Top 10 Mistakes By Entrepreneurs

2/4/08Follow @stevewoit

What are the top 10 mistakes made by entrepreneurs in starting and growing companies?

On January 24, I had the pleasure of serving on a panel organized by the Brown Forum for Enterprise that took on that tantalizing topic. The eight-person panel, held at Johnson and Wales University’s Culinary Museum in Providence, included three serial entrepreneurs, two investors, two lawyers, and a partner in an audit firm. To get to the answer, we voted, argued, swapped war stories, argued some more, and then voted again.

Here’s how it went down. Based on our experience with technology and life sciences companies, each of us was asked in advance to share our favorite candidates for the entrepreneurial miscue list. In a conference call we discussed the nominees, combined a few of the mistakes into one entry, then boiled things down to a single list of 10 mistakes (with no particular ranking) to present at the panel.

As an audience of roughly 80 people looked on, Christopher Graham, co-partner in charge at Edwards Angell Palmer and Dodge, moderated and asked us all to vote on each proposed mistake that was submitted. We voted 1 to 10 in ranked order (with 1 being our choice for the biggest or most important mistake). Then we proceeded to defend our positions vociferously, hashing out the final list in an invigorating intellectual scrum that included the aforementioned war-story swapping—dredging up personal experiences that were as painful as they were instructive—to buttress our arguments. As this was happening, panelists were asked to hold up green cards to show support for an idea and red cards to oppose it. While the cards did not affect the rank vote, they did add some interactivity and point-counterpoint dimension to the process.

In the end, the final 10 were ranked based on the scores that they garnered, with No. 1 being the item on the list with the lowest overall score and No. 10 the item with the highest tally, meaning it was the least important mistake on the list.

Here is the list of scrummates; I thank my fellow panelists for a rousing good time:

Rick Andrews, President and CEO, Thrasos Therapeutics
Rich Horan, Senior Managing Director, Slater Technology Fund
Jon Lourie, Partner, Edwards Angell Palmer and Dodge
Andre Marquis, CEO, Amplyx Pharmaceuticals
Edward Sullivan, Jr., Venture Partner in Charge, KPMG New England
Thayer Swartwood, Principal, ABS Ventures
Robert Valentini, President and CEO, Myomics, Inc.
Steve Woit, Publisher, Xconomy

And here’s our final list of the most serious mistakes made by entrepreneurs in starting and growing companies. What do you think?

1. Under-valuing the importance of your management team (i.e., staffing with friends or neighbors; delaying personnel decisions; devoting too much time to your technology or your product and too little to developing your team).

2. Attempting to build your business around rocket science (zealously pursuing your technology but overlooking the business opportunity; failing to address how the technology solves a real problem in a cost-effective manner; failing to focus on the needs of potential customers; failing to achieve balance between your technology’s primary function and advancing the broader value proposition of your business).

3. Assembling the wrong ownership group (choosing among potential investors based on highest bid; failing to understand investor needs in advance; choosing investors whose styles are dysfunctional or who do not bring added value).

4. Over-valuing the business at critical junctures (over-valuing when fundraising or selling; As a corollary, we noted that another related mistake was not fully evaluating term sheet provisions that affect the valuation).

5. Failing to communicate with important constituencies (over-promising and under-delivering; overlooking or not addressing the evolving needs of your investors, of those who regulate your technology, or of your customers, of the rest of your team).

6. Failing to tap knowledgeable advice (not seeking tax advice, accounting advice, or IP advice at the appropriate time; failing to properly utilize the Board; listening to the wrong people; selecting an entity structure not well-suited for the business or an unnecessarily complicated capital structure).

7. Fear of dilution or loss of control (raising too little capital; investing too many personal assets in the business).

8. Spending too much for too little (spending too much of what little you have on items that provide too little benefit).

9. Partnering too early (losing control of a business opportunity or your brand to a customer or strategic partner).

10. Failing to understand the changing roles of founders (recognizing the appropriate time to transition).

Steve Woit is the Founding Publisher of Xconomy, a Yale graduate (Y 1980), and a mentor for the Yale Entrepreneurial Institute. Follow @stevewoit

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  • http://www.julespieri.com Jules Pieri

    Great post Steve. I wish that somehow taking this list in through my eyeballs would be the equivalent to the injection of a vaccine…that simply knowing these mistakes would prevent me from making them. Well, if the list keeps a few of us from making just one of those mistakes, your post will have done its duty.

  • http://ITMediaBuy.com Jeff Fox

    The piece on “Top 10 Mistakes By Entrepreneurs” provides concise, empirical, and actionable information. Excellent findings and thanks for sharing Steve.

  • http://www.onstott.com Neil Greco

    Interseting stuff. As I read through the listing, many of the points relate back to #1 – if you don’t have the proper people driving the business – even early on – you fall prey to many of the mistakes further down on the list. The hard part is getting #1 right the first time. Investing time and energy in your management team can return immediate economic value to your business. Especially critical as we look to find monetary value in so many tech areas – for example new media and social networking.

  • http://www.greenharborfinancial.com Christopher McIntyre

    Thanks for the list, Steve. I’m going to put it w/ my business plan. Avoiding these (and other) pitfalls is one of the things that make being an entrepreneur exciting!

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