10 Startup Lessons Learned (Hint: Avoid Mistake 4 at all Cost!)
By Danny Holtschke from StartupGeist
Did you know that most startups fail? In fact, massively fail.
Nine out of ten to be precise.
Startups are highly uncertain, chaotic and toxic. Simply put, startups aren’t smaller versions of large companies.
The one of ten startups that do succeed, however, grows rapidly. You will often read about startups that grow at an ‘exponential speed’. Whatever this means. But it’s really really fast.
Independent of failure or success (a.k.a. high-growth), for most founders startups turn into emotional roller coasters — so also for me!
In 2012 I started my first Startup — Spotistic — and I didn’t have a clue about anything really. I quickly realized how hard it can be.
From zero to one hundred. Without preparation. My prior theoretical business education at universities didn’t prepare me at all when it came to becoming an entrepreneur and starting up.
Hence, I was forced to start over again — at ground zero.
Learn here about my 10 startup lessons learned and why you should avoid mistake seven at all cost. Don’t start for the wrong reasons as I did and find out what I will be doing differently for my next startup(s).
80/20 Summary
My Startup Lessons Learned: Little Context
I think it’s always important to get some context when learning about someone’s experiences and insights. Mine date back to a 20-month time period from October 2012 to July 2014 in Berlin — after my three-month stay in Silicon Valley.
— Team (& office)
- Three founders (two engineers, & one business dude (me)
- Three Mentors: Jochen Hummel, Thomas Arend and Holger Weiss, as well as one year support from the startup center of the HWR Berlin: Christian Gurol & Prof. Dr. Sven Ripsas
- Team size: Between three and eight (mostly interns)
- Offices: Several in Berlin
— Funding
- Accelerator: Startupbootcamp Berlin
- Two Investors (+€100,000)
- One year EXIST government grant (~€100,000) from the Federal Ministry for Economic Affairs and Energy
— Business model
- Customers: Business customers (B2B — business to business)
- Software as a Service (SaaS) with a 14 day ‘Free Trial’ approach
- Sales approach: weekly cold emails (based on the sales book ‘Predictable Revenues’)
- Marketing approach: Blog and Social Media (inspired by Buffer)
— Product
- Mobile optimized web dashboard that aggregates and analyzes geo-tagged social media data for businesses that want to interact with their customers quickly.
My 10 Startup Lessons Learned
- Do something you love. Understand what really matters to you and create your life accordingly.
- To succeed you need some financial independence and lots of emotional stability. (P.S. Success has many attributes. It’s not only financially.)
- Understand your personal strengths. Strengthen them and don’t focus on making your weaknesses less weak. Find or build a great team to accelerate your strengths and complement your weaknesses.
- Most startups fail due to conflicts within the team and with investors, a missing vision, low productivity, and little focus on what to execute.
- Your founding team is the most important component of your startup! Your idea might change — but values, motivation and motives of the founders won’t. Be really careful when choosing your companions.
- Accelerator programs are great for building a network and being guided by startup mentors and industry experts.
- Build your company where some of your ideal customers are to better be able to understand them.
- The SaaS (Software as a Service) business model is the future.
- Never ever make mistakes twice. Accept mistakes — but always try to learn and improve. Otherwise, your startup fails.
- I prefer bootstrapping — the cash-flow business approach — over venture-backed startups as your first entrepreneurial step. If you’re a first-time founder with an half-baked idea, talking to investors is a waste of time. Focus instead on understanding your customers.
Accelerator Program
Successfully applying for Startupbootcamp Berlin with their idea ‘Fourscan’, Victor and Maxence — two French software engineers — came to Berlin in Autumn 2012. I just finished my Silicon Valley based project ‘The Startup Ecosystem Report 2012’ and was looking for a startup to join as a co-founder in Berlin.
Fourscan (later to be named Spotistic) was looking for a business/sales guy to join as a third co-founder. On the other hand, I was looking for technical guys in need of a business/sales dude.
On paper a great match, right?
Right!
We met twice and started working together. We considered the three-month accelerator program as a test. I offered to work for free. I wanted to convince first, then be able to ask!
Side story: Why did they choose me?
Victor met, Constanze Buchheim, a Startupbootcamp mentor who advises startups on teams, hiring and outsourcing. I know Constanze through my startup ecosystem work.
Throughout the first days of the program, she advised Victor on how to find and choose a co-founder. At some point, Constanze went through all applicants and recommended Victor to take a closer look at my application. Victor would later admit that it was Constanze who convinced him to take me.
Is this coincidence?
Maybe! But …
I don’t think so.
You always meet twice in life. Be nice, and helpful.
In return, great things will happen to you. This is just one example out of my personal entrepreneurial awakening where serendipity and relationships would pay off later.
