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My 9 lessons from co-founding a start-up

I co-founded my first start-up about 10 years ago. As I look back on my experience with that venture I have come to realize that we were quite naïve back then and made about every mistake one can make when starting a company. Eventually it did not work out as we had hoped. Our team dispersed, we sold our technology platform and shut down our service. I am still grateful for the time though and have benefitted greatly from my lessons in the years that came afterwards. Which lessons you may ask? So here they are — my 9 lessons from co-founding a start-up.

1. Have the right team

When we started I went into the adventure with a strong concern, whether we were actually the right team for what we wanted to do. My co-founder had not worked at any real job before and was supposed to be the CTO. He was great at design, however not so strong in coding. I was supposed to be the business guy, but knew that I would not enjoy the sales process too much. Eventually my initial concerns turned out to be quite right. We compensated for our lack of skills surprisingly well, but were never able to fully deliver, what we would have needed to deliver to become successful.

In my view the team is the most important asset of any new venture. First: make sure that you have the very best people with you on board with skillsets that complement each other. Second: make sure that you are comfortable working with your team. Ideally you have worked together professionally before starting your venture. Just because you are great friends does not mean you will be great business partners. Everyone has a different workstyle and personality. Whereas in a large corporation you tend to work with many people, in a start-up you will work with a small number of people — very closely. If you cannot work well with them this will have a severe impact on your chances of success. Is it for good reason that founder conflicts are one of the main reasons why start-ups fail.

2. Know your market and industry

We were building a start-up in the mobile advertising space. Neither my co-founder nor I had any practical experience in the advertising space beforehand. This made it much more difficult for us in the beginning. For example, we did not know about the role of media agencies and their importance regarding advertising sales with big corporate clients. It took us some time to figure out how the advertising industry actually works.

If you have figured out how a market and industry works before you start your company, you will have more time to focus on product development and sales. It should not come as a surprise that VCs love founding teams, where at least someone on the team has deep relevant industry experience.

3. Talk to (potential) customers as early as possible

We tried to secure seed funding from a public entity (and eventually did). One of the recommendations our advisors gave us in the application phase was to talk to potential customers! What did we do? We asked friends of friends that worked at relevant companies but never spoke to “real” potential customers out in the wild. Out of our initial contacts, not a single paying customer emerged. And we later realized that the problem we thought we were solving was not actually such a problem for the “real” customers.

As Steve Blank always says — you need to get out of the building. Talking to potential customers, understanding their problems, and the potential need for your product/service is crucial. There is just no short cut around that.

4. Know what your strengths are and invest your time accordingly

I am a business guy with a strong technical understanding. I started coding simple computer programs when I was 8 years old and always enjoyed coding as a hobby. At our start-up, however, I became the lead backend developer and spent 70% of my time coding. The rationale was: we do not have anyone else who can do it, so I will do it. While it appeared to make sense initially, it actually did not and that became obvious when we hired an intern (engineering student) who refactored the entire backend in a month — making it much faster and efficient.

While it is true that at a start-up everyone needs to do everything to a certain extent you should aim to do most of the time what you are really good at. To do so, you need to be very well aware of your own strengths — and weaknesses — and act accordingly.

5. Do not spend too much time on perfecting the product

After we finally had our first customers — not paying customers, but customers nonetheless, we listened to them very closely. One company had a complicated franchise structure and wanted to use our couponing system. They had very specific ideas, how the coupon system would need to work for them (different logins, lists, etc.). So, off we went and developed specifically what this customer had envisioned. It took us weeks to get everything done. Eventually only this specific customer used all these features and never actually got to the stage of paying us anything.

While it may make sense from a technical perspective, or even from the perspective of some stakeholders to develop the “perfect system X” or the “ideal feature set Y” think twice, whether it is the right thing for your startup. If customers really want your product they will be able to cope with certain limitations. Better to put out a half-baked product/service and see whether there is any response in the market than perfecting something behind closed doors that no one actually wants to buy eventually. Or as Reid Hoffmann famously said: “If you’re not embarrassed by the first version of your product, you’ve launched too late.”

6. It can harm to be the first

We launched in the spring of 2009. Back then the mobile world was quite a mess — we developed native applications for Symbian, JavaME, Android, iOS, Windows Phone, Bada, and Blackberry which cost us a ton of money and resources. I remember talking to the Head of Marketing of a big retailer back then who told me “I really like the idea, but you can only reach a very limited number of people [with a smartphone app]. At our company we always need to be able to reach everyone.” Fast-forward a couple of years — there are only two main mobile platforms left: Android and iOS. Whether you can reach someone with a smartphone app or not is not a question anymore.

While it is generally probably not the worst idea to be innovative and to use new technology being the first is no guarantee for success. Sometimes it takes some time before customers, businesses or stakeholders become ready for an idea. Being the smart second mover that benefits from the groundwork that the first player has done can be a successful strategy, especially when creating a whole new product category.

7. Do not hire B-Players

Beyond an initial seed financing we were not able to raise any significant amount of money and bootstrapped our business. When we made our first revenues we decided that we wanted to invest that money into something that we lacked the most — sales expertise. However, we could not afford to hire a “really good” salesperson and so we settled with someone not so good. It turned out to be a huge mistake with angry customers, an organizational mess and money lost.

As Steve Jobs said — A-Player hire A-Players. You cannot afford to have B- nor C-Players on your team. Make sure you have the resources to hire A-Players.

8. Have an open feedback culture with your co-founders and team

After a while I was unhappy with how things were handled within the founding team. It were small things like how we appreciated each other’s work and openly discussed problems. I avoided speaking with my co-founder about it for way too long. Instead I was harming the company with my own dissatisfaction and by creating a negative atmosphere. When we finally spoke about it, it was too late — we were both frustrated and did not have the energy to pivot our start-up which would have been necessary.

Within the founding team you need a brutally honest feedback culture. This is especially hard when the feedback is not only positive, but then the team has to make sure that the feedback is actionable and helpful.

9. Let go of something that is not working

After our launch in 2009 we were super excited the first weeks. We spoke with potential clients all the time, saw good demand from users and lined up partnerships with big corporates. After a couple of months something happened though. We realized that we were not able to make any money — customers were just not willing to pay for our service. Then, end of 2009 we heard the first time about a company called “Groupon” that was just taking off in the US in a very similar coupon space. We watched carefully, were curious about Groupon, however did nothing with our own business model. In the beginning of 2010 DailyDeal and CityDeal launched with very similar concepts to Groupon in Germany & Austria and both eventually were sold successfully.

Of course, if we had followed more of a Lean Start-Up approach in the first place we might had found out earlier that our initial value proposition was nothing customers would be willing to spend money on.

But even still, once you realize that something is not working it makes sense to take a step back and evaluate the situation. What are the reasons something is not working? Are there realistic measures one can take to fix the problems? If not, what are the alternatives? If an attractive alternative comes along the way it might make sense to jump on board, even if that means giving up the initial plan.

Starting a business is not an easy task. You will often feel like you are failing and some will say you are. Others will encourage you to go on and you will celebrate victories along the way. Every start-up is unique. However, the challenges that come with launching your business are not. There is no need to make mistakes others have made before. Read relevant blogs and books, go to events, network, ask for advice, find mentors. You will be amazed at how supportive others will be. If I can be of any help, let me know!



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Tobi Hann

Tobi Hann

Digital transformation & corporate innovation expert. Founder, management consultant, business angel and intrapreneur. Technology enthusiast.