5 Common Startup Myths Busted

One of my main focuses these days is advising startups. It’s an activity I’m hugely passionate about and thoroughly enjoy. I’m fortunate enough to work with a group of companies spread across the world, who are all doing amazing things in their respective industries.

As I’ve immersed myself in the startup community, I’ve come across a lot of people out there doing incredible things for startups and the community as a whole – Dave McClure, Chris Sacca, Paul Graham, Kevin Rose, Gary Vaynerchuk, Tim Ferris, and the Seed Camp crew are all doing wonderful things to help young companies. (I recommend following all of them on twitter.)

But on the flip side, I’ve noticed some rather odd trends. Negative trends. Trends that I fundamentally disagree with. I’m a HUGE believer that the startup and early-stage funding processes can be positive processes as opposed to the “American Idol” negativity that most people associate with getting funding. (Don’t even get me started on the Dragon’s Den.) There’s a lot of misinformation about there, some of it very damaging.

Here are the top 5 common myths about startups that I’ve heard recently:

1: Brand isn’t Important

Horseshit. Brand is fundamental. I’ve talked about this time and time again, to anyone who will listen. Startups are notorious for ignoring their brand or just expecting it to develop by itself. It won’t. If anyone tells you that “you don’t need to think about your brand at this stage” punch them in the throat. They’re doing untold damage to your ability to compete in a savagely competitive marketplace.

Remember, brand isn’t just your name and logo. It’s your values, your community, your tone of voice – every single experience by every single user you have. THAT is your brand. Watch it like a hawk, develop it, and give it the effort and energy it deserves.

2: You have to Fail Before you Succeed

Why do people keep saying this? It feels like something only people who have failed repeatedly would say. There’s a HUGE difference between “learn from your mistakes” and “you have to fail before you succeed.” If you don’t learn from your mistakes, you’re bound to repeat them – that’s simple.

Telling people that they have to fail before they succeed is supremely dangerous because it plants a negative seed in the mind of otherwise optimistic entrepreneurs.

Why shouldn’t an entrepreneur swing for the fence during their first at bat? Screw the naysayers, surround yourself with positive, hardworking people, and go be a Kevin Rose.

3: You need Millions of Dollars in Funding to get Started

No, you need it to scale. Every day you read about startups taking tens of millions in venture finance and it plants this false seed of “I need millions to succeed.” in the mind of young entrepreneurs. Do you know what Kevin Rose spent to start Digg? About $2000. Peanuts. It wasn’t until almost a year and a half later that they took their first round of funding and that was only $2.5million.

Some of the most successful seed-stage companies like YCombinator put very little money into a business (around $20,000) initially because you don’t NEED any more than that. The cost of starting/running a small business is exponentially lower than it has ever been.

Besides, do you really want to fork over a large chunk of your company to an investor. No, you don’t. Bootstrap for as long as you can, seek angel funding when you need it and work hard. You’ll do fine.

4: Profit is Everything

“We made 200% profit last quarter, we’re so awesome.” Really? That’s awesome? Because you only made £420 in revenue. Whoopdee doo. Focusing on profit margins and percentages as a young startup is idiotic and not an accurate barometer of the health of your business at this stage.

Instead of obsessing over profit, obsess over acquisition, conversion, retention, referral, and REVENUE, as Dave McClure so accurately preaches. Not profit. Drive your revenue hard, work on keeping your costs really low, and track them as separate metrics.

5: I have to be in the Valley to be Successful

Ok yeah, I thought this was the case when I first moved back to England after almost 10 years in the US. This might have been true even 2 years ago, but it’s just not the case anymore. The UK and EU tech scenes are booming and there have been some huge successes in the last 18 months.

The handicap has always been the lack of good VCs/angels who really understood the web, and who could take a startup from the spare room to the board room. That’s not the case anymore with outstanding events like SeedCamp.

The infrastructure is there, the talent is there, the audience is there. Go out there and crush it. (And email me if you need any help or want to talk angel stuff: ahunter (at) haebc.com).

Treehouse

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Comments

0 comments on “5 Common Startup Myths Busted

  1. Great points. I especially like the one about failure. I never understood why people would go into something expecting to fail.

  2. The problem with saying “fail before you succeed” is most people misunderstand it as you MUST stumble before you run. I have found that FEAR of stumbling, and accompanying paralysis, is the statement’s warning… most of us can handle a few scraped knees along the way.

  3. Thanks, Alex for your insights! I agree with you that there’s a wave/trend of non-positive thinking about starting something new. It’s an exciting time for start-up projects/ventures. And it’s really important to stay positive and look at your motivation and strengths very carefully. And take time to reflect on where you are in the process.

  4. Thanks for the article. As someone who has been toying with the idea of starting his first startup this was definitely an encouraging read.