My co-founder Victor pitched Spotistic in front of 600 investors, mentors and experts in Berlin. The pitch was intensively prepared. Every line. Every action. We were given 8 minutes to convince investors.
#FAIL
The demo day was an amazing experience!
With each business card that I collected from investors, I became more self-confident.
I felt unbeatable — until reality hit us hard in the next days.
We sent out our company presentation (often referred to as ‘slide deck’) and anticipated a quick ‘yes’ from investors based on our prior chats. We thought: “They are so interested in our idea. In our team. It must be a no-brainer to invest in us.”
It turned out to be an illusion.
#First mistake
Generally speaking, the fundraising process from first contact to money in the bank takes up to six months — if you don’t leverage any prior relationship with the investor.
#Second mistake
We received statements (a.k.a. excuses) like “the product must be finished first”, “show us paying customers”, “your sales process can’t be scaled” and “who’s also investing?” a million times. These excuses are a nice way for investors to say that they don’t want to invest.
Why wouldn’t they just say ‘no’?
2 reasons.
Firstly, they can’t predict the future — even though some of them try to do so. In any case, they would like to potentially be part of your future success at some point — just not yet.
Secondly, it’s emotional stress for them to say no and be honest. They simply don’t want to bother and emotionally burn out. It’s what several investors told me later when I worked as a startup coach how they deal with saying no. Because they need to say ‘no’ a lot — most of the time, in fact — even though they would love to support and help the idea.
Being rejected
Being rejected over and over again feels so bad. Looking back, I can’t imagine how I would have managed as a solo-founder. As a good founding team, you are always able to support and motivate each other.
Hence, overcoming the fear of rejection is only the first step. Dealing with it is the important second step.
Decision
Our team decided to concentrate on product development instead and agreed on paying as little a salary as possible (approx. €1,000). Just about enough to get by.
— Lessons learned from the Accelerator: Accelerators are great for first-time founders because they’ll give you access to your local startup scene. You can easily build a network of local founders, experts, mentors and investors.
Moreover, your team will go through a stressful time and can prove that it will come out the other end. Some startup teams realize that they aren’t a great fit when they go through an accelerator.
Accelerators are NOT a three month class trip — but a three month boot camp!
— Message to you: Concentrate on your potential customers. Understand their problems and build solutions accordingly.
Make something people want. — Y Combinator mantra
Don’t speak to investors too early. Don’t get excited about their feedback. They don’t prove anything — unless they are your ideal customer.
Instead, help your ideal customers. If they love your product, they will pay for it. When you have more than 10 ‘early adopters‘, investors will become aware of your startup and reach out to you. That’s the best position to start your negotiations.
Startup Fundraising
After all, our strategy of focusing on customers first worked out.
In spring 2013, we were able to convince two investors to invest €60,000. One doubled his investment later down the road.
How did we convince our investors?
When we first reached to them after demo day, they liked the team and product idea but weren’t convinced yet. We constantly followed up and involved them in our actions asking for advice, giving demos and helping them (by introducing other startup founders).
As a result, we were able to show our progress in terms of product, and customer when we spoke to them and built a more personal relationship with them.
What did my first fundraising experience look like?
It felt extremely cool to meet with investors in cafes or restaurants. Simply having a chat and presenting our idea made me believe I am accomplishing something. I only realized later how wrong this was.
PLUS most of these conversations were interesting but didn’t lead anywhere.
One of the reasons was me…
I was not able to present our vision convincingly enough. The problem was that it was not my vision. I only tried to convey what Victor had in mind. He was the inventor and product manager. He had a much better idea of everything. Nevertheless, we thought that I could sell our idea more convincingly and it would match our personality strengths.
It worked to a certain degree, but 90% is never enough in convincing investors — and it shouldn’t. You should always feel 150% of whatever you pitch and share with people.
Sounds logical? Wasn’t for me back then and I see many founders and entrepreneurs fall back into this bad habit.
Even though we know that we must be totally convinced, most of us make excuses why we aren’t fully committed and just do this one last thing. That’s bad. Stop doing this. Find something that intrigues you. That makes you not want to go to bed. That makes you feel like playing a computer. That makes you feel like it doesn’t feel like work.
If you feel this, then you know you have found something of value to you.
What are my key fundraising learnings?
I cover startup funding in another article, but let me quickly sum up my key insights here:
Any investment — no matter how big —
- does not validate your product.
- is a means to an end of marketing and selling your product to get paying customers.
- is a stressful full-time job for one of the founders.
- is a time sucker and prevents from building the product or understanding your (potential) customers.
— Lessons learned on startup funding: I prefer the slower bootstrapping approach (no external funding) to start a project over the venture-backed approach. Trying to convince investors as a first-time founder with an half-baked idea takes forever.
