Learning lessons from mistakes and those who’ve been there before, can put you back on the right track and create the foundations for your success.
The UK saw record numbers of startups last year but tackling a new business venture isn’t easy. According to a survey by Statistic Brain, 44% of entrepreneurs fail in the first three years but is that such a bad thing?
As highlighted at one of our recent events during London Tech Week, entrepreneurs can learn a lot from failure. Although in some cases, failing may be outside of their control, in many others, a greater understanding of the potential snaps and snares could have prevented a startup from turning into a statistic.
So, if you’re planning to embark on a new venture, here are our top tips to overcome the most common pitfalls and put your business on the path to success:
Don’t underestimate your funding
You should always go as far as you can with your own money as this helps to demonstrate your commitment to investors. When seeking funding, don’t underestimate how much money you’ll need to run your business. This will be far higher than you think, so make sure you plan carefully and ask for enough. Also, factor in the amount of time you will need to invest in setting up and managing your business. This will also be higher than you expect – usually by up to three times.
Spend your money wisely
Most things will cost more than you expect and there may be hidden costs that you haven’t accounted for. At the start of your venture, work out what your critical success factors are going to be and prioritise what you need to spend based on those factors.
Make sure you consider the intangibles too such as expert advice. Risk management for example, can often be overlooked but investing in this support from someone who knows your industry, the bigger picture and trends can be invaluable.
Keep your investors interested
Decide what level of involvement you’re looking for before deciding which investment route to go down. Angel investors are more likely to get involved in the day to day running of your business than venture capitalists for example.
A venture capitalist (VC) will however, lose interest in your business very quickly unless you keep them involved in your venture during those early stages. Make it easy for them to get to know the entrepreneur behind the business and the team. Partnerships, personalities and people are critical to success – or failure – so make sure that VCs have a clear window through which they can see you and your company operate, so that both parties can ensure that they’re well matched.
Don’t give away too much equity too soon
Negotiating funding and equity is a difficult balancing act, but take your time. If you give too much equity away too early, it will look like you don’t value it and if the deal is done, you may find you lose control of your company too.
When seeking funding don’t underestimate how much money and time you’ll need to run your business.
Have strong employment contracts
Don’t underestimate the value of a good employment contract. As a growth stage company, perhaps with limited funds, you need to invest wisely and at the right time in taking sensible steps to possible to protect your business.
The people you employ and work with during those early stages are your key individuals, and that means they’re going to know your business and your IP inside out. The last thing you want is them using that to their advantage and setting up by themselves in direct competition.
Putting in place solid employment contracts, which protect your confidential information and include reasonable post-termination restrictions, will go a long way in ensuring that your secrets stay secret, and friends don’t become foes.
Don’t aim for a flashy office
A swanky office may be very appealing but there’s time for that much further down the line. Depending on location, the cost of renting could be a significant sum per year, so don’t attempt to set up until you’re financially strong enough.
Don’t be afraid to barter for free space and consider alternatives such as shared spaces. These can not only save you money, but allow you to network and meet likeminded people and businesses. We’ve benefited from this set up with ThoughtRiver. Working alongside the team in the same office has enabled us to share ideas which have helped drive the development of its AI software.
Also, think about where the office is located. Central locations are usually ideal and clusters are also great for business as resources can be shared.
Protect your IP
Often the value in a startup is in the idea and brand of the future and this is what investors will be investing in rather than more tangible assets.
So, whether it’s a logo, product, service, process or data, it needs protecting for your business to succeed. Establish early on what types of IP you have and what needs to be done to protect it.
Some IP rights are automatically protected by the law such as copyright, databases, certain design rights and rights in confidential information. Others, such as patents, trademarks and certain other design rights need to be registered through local Intellectual Property Offices (IPOs) to result in full protection.
Make sure that you own, or have the right to use, all the IP that is relevant to your business. For example, IP in a logo or an invention developed by an employee is usually owned by the employer, but if you choose a freelancer to create something for you, they will usually own the IP unless you have a contract with them that states otherwise. This is especially important if your contractors are based overseas, since different countries have different default rules as to who owns what.
Finally, the real value in IP is in your ability to enforce your rights against third parties and to do so quickly, so make sure you keep good records of who is contributing to your creative processes and what their role is in relation to you.
These are all things potential investors will check if they are looking to invest in your company so are essential to prevent failure.
Protect your data
Data security is a hot topic and not just for larger, established businesses. The EU General Data Protection Regulation (GDPR) comes into force in May 2018, but make sure you start preparing now and take action if required.
At the very least, have a simple but effective data protection policy in place and make sure it’s enforceable. Monitor what you are doing with the data you hold and make sure that employees are complying with your policy.
Learn from your mistakes
From investment pitfalls and hidden property costs through to partners piggybacking on your IP, setting up a business can lead you down a rocky path. However, doing the groundwork in terms of setting up the business correctly with the right IP protection, employment contracts and financial agreements will ensure a smoother ride further down the line, even if the business doesn’t go the distance.
Although statistics show that many entrepreneurs will fail, that doesn’t mean they won’t ever succeed. Learning lessons from mistakes and those who’ve been there before, can put ambitious businesses back on the right track and create the foundations for success.