5 Common Startup Mistakes That Will Sink You Later

A friend of mine recently missed out on raising venture money because of a mistake he made in the early days of forming his business. He is far from alone: It reminded me of the common mistakes I see founders make at the start that hinder their ability to grow or sell down the road. Every day, entrepreneurs who are too focused on the big idea or on near-term needs neglect what it takes to sustain long-term success. In prioritizing the short term, they unwittingly sabotage their futures.

Here are the five most common mistakes:

1. Allowing Minority Owners

When times are tight, it’s tempting to allow someone to buy a small percentage of your company to get you through. But when it comes time to change direction or bring in a new investor, what you thought of as a tiny sliver can cause big problems.

I have seen three separate occasions where a “minority owner,” someone with less than 5 percent of the company, gummed up the works and unnecessarily delayed a deal. The costs incurred by the delay, legal fees, and general haranguing weren’t worth the dollars they originally brought to the table.

2. Going It Alone

Here’s the flip side–you don’t want to fly solo, either. Bringing in a partner (or two) who supplements your blind spots and weaknesses can be the difference in determining success or failure. If you insist on “going it alone,” you should at least have access to a support system of trusted mentors and advisers who are willing to help you look at your business objectively and navigate through unexpected events–because they will arise, believe me.

3. Ignoring Misaligned Goals

OK, so I just said that a partner can be great for helping you to focus and rounding out your weaknesses. But make sure you talk with your partner at the beginning about what they hope to get out of the business at the end.

Just like in marriage, many business relationships end when the partners realize that their goals are not aligned. This can be avoided by having that all-important conversation earlier than later.

4. Disregarding Formalities

Many founders create their businesses and their early customer relationships based on a handshake or a verbal agreement. The expense of formalizing an operating agreement, drawing up a buy/sell, or creating a customer contract may feel grandiose or unnecessary. Do it anyway. These initial organizational documents are more about what happens at the end or if things go wrong. They may end up the only way to bring a disagreement to a conclusion, and can be the difference in getting paid by a customer or not.

5.  Ignoring Systems and Processes

From day one, you should put systems and processes in place that allow your business to grow effectively beyond you and the original founders. It’ s far easier to think this way from the beginning than to try to put processes in place later.

When I started one of my companies, I insisted that we create control codes for our projects. While it seemed silly at the beginning for three of us to refer to a project by a control code instead of by the client name, this early convention saved us much heartache later, when we were 30 people running 25 projects with five or six of those projects being for the same client.