The mistakes that killed my startup

28 Aug

Not too many times you hear about startup failures though most of them fail. Mine failed and I decided to enlist all the mistakes I made that led to my startup failure. It’s not easy to write such a post, but I think that we, in the startup/entrepreneurship industry, should embrace failure and learn from it.

So, here’s the list, in no particular order:

Money

  • Our first round of funding was a convertible note with impossible maturity date terms. Convertible note is a double edged sword. You should use it wisely and have a clear vision of what happens when maturity date comes knocking on your door.
  • Joined an accelerator program too soon. As a first time entrepreneur, your point of view about accelerators is shaped by what you hear in the media. And you usually read about Y Combinator, 500 startups and alikes. You end up believing accelerators are a magic pill for startups. If you don’t have a prototype, not sure about the market you’re in or still haven’t talked to potential customers, most likely that an accelerator program won’t help you.
  • Should have continued working at our day job until we get to a first version with some traction. Quitting your day job too soon lays a huge financial burden on your company and forces you to look for money and waste precious time. In the early days you should speak to your potential customers, not investors.
  • Focused too much on funding instead of acquiring customers.
  • Trying to raise money solely on vision can maybe lead to a pre-seed/seed round but not to an A round. We got addicted to the vision, we forgot about the numbers.
  • After we got funded, we didn’t spend enough money. At some point this wasn’t a mistake. But there were times that we should’ve pulled the marketing lever and didn’t.
  • When we did spend money it was only on coding hands.
  • We incorporated way too soon. Incorporation comes with costs that you shouldn’t have. Focus on your customers and the problem you’re solving. Nothing else matters in the early days.
  • Not understanding the size of your market. And not just the total size of the market, that’s an easy one, but the addressable market. How much money can your company make in a best/worst case scenario? You should answer this question regardless to investors because you need to know if your company is a fundable startup or a lifestyle business.

Product

  • We built too many features. We felt it made the product awesome. The truth was that it confused our customers. Focus is an important aspect of product management.
  • Being too much engineer-ish in our thinking. We were able to acquire a few customers pretty fast, but we were afraid to on board more customers because we felt the product is not ready yet. The truth was that the customers who already used the product were really happy with it. Don’t wait for a perfect product in order to sell. Perfect will never happen.
  • Didn’t invest enough in turning Licensario into a low/no touch sell. Every customer that wanted to start using Licensario took too many resources out of our already too busy engineers.
  • We fell in love in the core idea of Licensario and were afraid to change. With this much love to your baby, you sometimes can’t see that he’s really ugly and a plastic surgery is a must. Today.
  • Educating the market is an expensive and risky play. In the beginning you should fall into categories people know so it’ll be easy for them to compare you to things they already know. We spent too much time educating, telling the world we’re a completely new breed.
  • Not investing enough in ROI design. By ROI design I mean letting the user know exactly what he gets back if he’ll use your product. Users don’t have patience to fully understand and read how awesome your product is. You need to show them, not tell. The best thing you can do is show them the amount of money they save/gain by using your product.
  • We didn’t charge most of our customers. For some reason we always felt that we shouldn’t piss them off with charging them. At least until all of their feature requests are live. If you feel this way, that’s a huge red flag. Either your product isn’t providing enough value, and you’re afraid that adding payments will make your customers leave, or you don’t appreciate your product enough and how it solves the problem it intended to solve.
  • We outsourced some core features. Even though both Igor (my co-founder) and I are programmers, we wanted to move faster and we outsourced some parts of our product. It was a bad decision that cost us time and money. If you have to outsource, never never never outsource anything that’s core to your business.
  • We didn’t invest enough in analytics in the early days. You should know the KPIs (Key Performance Indicators) that matter to your business from the get-go and track them from the beginning.
  • We didn’t fail fast enough. Each experiment we conducted took too much time.
  • We didn’t experiment enough.

Marketing/Sales

  • We did only direct sales for too long.
  • We had the false thinking that to do marketing we need a huge budget. It took us too much time to understand that we can do awesome things without spending a dime (other than the time of our engineers).
  • Our messaging was too broad. At the beginning, we thought we should target the whole world. We were afraid that we’ll miss a customer if our messaging won’t be broad enough to catch everyone: SaaS/mobile/desktop/web/ROR/PHP/Pascal developers, executives, marketers… We wanted to catch them all. Guess what happened? We didn’t catch anyone. Our bounce rate was so high that Google Analytics was too embarrassed to show it…
  • Not using social media as we should have. A lot of people will argue about the effectiveness of social media on B2B companies, but IMHO, social networks are free marketing and an awesome way to reach out to influencers in your space, and it’s just foolishness not to use them. You just need to use them the right way.
  • We tried channels before we got to product/market fit. In the early days, founders should do sales. If you can’t sell your product, no one will be able to.
  • Our sales model was too “enterprisy” on one hand and the price was too low on the other. It made no sense. The price of the sale and the sale cycle length must be aligned.

