The 4 Tragic Mistakes that First Time Entrepreneurs Make and How to Avoid Them

By Executive Director, Dan Cohen, Ph.D

It is said that “experience is the best teacher” and that anytime you embark on a new experience you are bound to make mistakes and learn from them along the way. My experience in teaching and mentoring entrepreneurs over the last 13- years bears this out. We have courses in entrepreneurship and a strong accelerator program (Startup Lab), and while we want to smooth the path and speed progress as much as possible, mistakes are inevitable and part of the learning process. Over the course of my time teaching and mentoring nascent entrepreneurs, a few key mistakes have consistently shown themselves in the course of launching a venture. Here are my top four along with proposed solutions.

Fear of Sharing Ideas

Unfortunately, many student entrepreneurs have developed a fear of sharing ideas out of concern that they will be stolen by others. I regularly have students come up to me after class sharing that they have a great idea that they didn’t want to reveal in front of the class for this reason. Truthfully, these ideas have a much greater risk of dying on the vine because others do not know about them then they do of being stolen and executed by others.

While I certainly enjoyed the movie The Social Network, the core of the film is about the fight over Facebook equity amongst the original founders of the idea. When I ask my students how many have seen the film, almost 100% have seen it. As a result, an entire generation of prospective entrepreneurs have grown up with the main theme of this movie playing in the back of their minds. The theme is that ideas are worth billions and people are lurking around and waiting to steal ideas. Unfortunately, that is misguided thinking and it causes people to keep their best ideas to themselves. In reality, very few ideas are stolen for the simple fact that ideas are cheap, plentiful and represent maybe 1% of the startup journey. The real value is in execution.

So, shout your ideas from the rooftop with gusto and without fear! Engage with prospective customers and do not fear someone stealing your idea. They do not want to put the required work into it in order to make it a reality. Additionally, they do not have your passion to pursue it.

Under-Estimating the Value Created for Others

Many nascent entrepreneurs want to be the cheapest alternative that a market has price wise. Even if they invent something completely novel or solve a real headache problem, they want to go low on price. They often make this call because they want/need traction and they want to sign up as many customers as possible. The challenge here is that it is a difficult problem to fix. Once you aim low price wise, it is hard to raise from there.

Many nascent entrepreneurs test pricing by asking what customers are willing to pay. This is ineffective because, if given a choice, they will choose the low end of the range. What’s more effective is simply making an offering and seeing if they buy it. The Internet helps this problem greatly because you can test many different price points to determine customer willingness to pay. If unsure of the value you create, we suggest using charter customer agreements. In these agreements, you are offering to either do special pricing or add free or discounted services to secure the business. The customer agrees not to disclose these terms to others. These agreements let everyone win when a startup is just launching.

The key point is simply not to underestimate the value you create for others. If you solve a problem for a customer and your solution is best, you deserve to earn a fair profit. In fact, if you do not earn a healthy profit, it will be quite difficult to remain in business to continue solving this problem for your customers.

Realize that you have something quite valuable. You are doing yourself, your team, and anyone that depends on you a major disservice by undervaluing what you bring to the table.

Not Doing the Legwork to Prevent Legal Issues

I get it—you’re fired up, passionate, and ready to get started. Focusing on legal matters is not exactly the most exciting way to kick off the startup journey. Focusing on these issues now though, can save real problems later. Of course, since the topic is legal matters, a disclaimer is in order—I’m not an attorney! These are simply common issues that I have observed in startups. Here are the most common legal issues that show up in the startup process:

• Sharing your name and building a first-generation website before ensuring that the name can be trademarked. Entrepreneurs become emotionally attached when they put a name on a startup. Before doing so, make sure you can trademark the name and that the name isn’t already in use by someone else who is selling a similar good or service.
• If you have something that can be protected by a patent, do a patent search yourself to see if something else exists that is similar (utilizing USPTO.gov or http://google.com/patents as a starting point). At some point, you’ll need to engage someone to do a professional patent search and retain a good IP attorney. Do not cheap out and go with a do-it-yourself guided service here. Opt instead for a professional. If it is patentable, the patent becomes one of your most valuable assets as you launch the startup. Don’t skimp on getting professional help here.
• Do not hire a lawsuit. When acquiring talent, make sure that anyone you have hired has not signed a non-compete or NDA (non-disclosure agreement) in your industry. This is not on the employee to disclose—as the employer, you have to find out.
• Squabbling over equity—have a fair equity agreement, a partnership agreement, vesting schedule, etc., to minimize time and energy expended over these issues. Have clear “rules” up front for what happens if there is a disagreement, and how to split the company if the founders want to go separate directions.

Team Members Fear of Stepping Outside of Their Comfort Zone

Human beings are creatures of habit. They like and, in fact, overvalue the familiar and typically disdain change. Coders want to code, and salespeople want to make sales and raise funds. But the reality is that most startups cannot afford to hire a sales force. Even if they are well capitalized and could hire a sales force, the founders and key team members have the passion for the idea and are best suited to make early stage sales. If you are the technical founder, for example, this does not exclude you from selling early on. In the same vein, if you are non-technical, you still need to be at least conversant in the details that surround your technology—particularly if this is your competitive advantage.

Unfortunately, startups do not typically have the resources to allow for people to focus on their core competency, so each member of a team must wear many hats. Teams that perform well typically mix up novel and routine tasks so that key activities are accomplished in a timely manner. Teams that remain siloed often have communication challenges and lack empathy for work being done in other areas of the company.

Simply put, if you launch a startup, don’t be afraid to share your ideas, don’t underestimate what you bring to the table, do the legwork that is needed to prevent legal issues and bring together a team that is willing to step out of their comfort zone.