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Brutal Startup Errors That Can Destroy Your Company

Investing with the Wrong Person

When your business starts to gather traction and you find yourself in development mode, you may realise that your financial reserves are depleting. When it comes to raising outside funds, keep one cardinal rule in mind: We are not creating all money equal.

Freya Estreller, co-founder of CoolHaus, a gourmet frozen treat company, and her partner, Natasha Case, opted to engage with an angel investor they thought the good fit for their developing business. “We assumed he’d be a good strategic investor since he’d invested in a cookie company that was a co-packer of ours,” Estreller says.

The partners, however, were mistaken. While the investor’s goals were aligned with CoolHaus’, Estreller claims that he was concerned about the day-to-day operations and was unwilling to allow the co-founders make mistakes. She observes, “We mistaken common interests for common vision.”

The investor, fortunately, consented to convert his equity to debt. The lesson from Estreller is to be explicit about the value that your investor brings to your firm in terms other than money.

Former Cherokee Group CEO Bobby Margolis, who is with turning around and developing the brand, recently invested $1 million in Estreller and Case. “He’s a big thinker,” Estreller says. He focuses less on day-to-day operations and more on assisting the partners in becoming the next Ben & Jerry’s. CoolHaus, according to Estreller, is on target to generate about $6 million in revenue this year.

Making a hasty hiring decision

Almost every CEO laments the difficulty of finding and keeping exceptional personnel. The situation is exacerbated for startup entrepreneurs, who often cannot afford decent salaries but require immediate on-the-ground aid to manage all the moving elements of their fledgling businesses.

Deepti Sharma Kapur, who founded FoodtoEat in 2012, had a similar experience. The business is an online ordering platform that connects customers with restaurants, food trucks, and caterers. Restaurants only pay ten cents per order to the company. “Even though I was the single founder, I realised I needed help,” Kapur explains.

She rapidly employed salespeople to expand her customer base, but she made the error, according to Kapur, of “hiring people who didn’t understand the firm or the concept but were just searching for jobs.” As a result, Kapur has to deal with the difficult chore of letting people go, which is something no startup founder likes to deal with.

She describes her hiring process as “primarily depending on recommendations and talking to people in the business.” “And the first thing I ask is, ‘What do you know about the industry and our company?'” says the interviewer. Last year, FoodtoEat, which works with over 900 food suppliers and serves corporate clients like Tumblr, made $500,000 in sales.

 Failure to Pay Attention to Customers

Fan Bi and Danny Wong found  Blank Label, an online custom shirt maker in 2009 with the notion that their target market would be young, hipster guys interested in making their own shirts. Blank Label had six-figure revenues and was on the verge of profitability after eighteen months. The founders decided it was past time to take a closer look at their consumer data. What they discovered astounded them.

“We were selling custom dress shirts as a terrific opportunity to design your own shirt when Blank Label originally began,” Bi adds. “We were aware that clients cared about getting a bespoke fit, but we weren’t concentrating on it.”

Their consumer base turned out to be significantly more conservative than the one they believed they were targeting. “After a poll of all our clients, 82 percent of them responded that a personalised fit was the most important factor to them,” Bi explains. “Only 6% were concerned about designing their own shirt.”

What was the lesson they took away? “Talk to clients all the time to find out why they buy your goods,” Bi advises. “Focus solely on that purpose and strive to be the best at it.”

Striking for Perfection

While good may be the enemy of great, a startup’s attempt to be exceptional at everything from the start might be toxic. “It’s critical to weigh the cost vs benefit of your activities and set priorities,” says Kristaps Ronka, founder of BookMyCity, an online appointment-booking platform for service providers including doctors, mechanics, and personal trainers.

“We often had to take a step back and prioritise,” Ronka recalls, “finding ourselves squandering important time on things that are unquestionably amazing but aren’t really essential to the core product.” The company’s sophisticated video training for consumers, for example, was a wonderful feature for the website, but Ronka says that plain instructions would have sufficed while the founders concentrated on more serious issues. They might simply postpone time spent creating “package deal” pricing.

“It’s quite easy to become caught up in the ‘features and design’ loop,” Ronka continues, “to the point where you justify the labour by assuming that more clients will have the interest in a ‘prettier’ product.” He now labels every item on his to-do list with terms like “bug,” “urgent,” “usability,” “design,” “good to have,” and so on. It forces him and his team to work on activities that aren’t as glamorous—such as billing functionality—but are critical to the company’s success.

Source: online business , online business ideas

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