Recently, I posted the infographic below on my LinkedIn profile . It generated thousands of shares and hundreds of comments, which proves there is an interested community who are actively seeking information on the topic. To follow-on on this, my next few posts will go into more detail why those 18 mistakes are so deadly for startups.

Mistake #1: Single Founder

As the Founder of the  Entrepreneurs’ Organization, Verne Harnish put it: “Do you really believe you can be better alone than with a group of talented people around you? If the answer is yes, then you are the problem!”

So let’s look at the reasons behind going it alone. If an entrepreneur is a single founder this tends to be down to two things. It is either a conscious decision, or the result of an inability to persuade cofounders to get on board with the project. Both cases are bad news. Now let’s go over the most common arguments I hear from entrepreneurs trying to justify why they are alone.

The Gollum

“This is my treasure. MY treasure.” Put slightly more eloquently, this translates as “I want to retain control because I came up with the idea in the first place,” or “I don’t want to be ousted in the future,” or “someone will steal my big idea,” and so forth. This is a legitimate concern, nevertheless, we should really be asking ourselves: What is the goal in launching a startup? The best way not to succeed is not to share: not sharing your idea, not sharing your goal, not sharing the project.

The CFO

“I cannot pay a competitive salary.” Be that as it may, is it really a reason not to work as a team? Which brings us back to sharing – again. When you start a business or jump in as an early collaborator in a startup, the only sure thing is that you will make less money than working in a big corporation. And that this will last for the unforeseen future – maybe even forever. So how can you attract talent to work with you? How about giving share equity and vision a thought?

The All-star

“I am qualified to start a business.” Good for you. You probably are – but can you really grow it alone? A good entrepreneurial team needs alignment of interests and values with collaborators, the capacity to implement – and the right contacts along the value chain of the industry it is competing in. On very rare occasions single individuals can hold all the technical capacities and commercial capacities to be successful in their hands. But if it is the case how long will it be before they burn-out?

We mustn’t fool ourselves with the fact that some entrepreneurs are now very important figures in the media. Steve Jobs needed Steve Wosniak and Mike Makula to start Apple ; and Larry Page and Sergey Brin needed Eric Schmidt to grow Google. And even Marc Zuckerberg didn’t go it alone in the beginning.

Let’s not forget those key factors successful entrepreneurs always highlight; you need somebody you trust to bounce ideas back and forth with, to suffer the ups and downs of the entrepreneurial journey with; and someone humble enough to accept you are not perfect and you do not know it all. One person alone can only experience limited learning in limited time.  For a startup what is crucial is the agility and speed to learn, pivot and implement. And alone, this takes so much more time.

Starting a company in Abdijan (a yearly destination of mine) is a far cry from doing so in Barcelona (my home city) or San Francisco. It sounds obvious…and it is!

I’ve identified four major reasons for this:

Talent

Talent is unevenly distributed geographically. There are clusters of entrepreneurship and innovation that are more attractive than others. Educational institutions and average salaries are strong incentives to attract talent.

Funding Availability

How strong is the entrepreneurial financing ecosystem in your area? One thing difficult to achieve is matching the sources of financing available in the marketplace with the needs of startups. You need a consecutive chain of “financing agents” that can assume the different risks related to the growth phases of new ventures.

Let’s take Spain, for example.: It is not that difficult to start a new company in Barcelona or Madrid.  As an entrepreneur you will find startup money thanks to FFF, subventions and Business Angel’s network (that will probably cover the initial risks of product development and early sales). However, when it comes to securing growth financing, you will face extreme difficulties. On one hand, there are very few VC’s dedicated to early growth, and on the other, not that many BA’s able to assume those kinds of amount of money / risk ratios. The growth financing equity gap is a massive obstacle for comprehensive entrepreneurial ecosystem building.

Even at a country level, this is striking:

Density

How big and how dense is the ecosystem? Quite simply put, you need a crowded market place to generate competition between entrepreneurs and financing vehicles. This generates the right level of innovation. If you want investors to assume a certain level of risk with innovative and disruptive projects (and not just focus on copy-cats), you need a minimum number of competing investors willing to invest in startups.

