May 7, 2015
I’ve recently read an exceptional post by Y Combinator‘s cofounder and partner, Jessica Livingston, about the biggest mistakes made by mid-stage startups. Many of them end up failing because of these mistakes.
Livingston has funded more than 800 startups, and can recognize traps that many mid-stage startups fall into. During this stage of a startup’s life, the company has already raised the first few rounds of funding to make the business grow; however, once they are out there executing their plan, they end up getting into trouble.
“Every one of these traps is one we’ve seen startup after startup fall into. And many of you who read this post will fall into these traps, even though I’ve already warned you about them. That’s how dangerous they are,” wrote Livingston.
Here are 6 of these deadly pitfalls mid-stage startups should avoid:
1. It Never Gets Any Easier
Because startups struggle the most (and are most likely to fail) during its early-stage, many founders tend to relax once that hurdle is over.
“It doesn’t get any easier. It gets different. As your company grows, things stay as hard but the nature of problems change,” explained Livingston.
Just because you raised the funding, it doesn’t mean everything is going to fall into place. The more successful you are, the harder you have to work.
2. Don’t Go on a Spending Spree
Sometimes mid-stage startups go from bootstrapping to buying anything in order to solve issues once they’ve raised funding.
“After they raise money, some founders go on a sort of bender. They rent a fancy office, hire too many people, spend too long shipping the next version, waste lots of time schmoozing and going to events, etc,” said Livingston.
She goes on to explain that when the spending happens, many founders stop being accountable. That’s when things start going wrong.
“Once you’ve raised a lot, you have to force yourself to be virtuous,” she wrote. “Most mid-stage startups have already hired their core group of early employees. These are probably the most talented people the founders knew from their networks. And everyone knows how important the early people are for building great things and setting the culture of a company.”
Take your time before getting that fancy office to show off how much your startup is growing. Don’t hire everyone with a fancy resume, either. It doesn’t necessarily mean progress.
3. You Will Have to Become a Manager
Some founders find it difficult to manage people. You go from making things to having to deal with personalities, attempting to maintain a culture to ensure everyone is productive. But Livingston explains that it’s something that can be taught.
“[Founders] all said they learned by trial and error and by reading lots of books. But the least obvious technique was that they learned from executives they hired. They learned how to manage by watching people they were supposedly managing,” she wrote.
4. It’s Way Harder to Raise Subsequent Rounds
Mid-stage startups are often unpleasantly surprised by how much tighter the filter is in subsequent rounds.
“Startups are often unpleasantly surprised by how much tighter the filter is in subsequent rounds. It’s unfortunately very common for startups to raise a big chunk of money early on and then labor under the misapprehension that raising another round will be similarly easy,” explained Livingston.
During the first rounds of funding, seed round investors are betting on the idea. But all subsequent rounds they want results.
5. Don’t Run Out Of Money
If you run out of money, you get desperate. And no one wants to work or invest in a company that is desperately running out of cash.
“The best case scenario is probably that you’ll get money on crappy terms and the worst case is that your desperate situation will make you seem lame and no one will fund you,” she said.
6. Ship Great Things
Continue to do what you do best.
“Keep delighting users by making amazing stuff. That’s probably what got you this far.”
Read Livingston’s full post, which also includes also advice on hiring the right team for your mid-stage startup.
Image Credit: Flickr/Robert Scoble
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