Mark Sherman, Managing Director, Telstra Ventures
Given how many roles entrepreneurs and founders must play to launch their businesses, it’s candidly not surprising that even as they manage the complexities of introducing completely new technologies to their target markets, there remains a set of slightly more pedestrian pitfalls that, typically, fall into three categories: funding, culture, and execution and strategy.
FUNDING: KNOWING ALL OF WHAT, AND TO WHOM, YOU’RE PITCHING
Not only do entrepreneurs have to develop and sell their products, they have to be able to develop and sell their businesses if they are to attract capital to grow. There is no more exciting – or fraught – time for a company than when approaching investors.
Mistake #1: Target the Right Investor
While this sounds like a truism, there’s a number of tactical and strategic errors when it comes to targeting. First, companies need to understand what investors are appropriate for their particular stage of development. There is a huge difference between investors looking for pre-seed and seed opportunities, vs. Series A and Series B rounds. Secondly, targeting the right investor also means being clear-headed about whether an investor is right for your business. Being invited to pitch any one of the larger “brand name” venture capital firms is certainly exciting, but it is worth asking what their motives might be. Are they genuinely interested in your business? Or, is it possible that their motivations lie elsewhere?
Mistake #2: Remember You’re Pitching a Business, Not Just a Product
A trap that easily catches out entrepreneurs: being so excited about their products, they forget that they need to actually sell the business model they plan to build around them. Too many times presentations fail to identify the actual problem the company proposes to solve for, or offer a set of clear, time-specific KPIs to illustrate current progress and future milestones. And while the temptation is understandable, presentations optimised for high valuation (vs. long-term, durable growth), create a problem that anyone who reads the business section is familiar with: the future pain of unmet expectations, down-rounds, and bad press. Understanding the natural scale of your business and hewing to it is sometimes hard to do, but has long-term benefits.
CULTURE IS FOUNDATIONAL: SET IT EARLY
A company’s culture is foundational to everything it aspires to, because it guides behaviors in the absence of rules, which is especially important when a company is young and moving fast.
Mistake #1: Articulate Your Culture, and Hire Into it
It is critical, particularly as you prepare to scale, to have a clear view of your culture early on, and map key HR processes to it so that as you hire, you are bringing people onboard that not only meet a skills requirement, but represent a cultural fit. In small companies especially, bad hires early on can be devastating. There’s also the temptation for entrepreneurs to hire candidates they know, vs. those who have the best skills for a particular role.
Mistake #2: Appreciate your Limits
A corollary to this: entrepreneurs have to be open to not running the company they founded, and be honest about their own strengths and weaknesses. A good business starts with a good idea, but a great business is built when founders find and retain people that complement their own skill sets, and trust them to do their jobs. Building a company is a team sport, not a solo job, and founders create downstream risks when they won’t (or, can’t) let go.
IMPORTANT M’s ON EXECUTION & STRATEGY: MISTAKES & MANNERS
What happens behind closed doors is the greatest barometer for measuring the longevity or success of a business. This means being transparent about mistakes and the manner with which you present yourself.
Mistake #1: Own Your Mistakes
Entrepreneurs often have a unique idea that can have a transformative effect on a market. They can also receive an overwhelming amount of advice on how to operationalise that idea, and so a key (and difficult) skill to master is being able to sift through the advice from boards, advisors, mentors, and independently make a decision for a given situation. Sometimes that decision will be wrong, which leads to a second key, and equally difficult skill: recognise a bad decision, own it, and move on. Nothing blunts momentum (and morale) more than pressing on against the headwind of a bad decision. The corollary here is that as much as people don’t like bad news, they dislike being surprised by bad news even more. Be transparent when things aren’t going well, tell people who need to know early, and own the issue to resolve.
Mistake #2: Waiting Until You’re Public to Behave Like You’re Public
In many ways, going public represents the apex of the entrepreneurial dream, and yet the practical reality is that being a public company brings not only a new and far more formal set of disclosure requirements, but invites significant scrutiny by multiple audiences: investors, regulators, analysts, journalists, and increasingly, the public. If you plan to be public, then behave that way – early. Formalise your own internal processes, in particular FP&A, and prepare and report your results at least a year before you go public. Equally, understand that from a planning perspective, you’re best served by de-linking strategic planning from financial planning, and further, developing a separate Wall Street Plan, a Board Plan, and a Management Plan. Obviously, these cannot be contradictory, but there are risks in sharing stretch goals (or possible downside risks) publicly, because the ability to control how third parties interpret your messaging is limited.
Finally, entrepreneurs must remember that the best source of capital in the world isn’t a check from an investor: it’s the receipts from your own customers. Every path is different, and while the VC landscape continues to evolve, these are tried and true patterns – and pivots – entrepreneurs can make to better guarantee their future.