There’s plenty of advice out there for entrepreneurs — but not all of it is good. Here are a few pieces of common advice that you should reconsider before you launch.
Before launching my business, I read up on lots of “must dos” for first-time entrepreneurs. I listened to a lot of them, and in the process of building our company realized how misplaced some of that advice was.
To be fair, most of it wasn’t universally wrong — no one said “offend your customers” or “sit back and wait for people to hand you money,” but the point is that there really isn’t one-size-fits-all advice for startups.
1. Go pitch VCs
You’ve heard the stories about all of these startups being bankrolled by venture capitalists, and it seems like if you want to be a big success, you have to go start pitching VCs right away. Your company needs money, so obviously you want to go to the people whose job is to give entrepreneurs money.
There are a lot of problems doing that. First, VCs are looking for a specific type of company. Most VC firms have funds of more than a billion dollars. They’re looking for companies that can single-handedly bring them a billion-dollar return. For that to happen, you have to have a plan to build a multi-billion dollar company. No one will knock you for building a profitable $10-million-a-year business, but pitching that business plan to VCs just doesn’t make sense. They can’t make enough money for it to be worthwhile for them.
And VCs aren’t in the business of writing checks. They’re in the business of saying “no.” That’s not meant to be cynical or to knock them. The typical VC partner may fund one in 1,000 companies she talks to. That obviously doesn’t mean you should ignore VCs, but understand it will take a lot of time — and likely, rejection — before you get funded.
Alternatively, consider looking to friends and family or angel investors for early funding, or bootstrap, using early revenue to grow your business. These methods come with their own risks and drawbacks but these investors are motivated in very different ways than VC investors.
2. Raise lots of money
Whether it comes from VCs or other sources, you’re going to need some cash to build your business. Naturally, if people are offering you money, you should take as much of it as possible, right?
Not so fast. Cash is oxygen for your company so getting more is usually a good thing. But too much cash can be problematic too.
For starters, investors generally expect you to use that cash they give you and expect you to accelerate your growth. But that can be tough when you have yet to nail product-market fit. Spending cash to find that fit could be dangerous
Many entrepreneurs overlook that the more money you raise, the bar you have to clear make money on your own company gets higher. Raise $1 million and sell your company for $20 million, and you’ll personally make a lot of money. If you raise $20 million, you’ll have to exit for $70 million to get a similar personal outcome. That shouldn’t be your sole or primary motivation, but it’s something to consider as you grow.
3. Grow quickly
Growing quickly in the right situation is magic, but many companies grow before they’ve nailed their product market fit. The result can be disastrous. Remember Viddy? It was a hyper-viral video-sharing company built on top of Facebook. If you don’t remember, that’s the point. They were big, and hot and growing fast and then… poof.
Eric Ries, author of The Lean Startup, made the point that a startup has to nail its “value hypothesis” before focusing on its “growth hypothesis.” In short: figure out who’s willing to pay for your product before you try to find a million people to buy your product.
So many entrepreneurs are in a hurry to build a big company that they forget they have to walk before they can run.
4. Don’t worry about revenue
While growth is often a top priority, not thinking about how your business is going to make money with your products or services can damage your ability to grow. For example, if Twitter had started by charging users to send tweets, they’d make some revenue, but ultimately shoot itself in the foot and crush its potential to grow.
But most companies aren’t Twitter. They need to generate revenue from the very beginning.
I took a class with by Silicon Valley gurus Andy Rachleff and Mark Leslie at Stanford’s business school, where they hammered home, “your best investor is margins.” In other words, nothing lets you control your destiny like a profitable business. It’s hard to be profitable on day one, but focus on building and scaling revenue as a starting point.
5. Make a perfect first impression
I’m amazed when I chat with aspiring entrepreneurs who are focused on their logo and setting up bureaucratic processes before launching anything.
Of all the things that matter when you start, those aren’t on the list. At some point, your customers’ expectations and your competition will increase, and those things will matter. But on day one, just get the ball in bounds, hustle, and see what happens.
Do any more and you’re almost definitely overthinking it.
Dan Laufer is the CEO and Co-Founder of RentLingo. He received his BA in Systems Engineering from the University of Virginia and his MBA from Stanford, where he co-founded RentLingo after working for Bain & Company and Mitchell International.