In the last 8 years, I worked in 3 start-ups and also mentored 5 start-ups, and saw 100 other start-ups to start their operations. Unfortunately, most of them completely failed or just operating on a small scale or still trying to figuring out their revenue model. The most common reasons to fail are – run out of cash, couldn’t recruit the right team members due to budget, false traction leads to unnecessary expansion or no business model. This connects directly to the five startup myths that I am going to discuss today. So, let’s do it!
Myth#1 – You can raise money on an idea: This is 99% false. You need traction to raise money. Traction in the form of Revenue ideally or at least traction in the way of users the notion that you can raise capital to build the first version of your product or to recruit. You might be very lucky if you can raise even from an Angel investor with your idea only. So before raising money, try to achieve traction.
Myth#2 – CEO or Founder is the highest-paid employee: Shouldn’t be the CEO or founder/s the highest-paid employee in the company? Sorry but that’s not true. The founders may not be the highest-paid employee of the company, sometimes not even in the top 3 of the list. Company share value should be the motivation of the CEO/founder, not the salary.
Myth#3 – Fast Growth first, Profitibilty later: This is a classic one! All you’re worried about is scale and growth ratio. And the fact that you need to grow faster. As long as you have money in the bank and new investors are continuing to fund your operation. For the most part, if your company is growing fast, you will be able to raise more funding. ‘Fast’ has different definitions depending on the industry, but you are probably looking at tripling or quadrupling your revenue YoY.
But, what happens if you are growing at, say, 50% YoY. That’s not going to get investors excited and probably won’t get you that Series A or Series B funding. So what to do, well, two paths: A) Keep going full steam ahead until you win, or you die. B) Take a step back and get your company to a profitable state. The point is, the purpose of a company is to make money. Slow growth is better than dead. A challenge many startups comes when they’ve raised too much money. In that case, the pressure from investors to get an ROI on their capital might put you in a tight spot.
Myth#4 – You need to develop your own the tech solution: Until you are developing a business that absolutely needs a tech solution first to test the leap of faiths and/or hypothesis, don’t invest your all resources in it. For example, in Next Billion, when we were working in B2B retail eCommerce, we use Shopify to test the initial hypotheses and understand the core operations. Because our core hypothesis was whether the FMCG retailers will order from some company that is not an FMCG company and/or wholesaler. And then we use the call-center to test whether the FMCG retailers placed orders without seeing anyone in front of them. Because during the research period, we have identified that these 2 will be the huge behavioral change for them.
Myth#5 – Everyone is starting a Startup, I should start one too: Obviously you should start your own business but before that, you have to know why do you want to do it. As long as you know why do you want to do it, the rest will follow. But you have to be sure, why do you want to do it. The best reason to start a startup is to solve a problem you‘re passionate about. Passion leads to excitement, ownership, and the motivation to stick it out when it gets tough. It also makes it more likely that the problem you‘re solving is real and big enough.
Bottom line: If your gut tells you to go for it and there’s something you really believe in, then go for it. We need more startups, as they are the change agents that can save the world.
(inspired by Caya)