Eleven Easiest Ways to Screw Up Your Startup

It is the dark season of the year again and I've had perhaps a bit too much exposure from startups lately. As a result I've composed a list of my favorite ways to screw up your startup. I'm not saying making a few of these mistakes is fatal. These are just my own observations.

This post was partly inspired by Paul Graham's great article "How to Get Startups Ideas". Some were inspired by the recent startup event, Slush, which I followed through their web stream.

Use Clichés at Your Pitches

As you might well know, startup people have to pitch a lot. Pitching is one of those skills you really must have. Even if you had the greatest idea and implementation in the world it doesn't help that much if you fail at presenting it.

There are a few basic clichés or basic mistakes I've noticed. Here are a few:

• Start with a question
• Do not describe what the product actually does
• Try to get your listeners "imagine" something
• Mention that your team or advisory board members have N years of collective experience
• Blab around for too long. Nobody, including me, likes long pitches. Keep it short and straight to the point. My ears thank you.

I'm sure there are many more. These are just a few from the top of my mind.

Do Not Demo Your Product While Pitching or Presenting

Nobody really cares what your product might look like in five years or how you are going to change the world. One of the most important things you can do is actually to show your product and how it works. It doesn't have to be perfect! If you can do this, you have managed to achieve more than the most.

Ignore Financials

Not all great ideas are ideas that make sense financially. In fact you can start out with a boring idea and make some money out of that. There are lots of proven business models out there, why not to use one? Finding a new, novel one is way more difficult.

One of the basic mistakes you can make is to forget all about things like financial projects and profit and loss statements. You have to understand how the money flows when the business works. This gives you concrete goals you will need to reach in order to make it work. Or perhaps it will open up your eyes and make it possible for you to try something else instead before you are too committed to the idea.

Forget Customers, Focus on Users

You cannot expect to develop a great product with a big user base and then somehow figure out how to make money out of that. Sorry, it just doesn't work that way. Instead you are better off making money straight from the start.

This proves your product provides some tangible value to someone. Now that you have proved it is useful on some very specific vertical, you can scale it. Remember, you cannot scale a zero. It will still remain as such.

Do Not Talk with Customers

Ignore customer development at your peril. There are ideas and then there are proven ideas. Can you convert the person you are talking with into an actual customer? Remember, customers pay with money.

Unless you are building something for yourself, all you have in your head are guesses. You need to convert these guesses into a series of facts upon which to build your business model upon. It does not hurt to know well how your customers operates in normal life. You have to be intimately familiar with his pains. You, as an entrepreneur, are the one that can help to alleviate those.

Do Not Build an Awesome Team

Sure, one man can do a lot. But a team definitely helps! There are only so many hours in a day. Can you expect to handle all aspects of the business yourself? If so, ignore this point.

Build a Facebook for Cats

Wouldn't it be cool if there was like this service a bit like Facebook but for... wait for it... cats! There are like this many cat owners out there that would surely use this service to share meowy status updates.

It simply does not work this way. You can try to be yet another "me too" if you want. Or better yet, be an amalgam of a several services at once. Nothing better than that, right?

As Paul Graham states in his article, this is a fallacy. Even though it might feel like a good idea at first, in reality people, or their cats, can be active at only so many services at once. They might say that they could be potentially interested in that sort of thing but in reality they'll likely pass as they have better things to do than to use your service with two users (you and that creepy aunt of yours).

Do Not Know Your Numbers

I actually did this mistake in the previous point. It really helps to know your numbers. Numbers are real, they are valuable. They allow you to do calculations. I guess you don't have to be a genius to know that.

Numbers are the fodder you can use to make your estimates better. They allow you to get a better grasp of the market and figure out its size. This is highly useful information for building up those financials.

Treat It Casually

If you really want to make your startup a success, you have to work hard for it. Sure, there might be exceptions to this rule. I'm just saying it doesn't come easy to us normal people. You have to be prepared to do the legwork and speak with the people. Numbers have to be crunched even though that isn't particularly fun always. There are an endless list of things to do.

