11 (un)obvious mistakes in managing a start-up. Part II

13 minutes
In the previous part of the article, we've described the first five mistakes that founders often make at various stages of building a start-up. These include developing products that do not respond to the needs of users or prove to be over-engineered; not verifying assumptions with the market; lack of skills in multithreading in management; lacking a bird's eye view and not demonstrating a high level of competence. Today, we present additional six slip-ups that occur in many start-up stories.

6. Inability to turn strategic goals into short-term goals

Creating a start-up business plan begins with developing a long-term strategy and financial model – that allows to verify whether the business can become profitable and whether it has a chance to grow. Plans for start-ups that we support in the venture-building model are formulated for at least 18 months ahead. However, such long-term goals and strategies must also be skilfully turned into monthly goals, as well as into the goals of individual teams and individuals. Start-ups occasionally find this challenging.

Another common problem is when teams work on issues that are urgent but not necessarily important and focus on getting things done, rather than on strategies and reaching strategic milestones.

To avoid such mistakes, it is good practice to define three strategic goals and regularly make sure that most of the activities and tasks performed by the team lead to their implementation, as well as monitor and review the progress of the long-term vision in monthly (at the minimum) cycles.

What is important is how we formulate our goals: they should be SMART, i.e., Specific, Measurable, Achievable, Relevant and Time-bound. Their achievement must be realistic in the context of the organisation’s capabilities, product features, market, and competitive environment – all at once. Sometimes founders lack the ability to assess what goals are achievable – they can be both too optimistic and overly conservative. It happens that they do not use the right methodology nor consider all available data in their analyses.

How does a venture builder help?

“We support teams in building long-term strategy models and planning roadmaps and their effective implementation. Among other things, we take part in planning sessions and jointly monitor the progress of the strategy’s implementation” says Arek Seńko, Managing Partner at Tar Heel Capital Pathfinder.

7. Planning without revising, incorrect prioritisation

Is having a good plan actually essential? Yes, but it is not enough. Equally important is the quick ability to revise plans based on the conclusions drawn during their implementation. This brings us to continuous learning and continuous planning – it’s a philosophy according to which we do not refrain from activities until we reach the state of perfect preparation. This approach favours acting in short cycles and constantly reflecting on our own experiences allowing us in turn to learn faster and more easily correct the direction in which we are heading. The goal therefore always remains the same, while the way of reaching it may change.

A common challenge for organisations (not only start-ups) is also the issue of proper prioritisation of tasks. The reasons may include competence limitations, a lack of ability to take a bird’s-eye view, a tendency to pay attention first to urgent matters instead of important ones, and a natural preference to deal with topics that are not challenging. While in already developed companies such sticking points do not necessarily lead to a disaster, for young and growing businesses these kinds of mistakes can prove fatal.

To avoid this, what we need to verify are the validity and progress of the strategy’s implementation (i.e., achieving the intended goals), and task-based priorities should be set in accordance with the established strategy. It is necessary to track not only the implementation of the budget and financial results, but also operational indicators, such as the number of new customers and sales leads, churn rate, etc.

How does a venture builder help?

Kamil Sabatowski, Interim CEO at Portfolio Companies notes: “From day one of our cooperation we recommend to our founders using our proven framework that makes it easier to translate strategic goals into operational goals. At the same time, we understand that each organisation has its own specificity and unique dynamics, which is why we treat this framework as a starting point and adapt it to the needs and challenges faced by a given team. We support the founders in regularly monitoring the company’s progress in enforcing the strategy, pointing out things that matter most.”

7. No experience in hiring and no talent magnets

See also  AI, AI, AI: what’s coming up in 2024

In recent years, recruitment processes have become increasingly challenging. For start-ups, however, this proves more difficult than for developed organisations. Employees attach more and more importance to the reputation of the future employer, as well as the size and stability of the company. So, when the hirer is a start-up that is just starting its adventure on the market and is not a household name and does not have a “serial founder” behind it, it finds attracting talented people very difficult.

It does not help that in the case of start-ups, a potential recruitment error can have serious and often even irreversible consequences. As a result, running recruitment processes requires not only a considerable time commitment, but also strong HR skills.

To make it easier to run recruitment processes successfully, it is worth taking care of the reputation and good atmosphere in the team from the get-go – the best ambassadors of the company are its employees – and invest time in networking. Contacts and employee referrals are often the most effective way to acquire new, trustworthy employees. 

How does a venture builder help?

“Experienced venture building organisations have been on the market for years and their recognisable brands help attract talent and speed up recruitment processes. Our founders also have access to the competences of the recruitment team providing support both in sourcing and selecting candidates, as well as in the coordination of administrative processes such as payroll. In some recruitment processes, the network of contacts we have in various industries also brings great value.” says Michał Wrzołek.

8. Money that you don’t run out of

Raising funds is one thing, but skilful financial management in the short and long term… it is a completely different (often more difficult) matter.

