It’s very hard to get the business model right at startup. Even if you’ve done all the things we’ve talked about in previous posts, there are no guarantees that things won’t change once you have an operating business. The business 
environment is fluid (and that’s being kind) so chances are you’ll be operating a few months and something will shift.
Here are some common mistakes entrepreneurs make that you can avoid.
Rising to your team’s level of incompetence
I know it’s exciting to project rapid demand, sales doubling or tripling year over year, because investors are looking for this type of growth—and so are you! But if you can’t demonstrate that the founding team has the capabilities to manage and control this type of growth (and, frankly, they usually don’t), your investors will run the other way. Whatever level of growth you project, you need to show how you’ll achieve it. It might even be better to show more controlled growth and then exceed it than to predict hockey stick growth that you have no chance of reaching.
Being one ringleader in a three-ring circus
Entrepreneurs like to say that they’re generalists—they can take care of anything in the business—after all, it was their idea in the first place. What they really have is general knowledge of the functional areas of the business and a deep expertise in maybe one area. Let’s face it, the world is only going to get more complex, so if you want to have the best chance of securing the capital you need and the right strategic partners, you need to put together a team of founders that cover all the major functional areas of the business.
Performance projections beyond belief
This is a big red flag to investors and I’ve seen it time and time again—entrepreneurs who project that their startup will exceed the performance levels of established businesses in their industry. Most industry averages, such as receivables turnover, manufacturing costs, and profit margins have come about due to economies of scale and having moved up the learning curve. A startup typically doesn’t have those advantages. It’s far better to project performance more realistically and then to provide a strategy for exceeding industry averages over time.
Leading with price and wondering why you don’t make money
This is a similar problem to over-the-top performance projections. When entrepreneurs tell me that their business model is based on being the low price leader, I have to wonder why anyone in their right mind would want to play that game. Established companies in the industry could easily match the price or force you into a pricing war where you’ll lose. I’m a big proponent of competing on value – if you solve a real and compelling problem for the customer, they will pay for it.
Not investing cold hard cash in your own business
When I hear entrepreneurs talk about how proud they are that they haven’t invested a dime in their business and they’re out seeking “other peoples’ money,” I can only say, GOOD LUCK. Really, why would I invest in your business if you didn’t think it was worth investing in yourself! Typically, these entrepreneurs will argue that it was their idea and they’ve invested sweat equity. Big deal! It’s easy to walk away from an idea and sweat equity—not so easy to walk away from cold, hard cash. If you’ve invested cash in your business or mortgaged your house, or used your life savings to fund this business, you’ve gained credibility in the eyes of investors and that is worth a lot.
If you can avoid these five mistakes, you’ll go a long way toward making sure your business has a real shot at success.
