Top 6 boneheaded misconceptions of first time entrepreneurs
I’ve had some pretty boneheaded ideas since I started grubhub.com. As I’ve shepherded my idea to a hobby and then to a real business I’ve had the fortune of being able to recognize some of those mistakes. Actually, I’ve had the fortune of being surrounded by folks who can point out misconceptions and who have been upfront with me. This process of learning from bumbling mistakes investors like to call seasoning.
I have noticed that some of these ideas have come up repeatedly. Many of the other entrepreneurs and would-be CEOs I’ve met have struggled with these same ideas.
1. I have no competition
When I first thought about competition, I had a mental image of a rival gladiator. Somebody out to get me. This foe will stop at nothing to steal customers that should rightly be mine. They will woo investors with false tales of better products and superior talent. Jerks.
Back in reality, I couldn’t think of any individual companies that fit this description. Sure there were a few others out there, but the pool of customers we were selling to was large enough that it didn’t seem like we had any friction.
This is entirely the wrong view of competition. Superficial competition is “the other companies that do something similar to me.” Real competition is “the companies that earn dollars from customers that they might spend on our product.”
2. I’m going to succeed because I’m smarter than my competition
So now that I have identified my competition…how am I going to get clients to give me their cash instead of those other blockheads. Because I am smarter!
Wrong. Entrepreneurs are like drivers, every single one of them thinks they are better than average. The meat of most businesses doesn’t take huge mental power. Usually things like vision, organization, patience, discipline and humility are the factors that drive success.
I’d put my bets on folks who pursue the question “What are we best in the world at?”. In Good to Great author Jim Collins points this out as one of the critical factors for competitive defensibility.
3. My time is free.
I started my business as a web developer. So, I was able to write the website without hiring any help. Eventually I started selling, and keeping books and invoicing, being a lawyer and breaking kneecaps for collections (I live in Chicago, that’s how we do things.) I was probably putting in about 90 hours a week. Whenever something else needed doing, I’d just work harder and longer. No cost!
The cost isn’t in dollars, it is in opportunity. The essential question is “If I do X, what other thing Y will I not be able to do?” This leads very quickly to listing and prioritizing. One can’t determine the most important opportunity unless they can identify the non important tasks comprehensively. A list and prioritization of the top 10 todo items is extremely hard because it requires 9 hard choices.
Because it is so hard to get a comprehensive prioritization of tasks in a startup company, I usually ask a few short cut questions. If my time cost me $500 per hour, would I be doing this task? Can I get that hour back in profit?
4. Keep it secret, keep it safe
There is a pervasive fear in the entrepreneur’s mind that their concept is about to be stolen. This is especially in the idea stage, but it can be present in relatively mature growth stage companies. If the concept is good and the management team is worth its salt, relying on competitive differentiation is a much more stable policy than secrecy.
Furthermore, Ideas get better when they are exposed to scrutiny; especially if it comes from potential customers. They may not know what they want, but they will recognize it when they see it. So, it takes an excessive amount of trial and error to get products just right. That can’t be done in an air of secrecy.
In the rare case where an idea would be ruined by exposure, I’d sprint for the nearest exit. What are the odds that an inexperienced (or a veteran) entrepreneur is going to get the marketing, execution, sales and finance right for rapid adoption necessary once the cat is out of the bag?
5. Time is running out
It’s the wild west, and we gotta win the land grab! I’d like to say that I’ve conquered this fallacy, but it comes up repeatedly. Every time that a new opportunity is discussed, this need for speed subtly worms into the conversation. The premise is that once you get a customer you’ll keep them.
But the premise is false. Customer loyalty isn’t earned by speed, but by quality. First doesn’t win. Best wins. Companies that are able to create superior products that are tailored to their customers needs are more successful. They are built to grow for the long term instead of being a flash in the pan.
6. We just figured out the silver bullet
It seems like there are a lot of hot internet startups that went from zero to hero overnight. The superficial appearance is that they were plugging along in the basement for 6 months, and then figured out how to make their product explode and bam, they cornered the market, sold the company, and retired.
In recent years, these explosions have come about from viral awareness. A person tells five friends and then they tell five friends, etc. Add some fancy words in there like “tipping point” and “critical mass” and “influencers” and suddenly it seems more like sociological science instead of voodoo magic.
I often field the question, “How are you going to make this viral” I have a hard time answering the question nowadays because I don’t agree with the premise that viral is something worth chasing. Einstein didn’t say “The most powerful force in the universe is viral marketing.” Einstein said “The most powerful force in the universe is compound interest”
Figure out a business, any business, that grows profit annually at some acceptable percentage. Risk and reward come into play in determining that percentage. In the long run, compounding growth always has higher returns than a single step change.