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Monday, November 1, 2010

10 Startup Mistakes to Avoid
Posted by Warren Weeks

10. Don’t give everyone a “C-level” title from the start.  The first three people should not be CEO, CTO and COO.  This leaves no room to hire industry-experienced executives to your team which you will most certainly need.  Instead, use President, Vice President, Director and Manager titles in the beginning.


9.   Increasing headcount and controlling the burn rate against an operating budget are not milestones.   Patent filings and technology development are necessary company goals, but they are not valuation milestones.  Milestones related to customer development, product validation and revenue generation are worthy.  And since all meaningful milestones must add value, the investors, not founders, should select them.


8.   Your website had better have a “Products” tab; otherwise, you are fooling only yourself.


7.   The strike price for employee stock options should be much less than the as-converted price for Preferred Stock.  Remember, it is Preferred Stock for a reason, so common stock is always worth much less.


6.   Don’t make what you can sell, sell what you can make.  Early revenue is key.  Quickly determine the minimal viable product.


5.   Only investors can put a value on your company.  Your accountants, your investment advisors (e.g. bankers or brokers) and your attorneys are only guessing at reasonable enterprise value.


4.   If your company is technology heavy and your first product requires an “aha moment” in the lab, stop raising money and start writing for contracts and grants.  You can not schedule an “aha moment” so you have no idea how much money to raise, when your first product will be ready, or when you will see revenue.  You really don’t.


3.   Hire slowing, but fire quickly.  If you’ve been thinking of letting a particular employee go more twice, then you are too slow.


2.   If you need to raise money, incorporate as a C-corp instead on an LLC.  C-corps are tried and true and the cost to set up is not significantly more than an LLC once you consider the operating agreement you’ll need to accommodate sophisticated investors.


1.   Under promise and over deliver.  Otherwise, there is no faster way to run burn through your precious cash forcing you to perpetuate the mirage which sets you up for the inevitable down round.

7:25 pm est