    Thanks again

  5. Failing before you succeed isn’t what it is about. It is learning from your mistakes and not being afraid to take chances in the fear of failing. If you can overcome that feeling and realize not every move you are going to make is going to be a super hit then you can get out from being paralyzed. I think it is about embracing failure in order to learn or try something new. Certainly nature tell us the only the successful survive but unless you are willing to deviate from the status quo. Take a chance and possibly fail. You’ll never make any sort of break through. Your’ll never get a chance to succeed. Edison was right when he said he learned 65,000 different ways not to make a light bulb. Prescience is the lesson here not failure itself.

  6. Alex, this is probably the most valuable Start Up advice in a blog post I’ve read in a VERY long time. Thanks for your honesty!!

    @ajleon

  7. Hey Ryan, I was going to get angry when I saw the brand point. A lot of new startups with no money want to blow cash on a pretty logo and business cards and that drives me crazy.

    But you totally nailed it with what your brand really is.

    The other thing I’d add is that without any momentum, history and big branding budget, the best way to actually find a meaningful place in your customers mind is by being brutally focused on a tiny initial segment. I’m talking stupidly-micro-segmenting. Focus on just the left handed female tennis players in one city between 28-29 years of age who want to solve that one problem you’re solving and your language, community, etc can be really powerful.

    Try and do that for the world just because you got the .com and your brand will die in a whimper.

    Cheers

  8. Alex,
    An inspiring read. As COO of a new startup (December 2009) I plan to put into practise everything you have said here…. some of it I was already doing and this just adds justification to my convictions!!
    Thanks again
    Paul

  9. Alex,

    It would be great if you could elaborate on your point about “profits aren’t everything” where you go on talking about keeping costs low and increasing revenues. Wouldn’t that imply a focus on profit?
    I understand when you say that they should be tracked as separate data points but don’t get why focusing on increasing the difference between the two shouldn’t be your main focus.

    Thanks!

  10. Alex
    On Profit is everything – while the headline says profit the text talks about % margin. Those two are completely different. Focusing on absolute profit is important and it is not a myth – profit comes from correctly identifying the segments and targeting them with versions at right prices. Metrics like acquisition, conversion, referral are all helpful only if we can assign a $$ value to them (e.g customer lifetime value). If a customer does not have positive lifetime value (generating net profit over costs incurred to support them) why should we acquire them in the first place?

    % margin on the other hand is a computed number and yes it is useless.

    Regards
    -rags

  11. I could not agree more on brand. Brand creates the emotional response that bores your product into the gooey centers of your customers heads. It’s key to competitive success. A carefully crafted branding can create customer loyalty even in a market where your competitors product is better.

  12. As someone who has participated in start-ups, operational companies; capital investments and intellectual capital venues, there are constants in all businesses; You need to established credibility, express your passion, not as a hobby but as your lifeline. Nothing generates more “buzz” than dealing with someone whom exudes the presence of success and determination.

    Always know who your existing competition is and keep abreast of all information relative to “new ideas” being developed that affect your service or product. Knowledge is a formidable component of success.

    Alan Chokov
    Publisher/CEO
    eFinancePortal.com

  13. Great points, I agree with all of them except number 4.

    I’d argue if a business is making $1 million revenue and only $500 profit then it’s not a very capital efficient business. The key is to aim for both high revenue and profit margins, and not lose sight or be blinded by one of them.

    Just my 2 cents,

    nico

  14. Just remember …

    Sow an act, and you reap a habit; sow a habit, and you reap a character; sow a character, and you reap a destiny.

  15. Great post. Point 3 particularly resonates with me. Never take money for the sake of it. Hang on to as much of your business as you can for as long as possible. Remember, most VCs have absolutely no idea how to start, run and scale an Internet business.

  16. Excellent points Alex!! Great post and also very entertaining! LOL.

    Just to add to your point about the startup costs going exponentially lower these day..it ties into the fact that the required specific knowledge is becoming more and more available, aside from the infrastructure costs being so low…It really boils down to having a product / market fit and the courage to prudently risk some time and money to build a prototype. Prudence is part of courage.

    Last but not least, reaching the right audience does help an entrepreneur a lot.

    In this respect, the community may want to go check http://www.adwebix.com, an online hub connecting entrepreneurs with investors.

    Members are: Entrepreneurs, Investors, Startups, Companies looking to grow their business, Service Providers, Professionals and Supporters interested in the Startup community.

    It’s currently free and very easy to use.

    Go have a look!

    Best regards,
    Alex Stoian.
    Founder and CEO
    http://www.adwebix.com

  17. #POW..

    I couldn’t agree with you more on “learning from mistakes” and “you have to fail before you succeed”.. Huge difference. Completely failing and not even obtaining one client or user is due to ignorance during market pre-research.

    James F.

  18. Strong points. The first one really stood out to me as a recent client was thinking along those same lines. The second is very common but they forget that over 90% of businesses fail in the first year and do not rise up again. The fifth I totally agree with – if the business had enough confidence, they would not consider themselves in the valley. That mentality will keep you there.