Many young founders, who present business and financial strategies, have trouble creating financial models, as can be seen, for example, in investor meetings. At the stage of running a business, similar difficulties appear in cashflow management: what companies find especially problematic are tasks such as estimating their runway (i.e., the time that will pass until the money runs out), effective management of available funds in order to maximise results before the next investment round and adopting the right strategy in the fundraising process. Succumbing to peer pressure and the magic of newspaper headlines, start-ups accumulate ever larger funding rounds and start to raise too much money in relation to their actual capital needs – resulting in giving away too many shares or underselling them.

See also  AI, AI, AI: what’s coming up in 2024

When preparing for receiving a round of financing, it is therefore necessary to have a reliable financial model and an expenditure plan that will make it possible to achieve your goals. Instead of going after the biggest rounds (ah, those headlines!), it is worth planning to raise the funds that the company actually needs. The size of the investment round does not prove the real value of the start-up.

What needs to be underlined is the fact that the capital raised is a commitment, and the plan presented to investors must be effectively implemented in terms of timing and budgeting. Keep in mind that there are many alternative ways to finance growth. It is also worth planning expenses and thinking about the development of the company in such a way as to maximise cashflow and available resources – as a result, it may turn out that the investment round is not needed after all. Bootstrapping has many fans for a reason, and considering the upcoming market correction, it may turn out that it is not only the healthiest, but also the safest approach.

How does a venture builder help?

“As a venture builder, we help in picking the optimal strategy that allows for systematic improvement of the value of the projects under development. We start every business by creating a financial model based on key business metrics. Our founders have at their disposal the competences of people with extensive experience in roles such as investment director, analyst, and financial controller. We teach effective reporting, but also effective cooperation with accounting. This makes everyone’s job easier and keeps us on the right track from the start.” says Michał Wrzołek.

Above all, however, we do not put pressure to raise funds, but we support in optimising the business using available resources. However, if there is a need to obtain new financing, we support founders in their search for capital.”, he adds.

10. Non-risk management

Sometimes the very sound of the word “risk” puts us on edge. However, if we have the right experience, not only is work with calculated risk not difficult at all but it also brings great value for business. Mapping risks and preparing scenarios of possible events and plans to leave risky situations should therefore be part of quarterly and yearly planning in every organisation.

The biggest threat in risk mapping is that… we might overlook some risk elements. Therefore, this exercise is particularly difficult for young managers, who, due to lack of experience, may find it more difficult to notice certain risks. When performing such an analysis, it is definitely worth using the support from “another pair of eyes”. The less business experience we have and the more aware we are of our own competence gaps in certain areas – for example, when our domain is scientific or purely technological – the more of the aforementioned “pairs of eyes” should watch over us.

How does a venture builder help?

Arek Seńko adds that “For many start-ups, risk management amounts to listing threats in a SWOT analysis. It is rare for founders to go a step further and prepare a plan to anticipate and mitigate these threats. As a venture builder, we know how important this is and we have experience in creating such plans. We should keep in mind that preparing well for the occurrence of risks often means that they simply do not become realised.”

11. Scaling (?), scaling (?), scaling (?)

See also  AI, AI, AI: what’s coming up in 2024

From conversations with start-up founders, it can be concluded that scaling can be a two-fold challenge. Its first dimension is objective and is related to choosing the right moment, building on a proper organisational structure, and selecting appropriate people to carry out the task. The second dimension is subjective, related to the personality, character, and the founder’s sense of comfort. It is natural – most of us have probably experienced at least once a situation in which the fear of making a mistake and the need to stay within the comfort zone made it difficult or sometimes impossible to make a decision. The most appropriate way to deal with these limitations is different for everyone.

The key to avoiding these challenges is to build all the competences within the company that are important when taking the business to the next levels. Having at our disposal an interdisciplinary team whose competences cover all important areas – primarily: product, marketing, sales, operations, finances, as well as those related to management in all areas – we can plan the development with peace of mind. At the very beginning, it is also worth considering sharing the duties related to building a start-up – the support of a good co-founder can significantly accelerate the journey to business success.

How does a venture builder help?

“Scaling is a series of difficult decisions regarding matters such as the pace of business development and recruitment. It is easier for an experienced venture builder to understand and advise at what rate the start-up should grow so that the value growth is consistent. Together with the founders, we zoom out and think about where the company is in the life cycle of the organisation or product. We analyse what needs to be done to take it to the next level, what competences the organisation lacks and where its bottlenecks are hidden.

However, the scaling process may be compared to a perpetual motion machine that is able to function smoothly regardless of unforeseen events. This, in turn, requires autonomy and self-organisation on the team’s end. As a venture builder, we support the development of such an organisational culture that focuses first and foremost on pro-activity and independence. The absence of these is one of the most common sticking points inhibiting the development of the organisation.” – says Kamil Sabatowski.

See also

11 (un)obvious mistakes in managing a startup. Part I