This is why you have to work smart and be lean. Your primary goal should be to minimize risks involved in your business model. Do your best at that to have a chance.

There is another side to this, though. If you treat it too seriously, you might end up inflicting some serious damage on yourself. Remember to rest and exercise enough to avoid fatigue. Sometimes taking a week or two off, even though it might feel like a tough thing to do, is the best thing you can do to rejuvenate yourself.

Be Always Late

In case you want to piss off your associates, be late, always. To make this more powerful, come up with lame excuses. This might feel like a small thing, especially in academic circles. In real life this is one of those things that separates losers from winners.

Promise But Don't Deliver

This is another favorite pet peeve of mine. Make promises to your associates and fail to keep them. Nothing eats your credibility better than this. And it is hard to regain it once you have lost it. If you make a commitment, stick to it. That's what commitments are for.

Conclusion

I'm sure there are many more ways to screw up your startup. In a way some of these apply beyond startups. In case I managed to miss some important one, let me know in the comments section.

Visits at New Factory and Startup Sauna

The last two days were quite hectic. On Wednesday I had the privilege to visit Tampere's New Factory (my second time) while I spent Thursday at Startup Sauna premises. I visited both of these places earlier this year already. At Tampere I participated in Devaamo Summit while at Helsinki I participated on DjangoCon.

Overall it seems like Finland is in a transition period. Big firms no longer employ people as they did earlier. Instead they keep on downsizing their operations. This means it is up to small and medium enterprises to step up. The government has kind of woken up to the situation already. There are still some impediments. For instance it can be extremely expensive to hire workforce, especially for a small company. I truly hope they'll change the system more friendly towards small enterprises.

Initiatives such as Startup Sauna are needed to revitalize our economy. On national level facilities such as New Factory are extremely valuable and work in tandem with Startup Sauna that has its sights on international success.

Startup Sauna and New Factory

Startup Sauna, located at Helsinki, is one of the most interesting movements in Finland at the moment. They aim to make it the Silicon Valley of Northern Europe by the 2020's. By the looks of it this is definitely within reach. The facilities there are top notch and it seems these guys are really serious about it. As you might know Finns can be a bit slow people at times. When they get their mind on something, they do tend to get results. It would not surprise me if they managed to reach this goal.

In fact a certain Medvedev guy from Russia visited the place on Wednesday to see how things are done around here. Apparently they're planning on developing something similar near Moscow in the near future. Developments such as these are good for the economy of both countries. The geographical location of Helsinki makes it ideal for startups planning to take over the often overlooked Eastern market.

On conceptual level Tampere's New Factory is quite similar. The facilities are obviously less grandiose but there was still a lot going on in there. It is no wonder they have already managed to groom a few major successes Framery and Ovelin included. Both cases were showcased through presentations that discussed their path to success, challenges and future plans.

Framery and Ovelin

Framery is one of those recent companies that have really made it. They produce phone booths. That might sound like a bit weird. Who needs those anymore? Apparently there is a huge demand for acoustically sound booths at office environment. Companies are willing to purchase these to make offices more pleasant places to work at. Currently they are developing new modular products to improve their product range.

Ovelin, known for wildly successful WildChords, is one of those companies that has sometimes been compared to Rovio. They focus on making it easier to learn to play an instrument. There is a huge market potential for something like this. They will release something quite interesting next week at Slush. If you are into playing music, you just might want to keep an eye on that.

Especially Christoph Thür of Ovelin made some great points about entrepreneurship in Finland. They struggled in finding financing from Finland and ended up getting some abroad. It seems Finnish VC's are uncomfortable investing outside their comfort zone. As success stories keep on happening I think Finnish VC's might begin look more favorably towards technology based startups.

There were also interesting points about building something you would want to use. That's one way to validate the usefulness of your product. It is a lot more difficult to build something for another market. You need to know your customer well in order to get anywhere. Chris also highlighted the importance of validation. You had better build your business on a solid ground rather than some loose guesses that might or might not be true.