Team

  • Our first hire was an engineer. Again, too much focus on features instead of letting people know we exist.
  • We made compromises with our first hires because it was important for us to stay lean. Eventually, we had to let them go. If you can’t afford good people, don’t hire. It will cost you more to hire the wrong people.
  • We didn’t split the equity equally between the founders.
  • We didn’t sit in the same office. This led to poor communication between the team members. Sitting at the same office is not a must. You have great tools like Sqwiggle to help you manage remote work. But it was just not right for our team. You should know what’s best for your team and if you see that work just doesn’t get done when everyone works from home, stop that and see if an office works better.

Personal

The following personal mistakes didn’t necessarily bring to Licensario’s failure, but they are things that I feel I should’ve done better:

  • I should have worked less hours.
  • I should have slept more.
  • I should have said “no” much more.
  • I should have answered more questions on Quora, Tweet more, write more blogs and generally be a more social CEO.
  • I should have asked for help than going at it alone.
  • I should have started younger.

Even though I wish that this post will help entrepreneurs avoid these mistakes, I still believe that the only way to learn is by making mistakes. You have to get burned in order to know that there’s fire out there.

And me? I hope to make a whole new set of mistakes :).

I’d love to hear what mistakes you’ve done along the way in the comments.

Thanks for reading and feel free to share.

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47 Responses to “The mistakes that killed my startup”

  1. Tal Gurevich August 30, 2014 at 18:00 #

    Gil, this is awesome, thank you for sharing.
    “We had the false thinking that to do marketing we need a huge budget. It took us too much time to understand that we can do awesome things without spending a dime (other than the time of our engineers).” – can you provide a few examples?

  2. Sharel Omer August 30, 2014 at 23:11 #

    Thank you for sharing! It takes a lot of guts… so many insights to learn from.. Thanks!

  3. Sharel Omer August 30, 2014 at 23:12 #

    Thanks for sharing, it take a lot of guts. Lots of insights that we can all learn from. Thanks!

  4. Gil Blumenfeld August 31, 2014 at 10:57 #

    Gil, Great post ,
    Its funny that If i would write a post like this, actually it will be same.
    * personal disclaimer – i made more mistakes than you did :)

    I think that both of us read lists and tips like yours from other entrepreneurs, but it seems that just after your learn the lesson and “pay” the price you really understand the meaning of it .
    Looking forward to see your next venture.
    Gil Blumenfeld

    • gilsadis August 31, 2014 at 12:56 #

      No doubt, the best way to learn is by making mistakes.

      Thanks Gil!

  5. Rubinstein September 1, 2014 at 13:04 #

    Hi Gil,

    Thanks for sharing. I’d like to absorb as much info as I can from your post, What I should do is convert some of the points into actual milestones calendar for my startup along with a checklist.If that is possible…..

    Is making mistakes necessary to the process?

    Do you consult young startups?

    • gilsadis September 1, 2014 at 17:21 #

      I’ll be happy to help if I can. Feel free to email me at gilsadis [at] gmail [dot] com.

  6. Madhu Bajpai September 5, 2014 at 20:01 #

    Read this great article well in time. We are at initial stage of our product so its much more valuable to us!

    Thanks Gil! Appreciate sharing it!

    • gilsadis September 5, 2014 at 21:05 #

      Thanks Madhu. Good luck with your venture!

  7. Tiago Sarlo (@tfsarlo) September 5, 2014 at 20:40 #

    You were very precise in each point, and all these matters can be shared between startups around the world. Regardless of location, errors and experiences seem to repeat over and over again, that makes your article a valuable reading. I whish you a whole new set of mistakes and a path of great success and achievements.

    • gilsadis September 5, 2014 at 21:06 #

      Thanks Tiago! That’s very kind of you.

  8. Ryan Kulp (@ryanckulp) September 5, 2014 at 23:04 #

    First off, huge props for sharing this and humbling yourself. I enjoyed the read and took some notes.

    But from a high level, it seems like your fundamental mistake was not hiring a marketing person to push product, push features, push experiments, push niche messaging, etc.

    In general, a business guy would probably help prevent some of the mistakes you made as tech-first entrepreneurs.

    Good luck with your next endeavor!

    • gilsadis September 6, 2014 at 12:52 #

      Thanks Ryan.
      I think that this is the job of the founders. At the beginning, they should be the business people, the developers, the product managers, sales and sweeping the floors. But yes, I agree, we should have hired a marketing person.

