The top 10 startup mistakes || Albrecht von Breitenbuch (Orrick)


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Albrecht von Breitenbuch (Orrick): The top 10 startup mistakes

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The top 10 startup mistakes || Albrecht von Breitenbuch (Orrick)

  1. 1. Learnings from Top 10Start-up MistakesWorkshop at Start-up Camp Berlin 2011Dr. Albrecht von Breitenbuch March 19, 2011
  2. 2. Intro: The current Start-up Climate• Is this the best of times to be a start-up? – There is never a better time than doing the right thing at the right time. – Talent, space, services and resources are plentiful, accessible and affordable.• Start-ups today can not afford to make mistakes – can not assume that funding will occur at a certain point in time. – need a plan to survive early stage. – must determine early whether strategy will work or pursue another direction. 2
  3. 3. 1. THINGS TAKE LONGER THAN YOU EXPECT; PRESERVE RUNWAY • This should drive your fundraising goal: – Allow you to reach a major milestone. – Will the market allow you to reach the milestone? – If it is uncertain, plan for >18 months of runway • Given the chance take the money – it always takes longer than you planned and if you have an option take more. 3
  4. 4. 2. TECH GETS YOU IN THE GAME, BUT TEAMS WIN; RECRUITING/TEAM BUILDING JOB IS JOB #1 • Complete team with team players and leadership at all levels. • Judge the person first, the resume second. Hire “athletes”; individuals that know their “sport”. • “Slow to hire, quick to fire” – If you can’t find the right person – wait. – If a person does not fit – don’t wait. • Being the founder is not guaranteed employment. – The company’s success is the first priority, not the founder’s financial success or involvement. Founders must acknowledge that at some point there will be: • Dilution of shareholding • Change in role and title – Too much ego leads to: • Reluctance to admit one’s mistakes and ask for help • Disenchantment of the team 4
  5. 5. 3. MEASURE TO BE IN CONTROL; ESTABLISH A SMALL NUMBER OF KEY METRIC AND TRACK • Do not be completely “fixated” on your burn-rate and revenues. • Have each department head give you five top metrics “so I know your department is running well”. • Most important and forgotten metric: – The point which the lifetime value of customer exceeds the cost of customer acquisition – you have a business. • It’s never too early to be thinking about getting to cash flow breakeven – you’re not a business until you can support yourself. 5
  6. 6. 4. IMPORTANCE OF TEAM/PRODUCT/MARKET FIT • Start-ups show an incredibly wide divergence of success: – some are insanely successful, some highly successful, many somewhat successful, and quite a few of course outright fail. • Start-ups show an incredibly wide divergence of caliber and quality for the three core elements of each startup: – team, product, and market. • Taken together suggests that highly successfull start-ups achieve a close to optimal fit among these three core elements of team, product and market. 6
  7. 7. 5. CHOOSING YOUR INVESTORS • Some suggestions: – you CAN choose – it’s not just a matter of who offers a term sheet first or who offers the best valuation. – it’s a marriage – be very careful because these investment partners will outlast you in the deal. – get references – if at all possible interview founders who have been through tough times with these specific individuals – not just the partnership. – understand the relative role your investor has in his partnership – not all partners are equal and there will come a time when he has to fight for you. – understand the condition of the particular investor – the performance of its portfolio and the commitments of its limited partners can impact investment decisions • Network across the community/ecosystem. • Build and use your Board. 7
  8. 8. 6. THE “TERMS” ON A TERM SHEET ARE VITAL; READ BEYOND “THE VALUATION” • Valuation is not paramount – in the first round. • Watch out for option pool antics. • Management / shareholding rights “matter”. • No money is made in the term sheet. Get market terms and move on as the psyche of the partnership out of the gate is more important than negotiating the last point to the last nickel. 8
  9. 9. 7. UNDER COMMIT – OVERDELIVER • Many founders believe that they have to set lofty goals to get funded. In truth, savy investors value founders who set clear goals and routinely achieve. No matter how excited they may be by flamboyant claims in the beginning, you’ll be out when you fail to deliver. • Spend time to build trusted and reliable relationship with investors. • Think about and DO communication – manage expectations. 9
  10. 10. 8. STAY CLOSE TO THE CUSTOMER – PERMANENTLY • No matter how cool the technology, nothing happens until a customer gives you money. • Understand all aspects of the customer: – What the product should do at a DETAILED level. – How it fits in the customer’s world. – What influences the customer’s opinion of the product’s value. – How the customer wants it sold to him/her. – What the product is displacing and why the customer should take a risk on your new product. – Need to be as intimate in understanding the customer’s needs as you are conversant with your own technology. 10
  11. 11. 9. DISTRIBUTION CHANNELS ARE HARD TO DEVELOP • No products sell themselves and most start-ups seriously underestimate the time and effort/costs necessary to get their path to the customer working. • It doesn’t matter how you intend to distribute (direct sales, OEM, distributors, dealers or Internet), all channels take a lot of effort and are always slower to develop than planned. • Have to be fast AND have to be right. • Know what is the cost of customer acquisition and focus on the valuable ones. 11
  12. 12. 10. FOCUS, FOCUS, FOCUS • Many start-ups are unfocused and seek to do too much. – Devote time to execution and spend less time on strategy. – A start-up needs to do 1-2 things exceptionally well to excel (not many things marginally well). • Keep it simple, measurable and achievable. • Use your metric, reporting and other control tools to stay focussed. • You are not alone – stay close to your competition. • EVERYONE in the company should be able to articulate the corporate goal which allows for a dogged, unyielding focus at all levels of the company. 12
  13. 13. Contact Dr. Albrecht von Breitenbuch Rechtsanwalt Orrick Hölters & Elsing Kurfürstendamm 185 10707 Berlin Germany phone: +49 (0)30 8857 420 fax: +49 (0)30 8857 4220 email: bio: web: 13
  14. 14. Orrick‘s TOTAL ACCESS Programme • Orrick‘s programme for emerging companies and start-up communities • informative and networking events and tools openly available • Orrick: a global law firm with unique capabilities for emerging companies in its offices in Silicon Valley, San Francisco, New York, London, Berlin, Munich, Shanghai and Hong Kong • Please visit: mergingcompanies/startup/index.asp 14