The product manager and visioner should ideally be the one who pitches to investors.
— Message to you: Focus on your customers. Build something that customers love. Develop a convincing vision and excite investors — when it’s the right time.
Government Grant
After we convinced our first investors, I looked for alternatives for funding. Traditional options like banks or new options, like Crowdfunding, were not an option for Spotistic. That’s why I looked for public grants that support early-stage startups similar to what accelerators do.
In Germany, there were several options. One of them is the EXIST grant that supports projects carried out by scientists and universities graduates. It is created by the Economy and Energy Ministry.
A few facts about EXIST
— only relevant for startup founders based in Germany
EXIST sponsors a team with up to three members. Application must be handed in through a university. The amount of the grant depends on the degree that each team member holds. It’s a personal grant — not a company because it is assumed that there isn’t a legal entity yet.
EXIST only supports tech heavy or scientific research related ideas. It doesn’t support another ecommerce platform — even though the business model might be extremely convincing. The application process takes up to nine months.
— Lessons learned from the EXIST grant: A public grant can be a great opportunity to feel a little more secure while working on your idea. However, security always brings indolence and that is bad for your progress!
I saw this happening to too many teams. Like any other human, founders tend to get lazy, too. Even a year passes by sooooo quickly!
A year without progress and no financial pressure is often the seed for startup failure.
— Message to you: Firstly, never ever feel safe with your startup! Any form of safety or security you feel while working on your startup is a false illusion. You should be worried if you feel safe!
Secondly, visit your University’s startup centre and see if they can help you with grant applications. If you want to apply for one, talk to other founders who successfully applied for a grant. Most startup founders are happy to help and share their experiences.
Thirdly, please don’t forget: If you ask founders for help, always offer them help in return. Maybe you could introduce them to your father’s business friend because he is an ideal customer.
Always give more than you ask for!
Personal Concerns and Decision to …
Differently than most other decisions in life, choosing your co-founders will affect your life as long as you are working together.
Your co-founder isn’t just a colleague who you leave behind when you go home. Being a startup founder requires a 24/7 time and energy commitment for all founders involved.
As a result, startup experts compare it to a marriage — rightly so.
Click here to read more about three startup experts and six questions that help you to (1) choose your potential co-founders and (2) maintain a healthy relationship.
After I reflected on my answers, I decided to leave Spotistic.
Early 2015 I told my co-founders that I would be leaving our startup. My decision to leave Spotistic was not an easy one.
Each situation is unique and out of respect and trust, I won’t tell anything in detail.
Most importantly, be aware what it means to say ‘yes’. Yes to starting a startup. Yes to learning and moving quickly. Yes to pivoting (a.k.a. working on a different idea). Yes to your cofounders.
— Emotional side note: I accepted that I was extremely nervous to deliver my message.
Sometimes I think I should be cooler and less stressed about these things. However, I learned that I care so much about the people in my life that whenever I need to do something emotional that potentially affects others, I am careful, empathetic and nervous.
— Lessons learned from leaving my first startup: I deeply care. So now I also accept the side effects of this . Back then I thought I was weak or whatever for being so nervous. But it’s bullshit. We shouldn’t be so harsh on ourselves!
— Message to you: Take time to find and choose your co-founders. Don’t rush and join a team too eagerly. Be patient. Get to know each other. Commit to a test period.
Joining is so much easier than breaking up.
Don’t use a ‘one-night-stand’-mentality. See it as a marriage.
Update on Spotistic: Acquired by Uberall, October 2015
In October 2015 uberall, Berlin-based startup, acquired Spotistic.
I am extremely happy for Maxence and Victor for their accomplishment.
Huge step. Huge success.
After my withdrawal, they were able to improve the product and acquire more paying customers. I am impressed about the knowledge and experiences about building a SaaS company they gained.
Uberall wins a talented team of entrepreneurs, developers, and hustlers. Congrats to all.
I wish Maxence and Victor all the successes they dream of. I’m sure you will hear from them.
Chapeau!
Bien fait!
StartupGeist Knowledge Base
StartupGeist summarizes insights and experiences from digital entrepreneurs, startup experts, and founders. This article is based on …
- Y Combinator [Accelerator] and other YC initiatives:
- YC Fellowship Program
- YC Research
- YC Startup School
- Startupbootcamp [Accelerator]
- Example of an incubator: MaRS Discovery District
- Free accelerator database: Seed-DB.com
- AngelList accelerator section
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I am looking forward to hearing from you.
I am Danny and started StartupGeist to help students and recent graduates build a business — and have a good life. Why? To be free, financially independent and healthy. How? Build a growth mindset and deliberately practice skills that turn your ideas into something bigger.
Originally published at startupgeist.com on February 2, 2016.