Mars One

Wouldn't it be fun if Big Brother, the famous television format, moved into Mars? At least Bas Lansdorp of Mars One seems to think so. Mars One intends to put four persons on Mars at 2023. It's going to be a one-way trip. They'll need to raise around 6 billion dollars to make this happen. Rather than developing all the technology needed by themselves they'll use various specialized manufacturers.

They will start looking for the final four during next year. After the initial launch they'll expand the colony by four persons every two years to keep it growing. It is very difficult to estimate the business potential of something like this. The whole thing could be just an elaborate hoax. Even if it was not one, there are still many risks that might cause it to fail before getting out of ground.

It is kind of a shame that national space programs are quite weak these days at least compared to what they used to be. We have the technology but we're missing the political will to make things happen. No matter who gets to Mars first, it is still going to be a massive boost to the world economy. Successful inhabitation of Mars would be huge thing for the mankind and open room for further developments.

Conclusion

It is nice to see that despite the weak economy there are some good signs around. I hope Finland manages to transform into a true startup society. For a long time entrepreneurship has been an overlooked subject around here. I understand the cultural change will take a long time. At least the younger generations seem pretty set on making it happen.

If CLV > CAC then business else hobby

Customer Lifetime Value (CLV) and Customer Acquisition Cost (CAC) are two perhaps the most important figures you must know about your business. Using these figures you can understand your business and its profitability better. Let me give you a couple examples how these could work out in practice.

CLV and CAC of a restaurant

Consider a restaurant. It might or might not cost them to acquire a customer. They'll usually have ads around (cost) to get people into their place. If they do not manage to retain the customers and make them regulars, their CLV is likely somewhat low. Instead they'll need to keep on attracting new customers to keep the business running.

Keeping this in mind it is not surprising that many restaurants apply various loyalty schemes. You might get tenth pizza for free. Or they might reward you otherwise. Sometimes it is something less obvious. Just having great food and service could be the thing that separates the restaurant from the rest. I remember one particular place that albeit costly had the best burgers in the whole city. Even though crowded it still was worth the wait.

CLV and CAC of an app

Things get somewhat different in the realm of immaterial. Consider iPhone apps for instance. I can identify at least several models. Some use a freemium model. The basic app itself is free. Addons cost. In this case CAC is somewhat minimal, especially if the app goes viral. The challenge lies in CLV. How do you bump that up? Usually this is achieved using either an advertisement based scheme or by supporting in-app purchases.

Sometimes apps have some fixed price that ranges from a few dollars to tens, even hundreds in special cases. At times there might be special sales to increase acquisition while sacrificing a bit of margin in hopes of longer term gains.

Those expensive apps are an interesting case. How do they justify their value? Usually they are designed for really specific purposes and a specific market. Sometimes they complement some other product.

CLV and CAC of Facebook

I have to admit I'm not the greatest fan of Facebook and rarely even use the service. I don't even have an account there (trendy, eh?). These days their CAC is pretty close to zero. Almost everyone uses the service because their peers use it. Nothing works better than some social pressure. Initially they kept the whole service exclusive and made it desirable that way.

I think challenge of Facebook lies in CLV. How do they convert their users into actual paying customers? In my mind Facebook is a bit like Google. They have a dual-sided market. The users make the service valuable for another market, advertisers. This doesn't mean they couldn't extract some profit directly from their users, though. In fact it seems they are currently in process of figuring out ways to do this.

Conclusion

I hope the brief examples above gave you some idea how CLV and CAC work out in practice. I didn't get into actual numbers, you can crunch them out yourself. Depending on your product the calculations can get quite complex. It's valuable to have some approximation of these numbers. By knowing them you'll have a better idea of how to optimize your business. Either increase CLV, decrease CAC or do both.

If this sounded interesting, you should check out what Steve Blank has said on the subject. Especially the funnel model is powerful in understanding how to groom your customers.