      • Bronius September 18, 2014 at 09:28 #

        First of all, thanks for sharing Gil. To share mistakes always harder than share success. Great article and story!

        Regarding marketing person – at startup, the most important is motivation to boost the project. I doubt that at the beggining you can find a marketing person, who would have passion about your project. Plus, usually you can’t really afford hiring him.
        Totally agree with you Gil, that at the beggining, the founder should be “everyone”, because he has passion and believe in project. As soon as project start to roll out, then for sure, you should hire experts in their job.

      • gilsadis September 18, 2014 at 10:39 #

        Well said Bronius, founders should do initial sales and marketing.

  9. Niraj Om September 6, 2014 at 05:58 #

    Really enjoyed this article and learned so much. Thanks for sharing!

  10. Cosimo Ranieri September 6, 2014 at 13:41 #

    Thanks for sharing Gil. I agree with any of your points, having miserably failed with my first startup :).
    A thing I would emphasise is the importance of A/B testing, release a feature and measure it, see how users react to it is very useful to build a good product. I’m now working on a new startup project and A/B testing is making the difference.

    • gilsadis September 6, 2014 at 17:36 #

      I totally agree Cosimo. Good luck with your startup!

  11. Jean Friesewinkel September 6, 2014 at 14:56 #

    Thanks for sharing, Gil — super valuable!

    > “We didn’t split the equity equally between the founders.”

    Can you elaborate on this one? Why do you feel this was a mistake? What were the consequences?

    • gilsadis September 6, 2014 at 22:42 #

      A lot of times I hear founders say “this was my idea and that’s why I should get more equity than the other founders”. Not splitting the equity equally between founders is short-seeing your startup. Usually, the idea you begin with has nothing to do with the idea you end/succeed with. And usually startups take years to get to success. Assuming you want all the founders all along the way, equally committed, you have to split equity equally. Otherwise, it will make people grumpy and will come back to hunt you.
      It happened in Licensario to some extent.

      • Piotr Durlej (@pdurlej) September 18, 2014 at 21:33 #

        IMHO spliting equity equally also would not be optimal. What do you think about using this framework? https://www.andrew.cmu.edu/user/fd0n/35%20Founders'%20Pie%20Calculator.htm

      • gilsadis September 19, 2014 at 13:34 #

        It makes sense in a way and it really depends on the type of people the founders are. In my own experience, if equity is not splitted equally, in the long run, someone will get bitter. I guess there’s no right or wrong with this one (or any of the mistakes I’ve done). Just reading the surface and acting accordingly for the good of the company.

  12. Laurent September 7, 2014 at 05:10 #

    Thanks Gil for this really great post. You say you registered your company too early? At what time of the process did you register? and when do you think you should have registered? thanks. Laurent

    • gilsadis September 7, 2014 at 21:36 #

      We registered our company before we even had an MVP. We were under the assumption that if we’ll get incorporated, investors will look at us more seriously. Obviously, this was very naive. Early stage investors don’t care if you’re incorporated or not. They want to see a prototype/MVP and some traction. Of course that later on, if everything progresses in the right direction, you’ll have to incorporate.

      • Laurent September 8, 2014 at 14:35 #

        I have to confess I do not see so much the point. Registering just before having the MVP allows you to have a legal frame to hire or pay bills, receive payment from early users, which does not mean you cannot have a very lean approach and drastically control your costs. What is the down side? Important for me since i am about to register and just start working on the MVP…. Thanks.

      • gilsadis September 8, 2014 at 23:35 #

        If you can hire people, then yes, register. I’m referring to a completely different stage. We incorporated when we were 2 guys, working in a regular job in the days and working on our product at nights. We weren’t anywhere close to raising capital and hiring people. We personally paid the minimal bills we had to pay (you don’t have to be incorporated in order to pay bills).

        The down side of incorporating too soon is that it brings overhead and you don’t want any overhead that will deflect your focus from your product and customers. The argument I’m trying to make is don’t incorporate until you really have to. Hiring is a great reason why you should incorporate. Telling investors/friends/family that you have a real company isn’t. Make sure you’re incorporating because you have no other choice.
        Does that make sense?

  13. Ekay September 9, 2014 at 01:54 #

    Beautiful words of wisdom! I learnt a lot and the world can too from your honest advise. PLEASE outsource this content to an expert InfoGraphic maker and publish on SkillShare. The world needs to learn from this but also be ready for their OWN mistakes! Great advise. :)

    • gilsadis September 9, 2014 at 08:46 #

      Thanks for the kind words Ekay!

  14. algustionesa September 10, 2014 at 19:04 #

    Reblogged this on Kalamuna Lafdzun Mufidzun.

