Too often you hear about successful entrepreneurs creating multi-million and billion dollar companies. The reason this is bad is because no one really talks about all of the companies that didn’t do well, so you’re left with a false hope that you too can create the next big company.
According to the Small Business Administration, only 44% of new businesses last more than four years. In addition to that, 60% of businesses are either losing money or are breaking even.
So let’s face it: neither you nor I are going to create the next big company. But we can try. To help us in our quest, I asked ten successful entrepreneurs, who have all created companies that are worth at least fifty million dollars, what their biggest business mistake was.
Download this cheat sheet of 10 lessons from successful entrepreneurs you should follow.
Even if you are not going to create the next multi-million dollar company, it doesn’t mean you can’t learn from the mistakes successful entrepreneurs have made.
Here are the mistakes you need to avoid if you want to increase your odds of succeeding:
Alex Algard is a serial entrepreneur and angel investor. He founded WhitePages as well as one of the most popular car websites on the web, Car Domain. In addition to running those two companies, during his spare time Alex likes giving back to the entrepreneurial community through his blog.
As WhitePages went through a phase of extreme growth about four or five years ago, we set the wrong hiring standards in certain parts of our company. We focused too much on specific skills and too little on fundamental abilities, raw talent, and passion for our business. A couple of years thereafter, we went thru some gut-wrenching people changes as a result of that. In retrospect, hiring rapidly was too easy, and it should have been a giant red flag to me. I’ve learned that in good or bad times, hiring should always be difficult.
Although I have made plenty of mistakes, one of them taught me more about the success of a business than others. About one year into running LegalZoom.com, we had the opportunity to make a software in the box solution for our service and to sell the software to large retail outlets. We were scarce on resources and money, but we decided the opportunity was large enough to design and build the package.
It was a disaster. We made the software, created beautiful packaging, and received a few orders for the product. However, it took so many resources that we lost focus on what our core service was (providing legal services online) and almost did not make it through.
The lesson I learned was to keep a laser focus on your core service until your core service does not provide for enough growth. If your core service is still growing at a good pace, keep focused on it. All the other partnerships, new verticals, new products, etc. are meaningless if you don’t build a very solid foundation of your core first.
You may have heard of Dharmesh before as he owns a popular blog called On Startups. But Dharmesh isn’t just a blogger. He co-founded Pyramid Digital Solutions, which was later acquired by SunGard Data Systems. In addition to Pyramid, Dharmesh is also the co-founder of the Hubspot.
The biggest mistake I’ve made as an entrepreneur is being too dependent on a large, strategic partner. With my first startup, I was in an industry that was dominated by a large, powerful company. Early in our startup’s history, we forged a partnership with them. Over the years, it was a roller coaster ride with them. Sometimes we were partners, and everything was good. Other times, they saw us as a competitor, and life was hard.
The big downside to having too much dependence on another company is that it limits your ultimate growth potential. If you grow too fast or too big, you become a threat. Whenever possible, entrepreneurs should control their destinies and work in industries where it’s not mandatory to have the blessing of the 900-pound gorilla.
Glenn is the CEO of Redfin, which is one of the largest real estate websites on the web. Prior to Redfin, Glenn co-founded Plum Software, a publicly traded company that created the enterprise portal software market.
The biggest mistakes are always bad hires. I also get into the weeds too often. Entrepreneurs tend to be perfectionists – folks who wear plenty of different hats. That can make you tough to work for and limit the talent you attract to the company. You have to be confident in your point of view about the company’s overall strategy and values but then give folks the latitude to do their jobs.
Every day riding home from work, I think about where the line should be and whether I was on the right side of it. I think about whether someone working for me even really knows what I want. I can be inarticulate about our most audacious goals because it seems unfair to even ask for what we really need to do. But that’s exactly where you need to be clear.
Kamran Pourzanjani is the co-founder of Pricegrabber. He sold it to Experian for around 485 million dollars. Unlike most of his competitors, he only raised 1.5 million dollars to create that large company. In addition to being the co-founder of Pricegrabber, he is also the co-founder of a new startup called Bestcovery.
Though we all want to avoid mistakes, there is almost no way to get around them when running a business, particularly a start-up. One of the biggest and most common mistakes entrepreneurs make, which I have been guilty of myself, is not taking fast corrective action in dealing with a bad hire.
No matter how careful we are, how many interviews we do or how many references we check, making a bad hiring decision is almost inevitable. The problem, however, becomes much larger when we are too slow in correcting the situation, i.e., terminating the employment as soon as possible. We keep telling ourselves that the person is new, they will kick in soon, they need more time to adjust, etc. But this more than likely is wishful thinking rather than reality. If the person does not fit in the organization within the first couple of weeks and is not doing the job, then it’s in the best interest of the company and that employee to cut that employee loose as soon as possible and focus on finding the right person.
