You’ll often hear that in terms of startups, as much can be learned from failure as from success. In fact, many investors are hesitant to invest in a company whose leader has never failed. The belief here is that from failure comes many lessons that can be brought into an entrepreneur’s next venture. I think there’s a lot of validity in that thinking so I decided to share my 5 lessons that I have learned from not only helping to build Wicked Good Cupcakes, but also from helping to build other companies prior to my involvement with WGC.
Chart a path to profitability. More often than not, a business is started because an entrepreneur is passionate about a product or service. Usually it’s something they are very good at or have some experience with. That’s a good thing, but when turning that into a business, it’s imperative to figure out early on, how you’re going to be profitable. The typical path is as follows:
- Develop a product
- Raise money
- Build a team
- Sell a product
- Run out of money
- Raise more money
As you can see, more time is spent on the product and on raising money than figuring out how to be profitable. Remember, it’s easy to raise money: it’s incredibly difficult to make money. Too many people figure this will just happen so they’ll worry about it later. Take my advice and chart a path to profitability early.
Get really good at the basics before you expand. Often times, the frenetic pace of entrepreneurship can cause us to diversify our products or offerings very quickly. Sometimes it’s because we want to keep momentum going, sometimes it’s because of demand from our customers. I caution you to be careful however. Before you expand into new areas, get really good at the ones your already in. This takes tremendous discipline and focus. Peter Lynch coined the term “diworsification” in his book “One Up Wall Street”. The term refers to businesses that diversify too widely from their core competencies, ultimately failing due to the diversion of time, energy and resources needed to manage all these initiatives.
When you hire, hire the best. This may seem obvious, but often times in the early stages of a startup, there’s a tremendous need for bodies. This can happen if you experience initial rapid growth similar to what we saw as a result of being on ABC’s Shark Tank. This rapid expansion and need for quick resources can cause a company to hire “any warm body”. Long term this is a mistake. You’re looking for talented folks who can help you over the long haul. This means that they’ll be harder to find, everyone will have to work harder until you find them, and they’ll cost more. Trust me, the pain in the beginning is nothing compared to the pain in the end if you hire poorly.
Every dollar you spend in the beginning needs to be justified. You don’t see it as often as you did during the dot com boom days, but it still happens. A startup gets their first round of seed money and the next thing you know there are pool tables, scooters, and free snacks for all in the office. Every dollar you spend in the beginning must be justified. No unnecessary spending can occur until you reach a stable level of profitability (even then spending should never be frivolous). Your priority is the life of your company, the employment future of those working for your company and protection of the investment made by others into your company. Fun comes down the road. In the beginning, your company will likely be on life support. You don’t give a pepperoni pizza and a chocolate milkshake to someone on life support.
Focus on your customers and their experience. This is particularly true if you offer a digital product or you are an e-commerce company. So much time and effort is often put into the technology and product itself, that customer service and personal touches are neglected. We learned this the hard way when we aired on Shark Tank. Being an e-commerce company, we did not anticipate the level of in person and on the phone customer interaction that would be required. It took us over a week to get through all the emails and phone messages. We learned our lesson quickly however and made personal customer service our company’s number one priority. Now it’s one of our differentiators.
Some of these may seem obvious, but I believe that focusing on these 5 things is imperative to the success of a young company. In the beginning, there’s a lot going on and you’re going to be pulled in a lot of directions. Staying focused and true to these tenets will help to serve as a consistent beacon on your path to success.