Regulations

The harder it is to register a company (see www.thegedi.org), the less innovative and entrepreneurial your ecosystem will be. According to the World Bank report, there are three key factors to take into account:

• How much does it cost (percentage of the average salary)?
• How many administrative steps does it take?
• And how much time does it take?

If you can register a company for one monetary unit in two clicks in five minutes you are in a better position than let’s say a country where you will have to invest six months of your average salary, hire a lawyer, meet the notary and sign 10 different papers (the real case in certain countries!).

In Spain, around 95.5 percent of tech is found in Madrid or Barcelona and the remainder dispersed around the rest of the country.

And throughout Europe, we find the same pattern (see TechCrunch).

Nevertheless, this shouldn’t deter you from starting a company from a remote location. Although you may have to move part of the functions to a more populated area, especially for business development and funding. Either that or spend your life in planes, trains, automobiles and the likes.

What is a niche product? It is a good or service with features that appeal to a particular market subgroup. A typical niche product can be easily distinguished from other products, and it will also be produced and sold for specialized uses within its corresponding niche market.

It sounds great…so why is that an issue for start-ups?

When asked about marginal niche, Paul Graham (Y Combinator co-founder) answers the following:

“Most of the groups that apply to Y Combinator suffer from a common problem: choosing a small, obscure niche in the hope of avoiding competition. If you watch little kids playing sports, you notice that below a certain age they’re afraid of the ball. When the ball comes near them their instinct is to avoid it. Choosing a marginal project is the startup equivalent of my eight-year old’s strategy for dealing with fly balls. If you make anything good, you’re going to have competitors, so you may as well face that. You can only avoid competition by avoiding good ideas.”

I agree 100%. The initial questions entrepreneurs should ask him or herself are NOT am I the first with this idea? Or am I alone with this idea? Or is my target market not too competitive?

The answer is NO in 99.9% of the cases: NO, you are not the first; NO,you are not the only one; NO, your market is not a HUGE opportunity that nobody had ever spotted before…

By the way, if you are really the only one with this idea… so what? Will the success of this project lie in the fact that you came up first with the idea? Answering YES to such a question only makes sense if you are an inventor.

Inventors come up with new products; entrepreneurs scale organizations building a value proposition around new products. Let’s not confuse ourselves.

When I analyze a new investment opportunity, I love when I see different groups of smart people coming to me with somewhat similar ideas and target markets; that mean that there is most probably an opportunity. I then have to choose wisely the right team…

On the contrary, the fact that nobody has come up yet with the idea of building a global marketplace to exchange shark tooth necklaces with a freemium model to monetize additional consulting on how to optimize/personalize your own collar (just hope it IS true… *) does not mean that this is a good business (hence investment) opportunity; there is business logic behind the fact that nobody has decided to build it: It is called a marginal niche…

A vision is most of the time shared by different groups of individuals at the same time.

In contrast, a hallucination is the result of eating too many psychedelic substances or… pursuing an idea that nobody shares (remember the Gollum entrepreneur we commented in the #1 serie.

The Entrepreneurial team that succeeds is NOT the one that comes first with the idea; it is the one that scales first; and the one that is able to face competition with a disruptive differentiation solving a somewhat similar need in the market.

* Preparing this blog, I looked up on the web shark tooth necklace; unbelievable what you can find on Etsy, Ebay, Amazon etc.; silver, gold… Here’s one that I quite liked.

When meeting with entrepreneurs and evaluating the market size for the opportunity they are pursuing, I often see the same mistake: a confusion of the accessible market with the potential market.  How many times have I come across this lie (as well as others….): “our market will give us $50,000 million in 2017 – look at the last report from McKinsey / Gartner / BCG… it’s a huge opportunity… if we can capture just 0.01% of the market… this venture is going to be so profitable”.

The mistake here is to fail to understand that the number one criterion that shapes the market size of a startup is the current resources available for growth.

Let me give you a very straightforward example:

• We launch a women’s shoes shop in Barcelona.
• We target women, between 25 and 49, able to spend a minimum of €80 on a pair of shoes once a year.
• Most business plans would use the following rational: 1 million women in the urban area of Barcelona; half of them are between 25 and 49; based on whatever market study; 60% is spending an average of €80 on a pair of shoes at least once a year.
• Conclusion: market size is 1M/2 = 500,000 – 500,000 x 60% = 300,000

The problem here is that the formula does not take into account the current resources of the venture.

