10. Developing a solution without a problem

Copyright 2005 Pacific Technology Ventures Ltd

10. Developing a solution without a 10. Developing a solution without a problemproblem

It’s tempting to think an idea is good “because It’s tempting to think an idea is good “because it’s cool.” But what value does it create for it’s cool.” But what value does it create for people? If it doesn’t people? If it doesn’t savesave them money, they them money, they will not pay for it. will not pay for it.

People will pay for a painkiller, much less for a People will pay for a painkiller, much less for a vitamin, and they won’t pay at all for a cool-vitamin, and they won’t pay at all for a cool-looking placebo!looking placebo!

The fix: calculate a profit-and-loss sheet The fix: calculate a profit-and-loss sheet for your customer’s purchase of your for your customer’s purchase of your product. Credibly defend each line item: product. Credibly defend each line item: their increased revenues and decreased their increased revenues and decreased costs. This should form the basis of your costs. This should form the basis of your sales pitch. Use conservative numbers!sales pitch. Use conservative numbers!

10 Greatest Startup Screwups10 Greatest Startup Screwups


9. Solving the wrong problem9. Solving the wrong problem

Are you Are you suresure you know why your customers like you know why your customers like your product? If your customers use your your product? If your customers use your product differently than you intended, they are product differently than you intended, they are informing you that informing you that youyou don’t understand don’t understand theirtheir most critical problems, even if they most critical problems, even if they diddid buy buy your product. As many as half of technology your product. As many as half of technology “wins” succeeded for reasons “wins” succeeded for reasons other other than the than the originally planned vision!originally planned vision!

The fix: Eat crow: enhance your product The fix: Eat crow: enhance your product for its new use, even if you abandon your for its new use, even if you abandon your old vision. old vision.



8. Customers uninvolved in product design8. Customers uninvolved in product design

Amazingly, even in 2005, many entrepreneurs Amazingly, even in 2005, many entrepreneurs hide their ideas from customers “until it’s hide their ideas from customers “until it’s ready.” While commercial sensitivity is a real ready.” While commercial sensitivity is a real concern, you concern, you mustmust do your development do your development intimately with an ideal end user. A single intimately with an ideal end user. A single technical advisor who claims to “know” your technical advisor who claims to “know” your customer’s industry is not enough – an customer’s industry is not enough – an individual is a poor substitute for knowing the individual is a poor substitute for knowing the marketing, purchasing, and operations marketing, purchasing, and operations departments of your customer company. Your departments of your customer company. Your idea is not so well visualized that you don’t idea is not so well visualized that you don’t need your customer’s perspective to work out need your customer’s perspective to work out the kinks!the kinks!

The fix: find a development partner! If The fix: find a development partner! If you are selling retail, use at least three you are selling retail, use at least three buyers as advisors, and if they wouldn’t buyers as advisors, and if they wouldn’t buy it, find out why. Your product is not buy it, find out why. Your product is not ready until your partners will purchase it ready until your partners will purchase it with their own money!with their own money!



7. Business plan focuses on all the wrong 7. Business plan focuses on all the wrong sectionssections

Most entrepreneurs fixate too much on the Most entrepreneurs fixate too much on the product description, thinking that if they only product description, thinking that if they only describe it in more detail, the concept will be describe it in more detail, the concept will be obvious. Nope. Investors want the logic of obvious. Nope. Investors want the logic of how value is added, not simply a product how value is added, not simply a product description.description.

Worse, entrepreneurs often spend weeks doing Worse, entrepreneurs often spend weeks doing meticulous financial projections. Investors meticulous financial projections. Investors know that sales assumptions underpin all the know that sales assumptions underpin all the numbers anyway; the “accuracy” of each line is numbers anyway; the “accuracy” of each line is less important than the credibility of overall less important than the credibility of overall trends.trends.

The fix: the product must be described in The fix: the product must be described in terms of the money it saves customers, not terms of the money it saves customers, not in terms of what it “does.” Financial in terms of what it “does.” Financial projections should be simple, credible, and projections should be simple, credible, and based on well-referenced market data. based on well-referenced market data. Over-complicated calculations tell Over-complicated calculations tell investors that you are unsophisticated. investors that you are unsophisticated.



6. Raising funds too little, too late (the 6. Raising funds too little, too late (the cash crunch)cash crunch)

Do you have the cash to get to profitability on Do you have the cash to get to profitability on your current plan, with a 20% margin and a your current plan, with a 20% margin and a near-guarantee that you’ll make the sales you near-guarantee that you’ll make the sales you need? If not, start developing relationships need? If not, start developing relationships with prospective investors with prospective investors now.now. It takes six It takes six months to raise cash, and today’s investors months to raise cash, and today’s investors want to know that you have a history of want to know that you have a history of meeting your milestones – something they will meeting your milestones – something they will only know if they see you operate for many only know if they see you operate for many months.months.

The fix: Your timeline to profitability must The fix: Your timeline to profitability must be credible and based on actual customers be credible and based on actual customers telling you they will buy when the product telling you they will buy when the product is ready. Prospective investors should be is ready. Prospective investors should be appointed to your advisory and corporate appointed to your advisory and corporate board board nownow. .



5. Groupthink: misusing your advisors5. Groupthink: misusing your advisors

Your advisors should know each other, and be Your advisors should know each other, and be from all different areas of your industry: people from all different areas of your industry: people who know your service, and people who who know your service, and people who represent all areas of your customer’s represent all areas of your customer’s companies. Choose people who will argue with companies. Choose people who will argue with you, and with each other. you, and with each other.