At the age of 27, Keith founded Zango and grew the company to around 78 million dollars in yearly revenue. Currently, Keith is working on his new startup Big Door Media, which helps websites monetize.
The biggest mistake I’ve made in business was to allow myself to get too far removed from my customers. In my last company, we experienced rapid growth, going from $2 million a year in revenue to over $50 million in just two years. During this time, we scrambled to build up infrastructure, hire quality employees, make sure we were financed correctly, manage board and investor expectations, and retain a great corporate culture. All of these things were important, but I allowed them to get in the way of me spending time directly with our customers. I surrounded myself with extremely talented people, and then I convinced myself that the company was better off if I let them interface with customers, while I focused on CEO duties.
The net result was that the needs of our customers shifted, and I didn’t see it coming. The business continued to grow, but the underlying cause for our growth stopped long before our growth actually slowed – and by then, it was too late for us to retain our leadership position.
My lesson learned was that while it is critical to hire talented people that you trust, that is not a valid replacement for the CEO spending significant amounts of unfiltered time with current and prospective customers.
J.R. was the co-founder of Virtual Tourist, which was acquired by Trip Advisor. Currently, J.R. is working on his new startup Lunch.com that connects you with other people who share similar interests.
The biggest mistake I’ve ever made was having too much trust. Being a start-up entrepreneur, it’s easy to get impressed by someone more established or experienced, especially if they are coming at you with a large checkbook. That’s natural and it’s fine, but don’t inherently trust them.
I let my guard down and trusted someone who approached me to buy my company. I even signed a term sheet with them based on that trust, and that was my biggest mistake. During due diligence, I learned a lot about them and their business, and I decided not to sell them my company. They sued me and tied me up in a frivolous lawsuit for almost three years. It cost me hundreds of thousands of dollars in legal fees and countless hours of wasted time. I was 100% victorious in the end, but it was a hollow victory because I’ll never get back the time I spent fighting that company. Just to clarify, this buyer was not Expedia/TripAdvisor, who actually ended up buying my company many years later.
To make my mistake even worse, I’m a lawyer, so I should have really known better. My advice: be especially cautious of anyone who brings trust into the equation to pressure you into doing anything.
Although many of you know Joel as a New York Times best selling author, he was the founder of Classic Games. The company was later acquired by Yahoo, who then used it to create Yahoo Games. He also created the The Next Internet Millionaire show.
My biggest mistake has been hiring the wrong people. I’ve seen too many people whose walk does not match up with their talk, and it’s ended up going bad. The most difficult and painful scenarios are when you hire someone you thought was a friend only to discover that they have used and manipulated you. It’s a primary reason that I have pledged to not go into business with close friends ever again. My friendships are very important to me, and I do not want to risk them by entering into a business relationship.
Patrick Gavin was the co-founder of Text Link Ads, which later got acquired by Media Whiz. In addition to Text Link Ads, Patrick has invested in a handful of other startups, and he is currently working on his next project, DIYSEO.
The biggest mistake I have made is not investing in my own business. With our Text Link Ads business, we relied heavily on viral growth, advertising, affiliates, etc. We had one great sales guy, but because of our success in marketing, we had more leads than we could follow up with properly. Shortly after we sold the business in 2006, the purchasing company quickly added five new salespeople to the team, and the business doubled in size within 12 months. Millions of dollars were left on the table by not investing in sales sooner.
It may not be sales that your business needs today. It could be more customer support, more advertising, more content on your website, a better domain name, etc. There is some way you could be investing money back into your business today that could lead to more growth. If you don’t do it, your competition will.
Tony Hsieh is a serial entrepreneur and investor. He is well-known for investing in Zappos as well as being the CEO. But before Zappos, Tony was the co-founder of LinkExchange, which sold to Microsoft for $250 million.
The biggest mistake I’ve made has been with hiring the wrong people. I think if you add everything up, including the cost of bad decisions, additional bad hires made by the original bad hire, and missed opportunity costs, bad hires have cost Zappos over $100 million.
Hiring is never a perfect science, and I’m sure as a company we’ll continue to make bad hires. But over time, we began making fewer mistakes and became better at correcting our hiring mistakes more quickly.
As an entrepreneur, you have hopes of creating a successful company. Although at certain times it may not seem like you will ever get there, you will as long as you keep on pushing forward. Even if you make big mistakes like some of the entrepreneurs above did, you can still succeed.
The best way you can improve your odds of success is to learn from other people’s mistakes and try not to create that “big” company when you first start. Your first goal should be to create a profitable business. You can grow from that point on. But the key is to not get ahead of yourself.
P.S. If you want help growing your business click here.