As a technologist with over 30 years of experience navigating marketing and entrepreneurial landscapes, Guy Kawasaki knows a thing or two about entrepreneurial success. The following list reveals the 10 most common pitfalls Guy has seen entrepreneurs make when building high growth companies.
1. Multiplying a big market by 1%
“Getting 1% of any market is not that easy.” — Guy Kawasaki
Applying a general calculation without regard to the market you’re in simply doesn’t work.
Guy illustrates his point with a hypothetical dog food company. He does some back-of-the-napkin calculations of market size:
- 1/4 of Americans (300 million) own a dog = 75 million dogs in the US
- 75 million x 2 cans a day in feeding = 150 millions cans of dog food sold each day
- 1% of this market = 1.5 million cans of dog food each day
- US$ 2 per can in profit = US$ 3 million each day
- US$ 3 million per day x 365 days = US$ 1 billion a year in revenue for your company
These simple calculations seem lucrative, but they don’t mean anything until they are validated by sales.
Also, no investor wants to hear you want only 1% of a market. Venture capitalists are looking for big returns and monopoly if possible. One percent market share means that you have competitors who control 99% of the market.
Instead of striving for a general percentage, entrepreneurs should project using the number of current sales made.
2. Scaling too soon
“I have never seen a company die because it didn’t scale fast enough.” — Guy Kawasaki
Even if you have the cash, increasing your head count to help growth isn’t always the smartest move.
Consider the following situation: after a modest increase in sales or closing a round of investment, a company wants to move their dorm-room company to a proper office. With this move, the company hires a new sales and/or development team in anticipation of a tidal wave of new orders. Adding more people to help speed up timelines and to increase sales seems like a good move at first.
The sales tidal wave, however, tends not to happen as quickly as planned. When it doesn’t, the company is stuck with employee overhead costs and burns cash way too fast for sales to catch up.
While expansion is important, best practice is to expand only when you need to add head count to sales. Companies should only hire for positions that directly contribute to existing sales demand pressures rather than projections.
3. Overvaluing partnership
“You wanna be left alone by your investors? Meet your numbers.” — Guy Kawasaki
In Guy’s eyes, partnering is simply two companies trying to compensate for one other’s weaknesses and is only used when there are no sales.
Sponsorships, cross-branding, bundling — whatever kind of partnership it is — the only way to make it work is if there is a direct contribution to sales that the companies are providing to each other — market entry, for example.
4. Focusing on pitching instead of prototyping
“If someone gave me a choice of coming in to see a team with a great PowerPoint pitch, or a team with a prototype that’s working, I would pick the prototype team all day long.” — Guy Kawasaki
A good pitch may help deliver a good impression, but having a functioning prototype means you have the actual ability to deliver to users.
Companies should focus more on prototyping than pitching for two reasons:
- A functioning prototype can help you start making sales.
- A prototype provides more accurate projections, which attract better investors.
The best pitch is one where the data speaks for itself. Prototypes make that happen.
5. Using too many slides and too small of a font
“You’d be lucky to get 10 cogent points across [to your audience].” — Guy Kawasaki
Think of Steve Jobs’s slides. They are in 60-point font and have only one word. Nobody wants to read 60 slides with 8-point font size. It’s boring and nobody is going to remember anything.
This is why Guy recommends the 10–20–30 rule:
10 slides, 20 minutes, 30-point font.
Keeping your presentation short and concise helps convey your message and makes it memorable.
6. Doing things serially
“The serial world in entrepreneurship does not exist.” — Guy Kawasaki
Entrepreneurs do not have the luxury of doing things one at a time.
Startups are about speed. Everything has to be done in parallel. Get used to raising money, building your product, getting user feedback, recruiting, and selling, all at the same time.
7. Believing 51% = control
“The moment you take outside money, you have lost control of the company.” — Guy Kawasaki
Some founders think that owning 51% of the company means that they are in control. They believe that in boardroom meetings, all that matters is the final vote.
According to Guy, nothing ever comes down to a vote. Even if you have the power to veto a decision, if everyone isn’t convinced by your plan, that plan is doomed from the beginning. Investors have to buy into the plan to put their resources behind it; they are not employees who will just take an order.
Even if investors cannot vote at the table, they can vote with their feet. If your investors take away their investment, can your company still continue to function and grow as it does now?
8. Believing patents = defensibility
“Getting infringed and suing Microsoft successfully is not a fundable business model.” — Guy Kawasaki
Patents, realistically, do not provide the protection entrepreneurs believe. Guy believes there are only two compelling reasons to file patents:
- If you get acquired someday, the acquiring company will like it.
- It will make your parents proud.
Investing in a patent is to also investing the time, money, and effort it takes to file and maintain it. What if a big company like Microsoft steps all over your patent? Do you have the resources to out-litigate Microsoft?
In theory, patents sound wonderful, but in practice, they won’t be contributing your revenue streams in any way for years (even if you win that legal dispute).
9. Thinking VCs are your friends
“They are not in the business of making friends. Venture capitalists are in the business of making money.” — Guy Kawasaki
Venture capitalists are looking over a dozen portfolio companies at a time, so the less successful you are, the less attention and effort you will get from them. You can expect them to make some phone calls and introductions, but don’t expect them to go out of their way to save a dying company.
Want to stay best friends with your VC? Meet your projections. Simple as that.
10. Hiring in your own image
“Fundamentally, what you need in a startup is someone to make it, sell it, and collect it.” — Guy Kawasaki
Startups love to hire people who are similar in character and skill. Unfortunately, this magnifies existing weaknesses within your company.
In a startup, you essentially want people who can do the following three things:
- Build a product
- Sell it
- Collect the money
In order to have a team that can do these three things, an engineer must hire a salesperson, a salesperson must hire an engineer, and so on.
Because really — complimentary skillsets are the keys to startup success.
Have any other user interview tips you’d like to share? Leave us a comment below.
If you find this post interesting, subscribe to our newsletter to get notified about our future posts!