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A key element of remaining optimistic and planning ahead is the willingness to take ruthless stock of errors. CEOs are human, and humans are sometimes too antsy, too personally loyal, or not able to communicate clearly enough with one another.
Four experienced LA-area executives were generous and candid enough to share their own regrets, with which we've created a list of common dangers to avoid. In anecdotes of woe from tech founders and CEOs, we gleaned wisdom that will help put risks in context and may spare future founders from misleading themselves.
1. Don't seek investment too early
[ibimage==33966==Medium==none==self==ibimage_align-left]The gold rush is on – get in before it's too late! Of course, it's never as easy as it looks, even during a boom. But Ad Hoc Labs CEO and co-founder Greg Cohn knew that his Burner app was a killer idea and saw no reason not to reach out for an investment round and leave some of the heavy lifting for afterward. What could go wrong?
“We had lots of great meetings but only a couple of early commitments from people who knew us really well and who really believed in us, but we just didn't have enough commitments and interest to close a 'round' at a level that made sense,” Cohn said.
Down but not out, Cohn and his team bootstrapped, put their heads down, and shipped their product. And, suddenly, winter turned to spring. “The market responded even better than we'd hoped. The day after we launched, we were the top story on Hacker News, had some great tech media stories about us, and were above the fold on Techmeme for the better part of a day, and shortly thereafter Time featured us in a very prominent way as a great tool for privacy. And this wasn't something we pitched, this was just the market being excited by what we were doing, which was obviously incredibly exciting. More importantly, it provided the kind of preliminary validation we needed to get a round done, and from there, the round essentially closed itself.”
Cohn happily shares what he learned with those who assume it was effortless. “Given the practically unlimited number of things early-stage investors can put their money into, I find myself giving this advice to pre-launch founders often,” Cohn said. “Unless they're one of a very select club who can go out there and raise on their name alone, the bar is way higher than it looks to raise capital. And I advise them to make sure they really validate their market and be honest with themselves before they get too far into a fundraising process.”
2. Don't confuse the professional with the personal. Depend on yourself.
[ibimage==33967==Medium==none==self==ibimage_align-right]As a famous, prolific, and much-traveled freelance writer, Jeff Koyen has a litany of personal connections, presumably enough to staff a highly ambitious startup. Unfortunately, his Rolodex did not include the perfect CTO for Assignmint, the writers' platform he built after relocating from New York to Venice.
“I made the mistake of relying on a personal connection, rather than finding the best candidate for the job,” said Koyen. “I didn't account for the discipline one needs to personally handle a complicated build-out, and I thought we'd simply tackle everything on the white board. Due to my mis-hiring, I eventually lost a lot of time, money and sleep. And because there was a personal connection, dismantling the arrangement was unnecessarily complicated.”
Koyen said that, because of his experience, he now zeroes in not on culture fit, but on tasks that scale. “Listen, beer pong and office keggerators are fine for some startups,” said Koyen. “Have a blast living in the office. I prefer solid work days, set expectations, and a good night's sleep. Moving forward, in other projects I'm building, I've decided to scale my goals according to what I can personally handle. Rather than raise a few hundred grand to build an elaborate SaaS platform that needs a CTO and team of engineers from day one, I'm looking at smaller problems that can be solved with software I personally build.”
3. Don't assume that communication will take care of itself
[ibimage==33968==Medium==none==self==ibimage_align-left]Eric Rice, CEO and founder of TrepScore (and occasional Built In Los Angeles contributor), said that he has faced challenges similar to Koyen's, and grudgingly learned to “hire slow and fire fast.” But he also said he believes that his most significant errors have occurred in the realm of communication, or the lack thereof.
At TrepScore, Rice said, his most egregious early mistake was to “not create or instill more protocols and methodology for constant communication. With the team that we have right now, we notice that there are people building a business and people building a product. If they're not totally communicating and on the same page, you'll lose a week for every day that you fall behind in communication.”
Rice said that now, with the help of his co-founders, he is structuring, streamlining, and bullet-pointing. “Make sure that there is constant communication, but, more importantly, targeted communication,” Rice said. “Founders to employees. Employees to customers. Customers to marketers. There's a constant channel of communication that is quick and to the point. Most companies have six-hour meetings three weeks apart, when they could have daily 15-minute meetings.”
4. Don't be afraid to say 'NO'
[ibimage==33969==Medium==none==self==ibimage_align-right]Sometimes, even the most successful and competent CEO will sieze an opportunity only to find a threat buried inside. Ask Eric Johnson, founder of the full-service digital agency Ignited in El Segundo.
“Early in the history of our company, we were invited to pitch a big sexy global brand in a huge business vertical,” Johnson said. “All of our best contacts who knew the firm warned us about the challenges of working with this prospect; they were difficult to work with and wouldn't buy great creative. We ignored this advice, and believed we could win them over and get them to invest in great work.”
Because he kept saying 'yes' when his gut kept saying 'no,' Johnson said he fell victim to the sunk-cost fallacy. “We invested hundreds of thousands of dollars creating strategy, creative and media recommendations. At some point, we were so heavily invested, we felt we couldn't afford to bail out. We believed we could and would win. We made it to the finals, but we ultimately didn't win. The firm that did win, wasn't successful in selling great work, or turning around the clients business, and lost the business in short order. All of the warning signs we heard about the client proved to be true.”
Today, Johnson said, he and his team are more circumspect and more wise. “We learned not to fall in love with big sexy opportunities. We learned to look at the likely total potential income and profitability of the business before beginning to invest, set a limit on what we will be willing to invest to win. If we don't believe we can win with this level investment, we don't participate in the pitch. The morale hit that happens when you lose a big protracted pitch is enormous. We have become much more selective about who we pitch, and what we invest. Sometimes, it's better to just say no.”