  15. Cristobal alonso September 12, 2014 at 21:20 #

    Great read and i am sure it was painful to write it at some point and think about all those times you could have done differently
    Having gone through bankruptcy once on a bob startup having had a series a round some of those mistakes sound very familiar others were different
    But still everyone that is , have or will be an entrepreneur should reflect reading this
    Thanks for taking the time

  16. Willson September 15, 2014 at 04:30 #

    Thank you for sharing this Gil – really informative insights that can help others (including myself) think more carefully!

  17. David Borrows September 21, 2014 at 07:37 #

    Gil, thank you so much for your article. It’s hard to write abut what went wrong. I am sorry to add to your pain, but may I offer another thing that you did not refer to? I just followed the link to your website, and I have to say, I was left bewildered. It’s full of jargon that only an engineer could love, and the features on offer in the various payment plans were, frankly, confusing.

    So what on earth is SAAS billing, and why do I need it? What about LTV, CAC, MRR, ARC? Why would I upgrade to the Advanced plan from the Basic, when the Basic plan offers Unlimited Deals and Projects, when the Advanced only offers 10 and 15 respectively?

    You may have known what you were talking about, but as a potential user with a small business who needed a billing service, I would have just walked away from this site after a few minutes of head scratching. Or maybe you were just trying to attract nuclear engineers? I can’t tell.

    Anyway, just another point of view.

    Best,

    David

    • gilsadis September 21, 2014 at 14:38 #

      Hi David, thanks for taking the time to write your comment. I must say I was left bewildered after reading your comment.

      First, Licensario has only one plan. You can check out our pricing page here: http://www.licensario.com/pricing/. So it’s pretty easy to understand what you get and how much it will cost you.

      Second, in Licensario we tried to target SaaS companies (and no other types of companies) and specifically developers inside these companies. Thus, our website is targeted towards developers in SaaS companies. If you didn’t understand the jargon, and you’re not working/owning a SaaS company, then we probably did something good :). For a long while our messaging was too broad (check our the mistake: “Our messaging was too broad”) and we fixed it.

      • David Borrows September 21, 2014 at 15:30 #

        Hi Gil,

        Thanks for the reply. I don’t know what happened with the website and pricing info, I just clicked on the link in your initial posting, and there were three pricing plans there. Anyway, just to put my mind at rest, please, what is a SAAS company? (Obviously, I am not in that business, I just want the education and to satisfy my curiosity).

        Thanks,

        David

      • gilsadis September 21, 2014 at 15:47 #

        There’s nothing like Wikipedia for these kind of things: http://en.wikipedia.org/wiki/Software_as_a_service :). Eventually it’s a software licensing model where the common pricing model is subscription and the software is centrally hosted (usually in the cloud).

  18. Dorcas December 22, 2014 at 01:20 #

    An outstanding share! I’ve just forwarded thnis onto a coworker wwho had been doing a
    little homework on this. And he actually ordered me lunch due to the fact that I
    discovered iit for him… lol. So let me reword this….
    Thanks for the meal!! But yeah, thanks for spending some time to talk about thos topic hewre on your site.

  19. MK April 10, 2015 at 13:29 #

    IMHO your only mistake was that you started the product which had no market. You can do everything perfectly after that, but without market you will fail.

    • gilsadis April 11, 2015 at 23:11 #

      MK, thanks for commenting. I disagree. Our product had a huge market. The problem was we were too focused on product development instead of market development. We should have focused on a niche market, take over that niche and expand from there.

  20. David March 8, 2016 at 14:53 #

    Completely agree with above startup mistakes.

    These are the most common startup mistakes which almost every startup founder is making. There are so many common startup mistakes but,

    1. Single Founder
    2. Launching too early
    3. Spending too much

    these 3 mistakes are very much common.

    If any startup has only a single founder then there would be more chances of getting failed because single person can’t be able to handle all the things.

    Having multiple founders help in finding different different solutions when we have any problem because different brains think differently and generate different ideas.

    Some people lauch their startups too early even when if they aren’t ready for it. So It is not good.

    And people also spend too much money after starting their startup in order to generate instant result which isn’t good. They must have to keep themself calm and should work hard.

    I am glad that you have listed all the major mistakes here. So Thanks for sharing it. :D

    • gilsadis March 9, 2016 at 06:09 #

      David, well said. I’m glad you find the post useful.

Trackbacks/Pingbacks

  1. The mistakes that killed my startup | GeekTime - August 31, 2014

    […] post was originally published on 21st Century […]

  2. Ellas² – Los errores que mataron a mi startup - September 22, 2014

    […] hemos inspirado en este post para escribir lo que acabas de leer y publicarlo originalmente en español en Ellas², […]

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