Seven Pitfalls for Entrepreneurs and How to Avoid Them-Open Field Entrepreneurs Fund - Carnegie Mellon University

Monday, November 18, 2013

Seven Pitfalls for Entrepreneurs and How to Avoid Them

I moved to NYC twenty years ago to create a company around a new idea, something  audacious, and I had no reason to think it would result in anything other than life-crushing failure.  Despite everything we did wrong and a healthy dose of bad luck, it worked out rather  well.  We changed the world for the better, or so it seemed at the time, and made some money doing it. 

Rather than use that success to migrate into larger, bolder opportunities I instead continued on the highly irrational path of  creating, investing in, and working with startups.   I have been a founding executive, a non-founding executive, been coerced onto boards, and mentored hundreds of wonderful and not-so-wonderful entrepreneurs. 

The odds are stacked against people who want to create value out of nothing, who want to do something new, who see how the world could work a little differently, a little better, and are willing to get off the couch and make it happen. 

Its not easy, it never has been, and it likely never will be, yet I admire the fools who try. 

I recently gave a talk in Istanbul where I tried to summarize everything I have learned through countless mistakes over 20 years of experience.  After working with hundreds of companies, you learn to spot the patterns of failure pretty quickly. Lots of pundits pontificate on this topic.  For this talk, though, I thought I only had 5 minutes, for an audience of non-English native speakers.  I had to be pithy, and I wanted to describe  actionable solutions applicable to everyone. What problems do i find with the largest number of  entrepreneurs, and how can they avoid them? 

This is what I came up with.  Its nothing original.  I have made most of these mistakes myself at some point or another. While I was forced to identify these mistakes and find solutions in relative isolation,  many industry pundits have elaborated on these points before.  Stacks of books are dedicated to some of these topics.  Even so, its surprising how often i find myself being the first to mention these pitfalls and offer solutions.

Pitfall #1  You Think You Know

Ignorance is dangerous and costly, but much less so than knowing something that is untrue.  When doctors misdiagnose and treat the wrong disease, or when entrepreneurs proceed on a path out of conviction rather than evidence, its mostly a disaster.

I disagree with the popular myth of the entrepreneur as a fearless risk taker ignoring naysayers to persue their dream. Successful  entreprenuers I work with have a detailed and perhaps unique understanding of a real problem, gained from answering structured questions with real data, from real customers. 

How can you be sure you are not making up your own truth?  The solution that has been working for civilization for quite awhile now is to apply the Scientific Method.  Create a question, run an experiment, and reach a conclusion.  Whether your idea involves, software, hardware, mobile, physical goods, its never been easier to collect real information.  Run leadgen campaigns on Facebook or Kickstarter to see if anyone cares about your product or service.  Buy people some coffee and interview strangers. Run Google adword campaigns to test messaging and find target audiences.  Print a physical mockup on your Makerbot and hand it to people at a park, video all their reactions on your smartphone. 

Once you are open to collecting objective  evidence to support your idea and plans, you are on the right path. Or at least a better path. 

Pitfall #2: The Idea is Everything

This is just wrong.  Ideas are necessary, but hardly sufficient. Believing the idea is more valuable than it is leads to silly behavior and replacing solid planning with wishful thinking.  For every great company there were countless people with that basic idea.  Most people never did anything about it, and a few more messed it up in the details. 

A figure I have heard from investors who focus on specific industries, like drugs or medical devices, cite 5% as the maximum value of the idea relative to all the costs that go into creating a successful exit.  5%.  That’s it.    So get over your great idea and move on to making it happen...Read more»

By: Peter Stern