18 Ways to Kill a Startup: Bad Teams and Ideas, Arrogance, and More

3/28/14Follow @MichaelXBD

How can you screw your startup? Let us—and Jason Mendelson—count the ways.

Mendelson is a managing director of the Foundry Group, a venture capital firm based in Boulder, CO, and he knows startups. As a VC or mentor, he’s worked with hundreds, so he’s seen up close what works and what doesn’t.

Mendelson focused on the latter during a presentation Monday at the Boulder office of Techstars. He ran through a list of “18 Things That Can Blow Up Your Startup.”

“These are literally things that could screw up your company past the point of no return,” Mendelson said. “This is a list of mistakes that if you make them, you have a very, very, very good chance of not recovering.”

Here’s the list, with some choice quotes on a few of the points Mendelson stressed especially hard. Take note, because in his eyes most of these mistakes are not fixable later on and will permanently harm—or even doom—a startup.

1. You pick a bad team. The first item might seem obvious—no one tries to get the wrong people—but it’s still worth repeating.

“The first three or four people you hire will definitively set the course of your company,” Mendelson said.

He believes that when founders agree to work together or assemble their teams, they should focus on the people’s traits and personality over skills.

“You want to think culture first over competence—that is one thing you must always do,” he said. “If you have the wrong culture, you’re dead.”

Mendelson also cautioned against hiring talented people who can’t work with others or who disrupt the team dynamic.

“High-performing assholes are still assholes,” he said.

2. You pick a bad idea. There are a lot of startup ideas that won’t succeed because they’re “definitively bad ideas,” Mendelson said.

On the other hand, the idea could be a good one, but it has to be the right fit with you.

“If you’re not psychotically passionate…and emotionally connected like it’s the love of your life, it’s a bad idea for you, because you’re not going to have the intestinal fortitude to go on,” Mendelson said. “Don’t start for the money. Don’t start for the prestige. Start because you have to solve a problem or you can’t sleep at night.”

3. You pick bad advisors. Startups will need some professional advisors, like lawyers and accountants. But they’ll also find informal advisors, and that’s where things get tricky.

Mendelson recommended finding out potential advisors’ reputations. It not only helps you determine their credibility, but they’ll want to protect it, and that desire means they won’t mistreat you.

“Make sure that anyone you’re talking to has what I call a reputation constraint. Whoever you talk to should have some pain inflicted on them if they treat you poorly,” Mendelson said.

He also noted that if you agree to compensate an advisor, compensate them with equity.

4. You are arrogant. Arrogance is a huge turnoff, in all its forms.

“That can be intellectual arrogance, it can be emotional arrogance, or it can be the arrogance of Kanye West,” Mendelson said.

Arrogance blinds people, but it also is corrosive to relationships in the long run. That matters a lot to VCs, who can have relationships with companies that can last up to 10 years.

In addition, mentors and investors have been in the game a long time and amassed a great deal of knowledge about how things work. They want to share that to help startups they’ve invested time or money in succeed. If entrepreneurs aren’t willing to learn, it can be a deal breaker, Mendelson said.

“If I don’t think as a venture capitalist I can teach you, I have … Next Page »

Michael Davidson is the editor of Xconomy Boulder/Denver. He covers startups, venture capital, clean tech, energy, aerospace, telecoms, and whatever else happens above 5,280 feet. Contact him at mdavidson@xconomy.com. Follow @MichaelXBD

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  • KeepOnLearning

    Please add this into the mix!
    “You badly underestimate the time and money needed to fully develop your technology to market readiness.”

    Whether I was investing, consulting, or contracting, this is a constant error technologists make in assessing the readiness of their own darling technology or project.

    I mean no disrespect. But the most coldly logical techies can go a little soft in the head when appraising how much engineering and development are needed to make their baby sellable.

  • Jay

    I would like to know one simple fact, Is it a combination of all these points(if yes, then with what weighted percentage?) or, is it just any one these points that can lead to a startup go kaput?

  • http://www.valideval.com/ Adam Rentschler

    Re: point (3) on advisors: I don’t buy into this “… ‘a reputation constraint. Whoever you talk to should have some pain inflicted on them if they treat you poorly.’”

    Looking for sticks with which on can punish a bad actor is a waste of time. Once you’ve been screwed by an advisor / vendor / employee / co-founder retribution is a powerful instinct, but the mistake was one of character judgement on your part.

    Using reputation damage as a weapon risks a boomerang effect; no one but you understands all of the facts that support your side of the story and you should fully expect the asshole in question to distort the facts to support their side of the story.

    In short, it’s irrational to start a turd-throwing fight and expect to emerge without shit on you.

    Better to find advisors whose (positive) interests are aligned with yours and who share your passion.

  • David S. Jackson

    Great summary Michael – I think there is probably a correlation between number 4 (arrogance) and number 1 (high performing a-holes)!