5 Common Thinking Mistakes from Startup Founders
1) Believing that you need VC money
Founders often believe that to build a great startup, one necessarily needs venture capitalists’ financial help, or as we call it at BV4: “VC money”. This is the biggest misconception that a founder can make. To all the founders out there: you do not need VC money to be successful. To be successful, you need a strong complementary team that knows each other well, a great solution to an existential problem, a ton of hard work, and some investors that believe in you, but these investors must not necessarily be VCs. And yes, some luck is also essential to success.
2) Writing a business plan before having an MVP
This is a typical characteristic of business students aspiring to become entrepreneurs. They have a lot of theoretical baggage that they use and write amazing business plans. The ugly truth is that most of time, they are wasting time. A business plan is a great tool to project the business in the future, but if you don’t even have a presence, how do you want to have a future? Develop a product, test your market, get positive feedback, and go build your business plan. You are afraid of your unit economics and whether it makes sense? Don’t worry about it, Uber, Spotify, and Gorillas were not profitable for a long time yet still became tech giants.
3) Taking months/years to test your MVP and get feedback
This one is a tricky one as, depending on the product you are building and your industry, you may need to have a strong MVP. Nonetheless, founders should always remember that they are building a solution to solve a specific problem for a specific population in a dynamic environment. While building, it is crucial to have a constant feedback loop with your targeted audience. Nobody has built a great product without having to do some iterations and implement user feedback. Never forget that we live in a dynamic world, the user interface that was popular three months ago might not be liked any more today. Get constant feedback while building.
4) Being cheap when discussing valuation
This is our favorite one at BV4, by far. If you make $10k in MRR, you are not worth $10M, trust me. Yet, we constantly hear founders believing that their groundbreaking technology is worth dozens of millions, even without market validation. Founders should never forget that their value is intrinsically linked to the market’s validation.
Let me better explain myself via a simple comparison. Let’s take two different startups, one named Paper2U and the other named Test2UrDoor. Paper2U is a direct-to-consumer e-commerce that sells customized toilet paper that can be in front of your door in an hour maximum (for urgencies and against a small premium fee, they can be at your door in 10 minutes, convenient, isn’t it?). Paper2U has had respectively 1k, 2k and 4k orders in the past three months for an average value of 10$ per order and is expected to keep a double-figure monthly growth for another 6 months reaching 256k orders six months from now (we’re talking about $2.6M in monthly revenues and annual revenues of over $5M). On the other hand, we have Test2UrDoor that sells a revolutionary test to help you diagnose whether or not you have an STD.It is a groundbreaking technology and has the potential to revolutionize the world of direct-to-consumer diagnostic tests. Test2UrDoor is still in a very early phase and just built its first MVP (still non-operational for now). Both companies need $1M in funding to respectively continue their growth. It is extremely clear that Test2UrDoor has a much bigger potential thanks to its innovative solution, nonetheless, Paper2U has been approved by the market (not only approved, but the market also loves it!) and as a sign of this appreciation, grows at a very fast pace.
In this specific example, who do you believe should be worth $10M and who should be worth $3M? Obviously, Paper2U is worth more as of today. What this example portrays is that: until the market validates you (and market validation can come under a myriad of forms, not only sales), but you also most likely are not worth dozens of millions and should not focus so much on your valuation.
5) Thinking that your fundraising round will take 3 months
In a best-case scenario, and by best-case scenario I mean if you already have shareholders that have deep pockets and they love you, your fundraising round will take 2 to 4 months. If you are not in this privileged situation, you should plan that your funding round will take approximately 6 to 8 months. It usually takes 1 to 2 months to gather all the necessary documents and build a winning data room, another month to start contacting investors (from the moment you identify all the different investors whom you want to contact and get their contact details or fill their different forms, 2 to 3 months of pitching and answering your investors’ due diligence questions and finally 1 to 2 months to negotiate your term sheet, close your round and receive the cash in your bank account. Fundraising is a long and tedious process and if you have doubts on how to develop a strong funding strategy, contact us at BV4, we will be happy to help you out.