One of the most common mistakes is to keep One of the most common mistakes is to keep your product a secret for too long, and to your product a secret for too long, and to dismiss your advisors as being “too dismiss your advisors as being “too unconnected” to your daily reality. Listen unconnected” to your daily reality. Listen carefully and sell them on what you want. If carefully and sell them on what you want. If you can’t, re-evaluate your plan!you can’t, re-evaluate your plan!

The fix: listen to your advisors, and let The fix: listen to your advisors, and let them meet each other. them meet each other.



4. Hiring the wrong sales team4. Hiring the wrong sales team

Underpaying a receptionist or accountant may Underpaying a receptionist or accountant may work for a while, but underpaying a sales rep work for a while, but underpaying a sales rep will ensure underperformance. Good sales reps will ensure underperformance. Good sales reps can work anywhere, anytime, and expect to be can work anywhere, anytime, and expect to be compensated no matter who you are. If you compensated no matter who you are. If you can’t afford to pay a sales rep at market rates, can’t afford to pay a sales rep at market rates, give them meticulous support, give them meticulous support, then your then your business is simply not viable. business is simply not viable. They will take They will take some commissions, but you must be prepared some commissions, but you must be prepared to give them a good chunk of your company. to give them a good chunk of your company. And as the leader, be prepared to make cold And as the leader, be prepared to make cold calls and join them on the road.calls and join them on the road.

The fix: pay them what they’re worth. The fix: pay them what they’re worth. Unlike your other employees, you’ll have to Unlike your other employees, you’ll have to pay your reps above the market rate, not pay your reps above the market rate, not below. Expect to pay them more than below. Expect to pay them more than yourself.yourself.



3. Misusing lawyers and professionals3. Misusing lawyers and professionals

Don’t do handshake deals! Lawyers have a Don’t do handshake deals! Lawyers have a purpose: they can uncover holes in your deal’s purpose: they can uncover holes in your deal’s logic, and anticipate problems that you’re logic, and anticipate problems that you’re unconsciously deferring. unconsciously deferring.

Most professionals will overstep their bounds Most professionals will overstep their bounds and offer advice on strategic or business issues. and offer advice on strategic or business issues. This can be useful, but use it appropriately – This can be useful, but use it appropriately – you you are running your company, not them. are running your company, not them.

The fix: hire the best, but ask only The fix: hire the best, but ask only precise, targeted questions. Make a precise, targeted questions. Make a contract for every deal you do, but don’t let contract for every deal you do, but don’t let the professional overdo it. If you do not the professional overdo it. If you do not know how to do this, draw on your advisory know how to do this, draw on your advisory board – do board – do notnot let the consultant or let the consultant or professional drive your agenda!professional drive your agenda!



2. Overselling yourself and your company2. Overselling yourself and your company

Many first-time entrepreneurs confuse “selling” Many first-time entrepreneurs confuse “selling” and “promoting.” You are offering a solution to and “promoting.” You are offering a solution to your customers, and returns for your investors. your customers, and returns for your investors. In both cases, it is the start of a long-term In both cases, it is the start of a long-term relationship where their expectations will relationship where their expectations will determine how happy they are with you later.determine how happy they are with you later.If you oversell your customers, they won’t give If you oversell your customers, they won’t give you references for your next hundred sales. If you references for your next hundred sales. If you oversell your investors, they won’t be there you oversell your investors, they won’t be there if you ever need a second round. if you ever need a second round.

The fix: be scrupulously honest about the The fix: be scrupulously honest about the risks of your company. It’s harder in the risks of your company. It’s harder in the short run, and you will even lose some short run, and you will even lose some deals, but it’s worth it in the long run. It deals, but it’s worth it in the long run. It will also separate you from most other will also separate you from most other entrepreneurs!entrepreneurs!



1. Doing the easy things, not the hard 1. Doing the easy things, not the hard onesones

The #1 mistake of entrepreneurs is to forget The #1 mistake of entrepreneurs is to forget that being your own boss is harder, not easier, that being your own boss is harder, not easier, than having a manager. Most entrepreneurs than having a manager. Most entrepreneurs spent too much time tinkering, ordering spent too much time tinkering, ordering furniture, shopping, and dealing with staff or furniture, shopping, and dealing with staff or product development. product development.

Most entrepreneurs procrastinate over the Most entrepreneurs procrastinate over the ugliest and most important jobs – cold-calling ugliest and most important jobs – cold-calling and customer hand-holding. and customer hand-holding.

The fix: find a way to discipline yourself. The fix: find a way to discipline yourself. Adhere rigidly to realistic, weekly task Adhere rigidly to realistic, weekly task lists. Deferring known problems is the lists. Deferring known problems is the most common reason for startup failure.most common reason for startup failure.



10. Developing a solution without a 10. Developing a solution without a problemproblem9. Solving the wrong problem9. Solving the wrong problem8. Customers uninvolved in product design8. Customers uninvolved in product design7. Business plan focuses on all the wrong 7. Business plan focuses on all the wrong sectionssections6. Raising funds too little, too late (the 6. Raising funds too little, too late (the cash crunch)cash crunch)5. Groupthink: misusing your advisors5. Groupthink: misusing your advisors4. Hiring the wrong sales team4. Hiring the wrong sales team3. Misusing lawyers and professionals3. Misusing lawyers and professionals2. Overselling2. Overselling1. Doing the easy things, not the hard 1. Doing the easy things, not the hard onesones



Further questions?Further questions?Contact Cameron St JohnContact Cameron St JohnPacific Technology VenturesPacific Technology [email protected]@ptventures.caPhone 604-730-9706Phone 604-730-9706Fax 604-677-5414Fax 604-677-5414


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10. Developing a solution without a problem