Typically, you will start in a tiny shop, let’s say 45m² (15m² of stock, 5m² of shelves), which has 25m² available for the sales floor:

• How many customers can you hold in 25m²?
• How long will they stay?
• How many hours are we open a day?
• How many days a week?
• How many weeks a year?

These are the questions that an entrepreneur should ask… because the answers to those questions will shape the real market you can access.

In this case, industry standards and retails metrics can help us:

• How many customers can you hold in 25m²? 25
• How long will they stay? An average of 30 minutes
• How many hours are we open a day? 8
• How many days a week? 6
• How many weeks a year? 48
• 25 x 2 x 8 x 6 x 48= 172,800

Assuming that the shop is full all the time (from Monday 10am to Saturday 8pm), our maximum accessible market is 172,800 customers, not 300,000– it is just over half of it.

As an aside, this example is also applicable to online business. Products and services do not become viral instantly. The cost of customer / user acquisition and the marketing / sales budget attached to it will be a very important (if not the number one) driver of growth and market accessibilityin the early stage of the company.

If there is one trend that did change the shape of the entrepreneurial ecosystem these last few years it has been the lean start-up movement. The concept is straightforward: It’s the philosophy that you should validate your initial ideas (assumptions) with real-life data before you invest more time and money in your project.

The premise of the lean start-up is that there is a high probability that the first iteration or implementation of your idea will often be wrong – and that’s OK. As business plans fresh from the printer are ‘useless’, so there is no initial product / solution that can survive first interactions with its customers. The longer you delay the launch, the more you delay getting real answers from the market.

But this generates a follow-up question… I am often asked by entrepreneurs:  when should I launch? That is a very difficult question, because you have to answer it with another question: What is the risk you are facing if the solution you bring to market is not ready?

Drew Houston (CEO and founder of Dropbox) commented the following when asked this same question: “There is a spectrum of well-informed opinions about when to launch your product. At one end, Paul Graham tell entrepreneurs; “launch early and often” to accelerate learning. At the other end (respected software guru) Joel Spolsky says: Launch when your product doesn’t completely suck”.  In our case, we are managing peoples’ files, and it’s a big deal if you lose or ruin them. That meant working at Spolsky’s end of the spectrum and keeping our beta test small.

In other words, if you are working on a geo localized mobile dating app(what an innovation!); the risk is quite low…what’ the worst that can happen if you come across bugs and failures in the service? People won’t be happy with the app – so what? You simply apologize – it’s not as if you have done anything Illegal or dangerous. You now know the needs of your users better and you can work on improving your solution.

On the other hand, if you are building a private submarine, the risk is of course a lot higher if the product is not perfect…

So, when it comes to official launch, use the following checklist:

• Evaluate risks associated with not being able to deliver the minimum value you are promising
• What do you already know? What is it you still need to discover related to market and value proposition? Is that critical NOW?
• What are the features you can forego for initial launch? Are they critical?
• Will I really add value with this version of the Minimum Viable Product(MVP)? (see infographic)

But do not forget:

• Early adopters tend to be quite tolerant… do not overestimate the value of their feedback: your next challenge is crossing the chasm.

My next post will cover the challenges of building the right team at the right time to optimize the launch…

Fights Between Founders – founder conflict is very common. Founders, being ambitious people, are almost bound to disagree.

Paul Graham – Y Combinator

Building the founding team, survival and growth are undoubtedly the major challenges faced by entrepreneurs.

On one hand it seems quite clear that going solo is not the solution (see my blog post: Mistakes that kill start-ups – #1: single founder): as Carlota Pi (Holaluz.com co-founder) recently told me, “alone you go faster – together we go further”.

On the other hand, as my dear friend Jesus de Benito commented, “the best number to start a new firm should be odd…and 3 is a lot!” The truth is that issues and problems between founders are not hypothetical. No matter the output of the venture, IT WILL HAPPEN, IT ALWAYS HAPPENS! It is normal. The key to success is not to avoid the problem (the elephant in the room) but to be aware of the consequences of your decisions and anticipate them.

