The costly mistakes that Tech Start Ups tend to make

Posted on:11. 09. 2015

By Cliff Findlay

In my 20 years of marketing, design and branding I have been fortunate or unfortunate enough - depending how you look at it - to have met a huge amount of start-ups. Typically they are caught chasing the Golden Fleece and all of them have the next biggest thing. I have also been fortunate to meet and glean a huge amount of advice from people who work within the financial, M&A, tech and legal sectors, all of whom also work with tech start-ups. 

The market is so rife with the ‘next big thing’ that you now have businesses whose sole job is to get a company ready for investment (at a cost of course) typically with little or no guarantee of a successful raise. 

Having just created my own tech start up, (going through the process from the inside) and meeting two new tech start-ups (both in different states of free-fall)  I felt the need to write an article which will hopefully help those with ambitions in this sector to not make the same mistakes I have seen time and again - and nearly made myself!

1. Spending too long developing the concept

Rather than spending years and years developing (I met one business who had been in development for 10 years!), why not create a MVP (minimum viable product) that proves the concept and gives the users something they need without building the entire suite of the product? This way you prove the concept, get traction, feedback and if you do need to raise money you can raise it easier as you have a proven track record and will give less equity away for a higher investment.

2. Not creating a group of advisors

When an investor invests, they not only invest in the concept but also invest in the people who have been given the job to make the business a success. Therefore the minimum any start up should bring in is a CFO or accountant who will ensure that the money is spent well. This will create a positive impression with the investor and they will probably take you a little more seriously.  

3. Not doing due diligence on the investor

Often a business is so desperate to secure the necessary investment that they will take money from anyone who shows the slightest interest. The problem can be that the investor has different ideas to the founders. This can result in huge fall outs, disgruntled investors and potential of the business failing or in some instances the investor seizing control. When you obtain an offer, ask to speak with other businesses they have invested in. Ask them what kind of an investor they are. Are they hands on and whether they have provided support. If the investor isn’t happy to do that maybe they aren’t a good fit?

4. Not sharing the idea on fear of it being stolen

I suffered this one at first and then realised it was causing my idea great harm. The more you share the more ideas you get. The more ideas, the better the concept. Fatal flaws can be seen with fresh eyes. Equally, the person you speak to may have just the right connections you are looking for. Of course you run the risk of someone else going off and pursuing your idea, but more often than not - they won’t. To build a business takes desire, time, effort, interest and underneath it all a fearlessness. Be fearless!

5. Allowing the founder to do the sales and marketing

Well I would say that, after all I run a successful branding and marketing agency? But let me explain. Yes we know the idea is brilliant. We know how intelligent you are for coming up with it. However, the market or the investors seriously aren’t interested! They only care about themselves and what they get. So many times I have spoken to companies with a founder convinced that they can sell their idea and continue to tell their target audience all about the features and how jolly good the platform is. Unfortunately, this doesn’t generate sales or get the investment required - it just bores the listener. A branding agency can provide fresh ways to think about what your audience wants, what problems your product or service solves and how you can get an audience - or investor - to interact with your business quickly and easily. How you present yourself when trying to raise your seed and how easy it is for the investors to understand the concept can determine if you get investment.

6. Value the seed investment at the companies exit price

I remember my COO telling me how much of my business I would need to give away if I wanted to raise the seed investment we were after (“For each £50,000 investment you will need to give away 2.5% of the business to peak investor interest”). Why? Well how many great business plans do you think investors see every day? Each one promising to make zillions: “If we just take 5% market share” yada, yada, yada!

If you haven’t turned over any money, haven’t yet launched, your business (great idea) is worth a grand total of…nothing. Yes, you may get seed if your idea is revolutionary but you will only get noticed and taken seriously if you offer a realistic share within the company in the first place.

 7. Keep it short:

Investors are ruthlessly short on time. These don't tend to be people who just sit there all day pouring over business plans to see where their next million will be made. They are often out there spending it. So, ensure you create a one page overview, a three to four page expansion version and a fully-fledged business plan if - and I mean IF - they ever wish to see it. It will save you and them time and will help you sort out the interested from the time wasters.

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