The Three Largest Mistakes You’ll Make
“I run out of money in April,” “Steve” said to me. “I think we’re going to add three new customers this month and I can get to ten new customers with my contacts…”
Do you want to grow your business? Maybe I can help. Click here.
“So you’ve got four months of runway left,” I interjected.
“Yes, but look at my plan,” Steve said, excitedly. “I’m going to fail faster. I intend to hire two sales reps now. That will accelerate our growth, and we’ll be at $1 million ARR by August.”
“Really,” I said. “That would quite an achievement to go from no revenue to $1 million ARR in eight months.”
“Honestly, Brett. I think I’m being conservative,” Steve said.
I like Steve. He has many of the traits I like to see in an early stage start up CEO. He was fanatical about his company’s vision. And, Steve had the passion, drive and belief necessary to succeed. My goodness, he would walk through walls in order to win.
However, Steve, in my opinion, was also susceptible to making significant mistakes with the strategy he was embarking on. In technical terms, Steve wasn’t giving himself any wiggle room. There were three large mistakes he was making:
Large mistake number one: Not managing your cash well.
I loved Steve’s belief in his company, but I felt a little more pragmatism would do him a world of good. He could easily cut his burn rate in half, doubling his runway, and he wouldn’t lose anything.
That’s why when Steve said he was being conservative, I took a deep sigh.
“I take it you disagree,” Steve asked me.
“Yes, I do,” I said. “I just think you should be uber-conservative regarding your cash. If things don’t work the way you expect, you’ll be dead before you know it.”
“I know, I’m taking a risk, but I want to fail faster,” Steve said.
“Why fail faster,” I said. “Instead, managing your cash a little better will give you some optionality.”
Large mistake number two: Hiring sales reps before you’ve proven you know how to sell yourself.
“But, I have the chance to hire these two really good sales reps from (my direct competitor),” Steve said. “If they do what I expect, it will really accelerate the growth of the company.”
“Yes, that’s true,” I said. “However, it would be unusual to have success with sales reps before you personally have success selling.”
“I’m not good at the type selling we need to do,” Steve said. “Don’t get me wrong, I love being in front of customers, but this isn’t what I’m good at.”
“It doesn’t matter (that you’re not good at it),” I said. “Every successful startup CEO I’ve ever worked with, even the engineers with no sales experience, has been the best salesperson the company has.
“You understand your product better than anyone else on your team. Even though you think you’re not good (as a salesperson), it will not matter because your knowledge will shine through.
“Expecting sales reps to sell before you learn how to sell your products is unlikely. That’s why I’d wait to hire the reps,” I concluded.
Large mistake number three: Overpromising and underdelivering.
“With their (the sales reps) help, we’ll get to $1 million ARR by August,” Steve said.
Steve then showed me a spreadsheet showing the expected growth in customers.
“This is impressive if you can hit the numbers,” i said. “However, I wouldn’t plan on it. The plan you’ve drawn out say’s you’re going to get everything right. Where’s the plan if things don’t go as well as you expect?”
“I don’t have one,” Steve said.
“Exactly,” I said. “I’d develop a plan that assumes things don’t go that well. In this plan, you’d reduce hiring. Then, I’d push for the higher revenue, but I’d run the company on the lower revenue plan until you see strong evidence that you’re doing better.
“This will keep you out of trouble because it’s a double whammy when you hire too quickly and your revenue doesn’t pick up.”
Steve nodded his head. “I understand, but I’d rather fail fast.”
“That’s your choice,” I said. “You’re the CEO.”
It’s too early to know if Steve’s aggressive strategy will pay off. I hope it will, but I’m dubious. It’s not because I don’t believe in what Steve’s company’s doing. It’s because most company’s struggle to get to their initial revenue goals.