• How can you ensure the team covers all the bases in terms of skills, experience and knowledge?
• How can you make sure you have the right combination of interest and ambition?
• How can you cultivate the right networks along the value chain of your business, while at the same time building a long-lasting founding team?

In my experience, more than 80% of the fights between founders are related to just 3 issues.

1. First comes the dedication to the business (and its perception by other founders).
2. Second, the initial cap table and how the shareholding is divided.
3. And last but not least, how the strategic decision process is structured(or not).

The good news is these issues can be resolved with one single concept: anticipation. It’s much easier to fix problems before the company is started than after. Draw up the partnership agreement ASAP – you need to decide on DAY ONE on the decision criteria to be used when conflicts arrive (and they will) and STICK TO IT:

Easy things that you can do to prevent most of the conflicts:

• Shareholding in the company is a very sensitive issue as it determines the present reward (for start-ups with dividend-generating revenue models) and/or potential future financial rewards (for most start-ups). In order to avoid conflict related to founder dedication levels and related shareholding, make sure there is a deadline for full dedication by all founders; if one of the founders does not make the final jump, the other founders should be able to buy back the shares at the original issuing price.
• We know that the initial phases of a start-up are chaotic and founders work and collaborate on almost every single decision, but in order to avoid conflicts in the strategic decision making process, you should, as a team, clearly define what decisions you believe should be made by the CEO, the CTO, etc.… You may not need a CEO at the start, but you’ll definitely need one to grow!

Do not forget that in the end, most conflicts are not caused by circumstance but by people. Of course you need to find co-founders with the skills that you do not have, but first make sure you share values and goals. This will help resolve conflict peacefully and give you the time and energy to focus on what really matters – the growth of your venture.

Recently I had the chance to moderate a panel of entrepreneurs in the Sports Industry Conference we organize every year in IESE in the framework of the Tennis Barcelona Open. I know the 2 founders (Luca Carlucci founded www.bidaway.com ; Francis Casado founded www.3ddigitalvenue.com) for years now and I really feel they are on the right track experiencing nice growth with their “last” business model…

What do I mean by last Business Model? I mean that when I met them for the first time a few years ago and they pitched me their ideas…well it was quite different from what they are doing now…and this is why they are successful.

Flexibility and adaptability are 2 of the most necessary skills you need to be successful at leading a start-up for the 5 following reasons:

1. “No plan survives the interaction with customers/users” – Steve Blank.
2. While iterating on your product and service; you will discover needs you did not anticipate.
3. You do not know your market till you try to sell…
4. Often ideas are thought to be developed for the B2C market when B2B is the natural fit; not to mention that this is the only way to generate recurrent revenues early in the launching process.
5. Assumptions and hypothesis are the biggest enemies of the entrepreneurs.

Let me be more specific, in line with Tom Eisenmann: the risks you are facing when driven by obstinacy are mortal to your venture, you may:

1. Fail to recruit a great team because you don’t recognize your own shortcomings or you are unwilling to delegate.
2. Fail to pivot because, in some cases, an overconfident entrepreneur simply cannot comprehend that customers might be rejecting their product.
3. Scale prematurely due to an impatient drive to see your vision become a reality.
4. Stay in stealth mode too long feeling no need to secure early market feedback.
5. Provoke cofounder disputes by battling ceaselessly for dominance and control of the venture’s direction.
6. And last but not least; fail to secure financing from VC’s for your lack of constructive leadership.

How can you deal with it?

Listen to others, be open-minded, control yourself; be aware of your strengths and weaknesses. In brief: ask yourself the right questions: how coachable are you as an entrepreneur? Do you really think that the initial vision is THE only way? That users and customers cannot bring value to your value proposition?

And finally… how do you know you are on the right track?

In words of Y Combinator Paul Graham founder: “Openness to new ideas has to be tuned just right. Switching to a new idea every week will be equally fatal. Is there some kind of external test you can use? One is to ask whether the ideas represent some kind of progression. If in each new idea you’re able to re-use most of what you built for the previous ones, then you’re probably in a process that converges. Whereas if you keep restarting from scratch, that’s a bad sign”.

Go. Talk to your customers and listen to their needs. They’ll show you the way.