Tag Archives: Investment

Entrepreneurs: 10 Mistakes, 5 Lessons And 3 Methods To Learn Wisdom

A few months ago, I was talking to a friend of mine who is a high level executive of a global technology firm’s Middle East Region headquarters in Istanbul.  He complained to me that he had spent his entire weekend attending a startup marathon, trying to see if there were any promising teams with decent business plans.  He was upset that of the many teams that attended the event, only a handful had ideas that could be worth something.  Even those few would most likely not be successful or get any funding, because when the problems with their business plans were pointed out, they either became very defensive, reacting strongly to any recommendation or comment, or very passive aggressive, not arguing, but not really listening to suggestions, either.  For all his effort over the weekend, my friend came up empty handed, and was frustrated, mostly due to the attitude of the would-be-entrepreneurs.

Martin Zwilling’s article, 10 Top Reasons Why First-Time Entrepreneurs Fail, from the Entrepreneur Magazine, reminded me of my friend and his weekend. As the title suggests, Zwilling lists top ten mistakes made by entrepreneurs during their first couple of ventures.  Most of these mistakes are due to inexperience, are quite common, and would probably not be repeated after the first time.  Entrepreneurs, Zwilling suggests, should learn from other people’s mistakes rather live through them personally.  Sage advice, very similar to a favorite Confucius quote of mine:

“By three methods we may learn wisdom: first, by reflection, which is noblest; second, by imitation, which is easiest; and third, by experience, which is bitterest.”

The ten mistakes are very well explained in the article.  Here they are, plus my translations into investorese. Unfortunately,  they all lead to the same outcome:

  • No written plan
    =
    poor planning = execution risk = low profits = bad investment
  • Slim or no revenue model
    = no revenue = no profits = bad investment
  • Limited business opportunities
    = no revenue = no profits = bad investment
  • Can’t execute
    = execution risk = low profits = bad investment
  • Too much competition
    = not enough revenue = low profits = bad investment
  • No intellectual property
    = easily replicated = too much competition = not enough revenue = low profits = bad investment
  • An inexperienced team
    = cannot execute = execution risk = low profits = bad investment
  • Underestimating resource requirements
    = poor planning = execution risk = low profits = bad investment
  • Not enough marketing
    = no revenue = no profits = bad investment
  • Giving in too early
    =
    execution risk = low profits = bad investment

All that is a lot for an entrepreneur to watch out for. Luckily, Brin McCagg, co-Founder, President and COO of OneWire, in his VentureBeat article, boils it down to Five Lessons Experienced Entrepreneurs Have Learned, for the would-be-entrepreneurs like the ones my executive friend has encountered.  If they listen, learn, and internalize, they could avoid most of the ten mistakes:

  • Follow-through is essential.

“Prove your ability to execute in both the short and long term, conduct comprehensive market-research and don’t give up when economic outlook appears grim.”

  • Build an enthusiastic and passionate team.

“Build and inspire a core team that fiercely believes in your vision and has the commitment to persevere through market crises and the ups and downs of a startup.”

  • Balance is critical.

“Raise sufficient capital and allocate the appropriate resources to expand your business. Seek to achieve the right balance; don’t be afraid to adjust your business plan depending on market conditions.”

  • It pays to think like an investor.

“While you undoubtedly need a brilliant idea that addresses a market need to spark interest, investors also gauge their faith in the executive team.”

  • Listen and learn.

“Entrepreneurs often focus on communicating, convincing and selling. But investors can be more than financial-backers; they can also act as advisors who speak from their personal experience, failures and successes.”

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Decision Trees

John Dillard, co-Founder and President of Big Sky Associates, talks about decision making in uncertain future scenarios in Decision Trees Help Provide Strategic Answers for Uncertain Scenarios.  I like his post, because it touches upon a subject that often comes up in my conversations with my clients.  Life in general and the business world in particular, is full of uncertainty.  Business managers, especially in times of rapid change, feel uncomfortable making decisions when faced with the unknown.  Sure, they can deal with problems when the objectives, variables and the parameters are clear. What about when they are not? It is never easy to solve half an equation. One needs to make assumptions, and making assumptions is almost always risky.

In such situations, concepts like expected value, decision tree and scenario analysis become very useful.  By laying out feasible alternatives, even in multiple layers, and quantifying their outcomes as well as the probabilities of these outcomes, the chaos of the world of possibilities can be transformed into the order of the decision tree.  Decision trees are especially useful when evaluating investment alternatives and deciding on strategic moves.
Dillard explains:

“Decision trees are a way of applying solid risk-analysis methods to a variety of business problems. And whether the problems are organizational or related to national security or investments, the flexibility is quite remarkable. By quantifying the uncertainty, decision trees allow decision makers to model a variety of outcomes at multiple levels and react appropriately.”

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