy productivity and make people not want to come to work. My biggest regret is to not have acted more strongly to remove this person from the company.
Lesson: Don’t hire arseholes, no matter how good they may be at their job. And if you hired an arsehole, fire him/her as soon as you find out.
Apparently, there is a whole book on this topic!
#8 The mole
We once hired someone on the recommendation of an influential board member.
As it turns out, this person would constantly report back on the business to that board member by bypassing the founders and disseminating carefully chosen and sometimes misleading information to that board member to advance his/her own agenda, which made board meetings extremely tensed, and firing that person very hard.
Lesson: Be very careful when hiring somebody recommended by a board member. Make sure that this person works for you and not for the board member.
#9 So who should I hire?
Hire the best, only the best, and fire fast. You are a startup, you cannot afford to babysit employees, you need people that to you can trust and on whom you can rely.
Having made several wrong hires in the past, I can tell you that it is better not to hire than to hire wrong. So take your time and find the right candidate. Also, use your guts, if someone does not feel right, then he or she is not the right person — period. You will never regret not hiring, but you may regret hiring.
Lesson: Take you time and find the best candidate. Trust your guts, if anyone in your team has doubts, don’t hire. And if you made the wrong hire, fire quickly, do not let the situation deteriorate.
#10 Go with your guts
We once had a product adaptable to both large bluechip companies and Facebook games. We had a number of said bluechip companies onboard at that time, but the sales cycle was excruciatingly slow.
Board meetings would be spent arguing on which customer was right to go after, and our chairman was clear that we had to continue the strategy of hunting bluechip customers (aka elephant hunting). We the founders however, had the feeling that gaming companies might be the better target, despite paying much less per user record and stretching the limits of our system. Once we decided to go with our guts and follow the gaming companies, the business took off, every other Facebook-game company would want our product.
Lesson: Sometimes you will have to defy advice given to you by influential people and just go with your guts. It is your business after all.
#11 The emotional connection with investors
Our first investment into Comufy eventually came from an investor whom we had met a number of years prior when his then company looked at acquiring ours. At the time, our business proposition was very different. This investor saw that after all this time we had not given up, and decided to back us.
Lesson: If you plan to raise money at some point, it pays to talk to investors early to create that first relationship and to then keep them in the loop.
#12 Dividing roles
When starting up with a friend, you will discuss and agree on the idea, but you may not talk about roles straight away.
Certainly, when we started, we didn’t. This is dangerous. You may have different expectations from your co-founders, and it is best to resolve them early, because make no mistake, they will need to be resolved. Who will be CEO? Who will be CTO? Who will be the CMO? Etc.
Lesson: Make sure that you understand the role of each and you are all happy with.
#13 Co-founders
Doing a startup was so much harder than I could ever imagine.
There are a million things to take care of, and a million things to learn. If you are a first-time entrepreneur, I cannot emphasise enough the need for co-founders, they will be invaluable. You need somebody to help you move that boulder up the hill. Sometimes you will fall and you will need someone to pick you up. At the same time, be very careful who you choose, I once had a business fail because one founder did not pull his weight.
Lesson: If you do not have a co-founder, find one.
#14 Founders’ ownership
When we started, we decided to split ownership equally between the 3 founders. In fact, one of us joined a little later, but brought in some capital so we thought this was fair.
I am glad that we always had an equal share of the business, we all felt so involved. Your circumstances may be different, and you may share the capital differently, but always be mindful of one thing: your business needs to be able to make decisions. A 50/50 share split is terrible news for the business as in case of conflict, you will be unable to make decisions. If you are only 2 founders, go for a 51/49 split.
Lesson: Always make sure that your shareholding structure allows for making decisions in case of conflict.
#15 Delays
One of the biggest enemy of the entrepreneur.
You will make a timeline of product development, happily commit to it and draw plans based on this. And then the project will be late. Very late. Excruciatingly late. It happened to us, it happens to all of us.
Lesson: Expect things to take 2 to 3 times longer than expected and cost twice to three times as much, you will need it.
#16 Letting go
We started with the idea of a consumer product. Eventually we moved into enterprise and tried to reuse our Instant Messaging technology while providing a CRM and also a Social Media Management Service(SMMS).
Our problem was that each of these solutions had customers, but for a long time it was unclear to us which one was gaining more traction as enterprise sales take time. Eventually we made a gut decision, turned off the other services and refocused our efforts. As soon as we did this, the increased focus allowed us to iterate a lot faster. Getting rid of old code and products is painful. A lot of sweat has gone into creating these products, but letting them die is important for the health of the business.
If it makes you fell better, do like our co-founder Puli, don’t call it “deleting”, call it “pruning”.
Lesson: Don’t be afraid to kill-off your own products to make space for the new.
#17 Being featured in tech blogs
We were featured in Techcrunch a couple of times for different products. We felt great! We were so proud. TechCrunch, perhaps the most popular technology blog had written an article on us.
Looking at the data, we got a peak of traffic, but we realised that we had a very low conversion rate. Eventually the obvious hit us, our target audience does not read TechCrunch!
Lesson: Forget the hype, being featured in a technology blog is useless unless your target market is other startups. You should aim to be featured in publications that your customers are going to read.
#18 Go with the flow
We started originally with some instant messaging capabilities and tried to hang on to it for way too long.
The whole world was moving to social media, but we were hanging to our technology where so much sweat was invested. We tried to convince customers that Instant Messaging was still hot, but their heart was not in it. The world was moving social, and we had to go with it. Eventually we decided to embrace social, and business accelerated dramatically.
Lesson: You are too small to fight global trends. If the trend is going one way, you need to go with it.
#19 Mentors
Doing business is a skill that you acquire over decades. There are many traps to avoid, and having an experienced mentor at your side can save you from making many such mistakes. Our chairman’s experience was invaluable to us, we learned a lot from him. He also challenged us a lot, which ultimately led to better decisions.
Lesson: If you do not have a mentor, find one. This could be an investor, or an industry expert.
#20 Be fearless
We frequently pitched to large bluechip customers with some deals worth hundreds of thousands of pounds. Our co-founder Phil was amazing at this, pitching to whomever would listen to him, not being afraid of rejection.
Lesson: Do not be afraid, push yourself, and take a chance. We say that those who don’t ask don’t get. A successful entrepreneur has to consistently step out of his or her comfort zone. So embrace it, you will grow bigger as result.