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Start-up Advice

4 Pieces of Bad Startup Advice that you Should Ignore

Here are four pieces of advice that, while common, can often lead you in the wrong direction.

Rob Strandberg

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Bad-startup

Being an entrepreneur is a bit like having a baby: everyone suddenly wants to give you advice. There are innumerable resources for entrepreneurs to turn to for guidance when starting their companies, so the challenge becomes choosing the right bits of advice and weeding out the wrong ones.

Here are four pieces of advice that, while common, can often lead you in the wrong direction:

1. “When it comes to the markets you target, investors need them to be very big.”

Many entrepreneurs believe that to have a ‘big win’, they have to chase billion-dollar markets. However, some of the smallest markets generate the largest returns. Often, big ideas focused on big opportunities require larger capital investments for start-ups.

Related: The 5 Things Every Entrepreneur Should Stop Doing

Alternatively, small niche markets can be very attractive for investors, because the start-up can quickly create a defensible advantage, acquire customers with less capital and be less vulnerable to threats from competitors. We love to see start-ups chasing markets where they can be a dominant player and establish strong customer relationships without a lot of financing.

From an investor’s perspective, there is absolutely nothing wrong with a start-up that may never need more capital than $1 to $2 million, but can still achieve a “modest” $30 to $50 million exit. In fact, the likelihood of a solid return may be far higher given the lower inherent risks, despite a smaller exit.

2. “When it comes to raising capital, raise as much as you can and aim for the highest valuation.”

A simple analysis of ownership, dilution and value creation supports that a start-up should only raise what is necessary to get to the next meaningful business milestone.

Achieving milestones such as product completion, key management additions, and most importantly, initial customer/revenue traction, often allows a start-up to raise more funding at a much higher valuation.

Studies indicate that pre-revenue start-ups, nationwide, are priced within a surprisingly tight valuation range, so there is often little chance of a higher valuation until these first milestones are achieved.

Most start-ups need to set their first value and raise targets at reasonable levels, pursuing higher valuations and larger rounds once more substantive progress is achieved.

3. “Patents are crucial for technology investors.”

It is true that investors love start-ups with strong intellectual property. However, we have learned the expensive lesson that not every concept or product needs a patent strategy. Filing and maintaining patents can be very expensive and may never lead to a stronger competitive position.

Related: 10 Start-up Tips Learned the Hard Way

Furthermore, start-ups often exaggerate the value of their IP to investors. Then, during due diligence, investors inevitably get spooked upon discovering competitors with prior art or closely related IP.

Our advice here is to retain a reputable IP attorney, ideally with experience related to your technology or product, and to have a candid conversation on the true cost vs. benefit of a specific patent and whether your IP is likely to become a valuable asset.

4. “If you are young and smart, there is no better time to take a shot and launch your start-up.”

With the recent start-up avalanche and the global excitement throughout the entrepreneurial space, it’s very tempting for young entrepreneurs to leave academic programs to pursue their start-up ambitions. Yet for every example where a young, inexperienced entrepreneur nailed it, there are hundreds of failures.

While some say failure itself is a learning experience, we know that even a short job stint resulting in relevant experience is by far a better strategy. A young entrepreneur should take note that the vast majority of successful investors require experienced founders and management teams.

So if you think you have a great idea, thoroughly analyse what your weaknesses are matched against what skill sets will likely be necessary for your start-up’s success. Try to work on strengthening these weaknesses, perhaps by joining a company in your target industry. Learn on someone else’s dime.

Once you know your space, I guarantee investors will take a far closer look.

Related:(Slideshow) 6 Things I Wish Somebody Had Told Me When I Started My Small Business

This article was originally posted here on Entrepreneur.com.

Rob Strandberg is the president & CEO of the Enterprise Development Corporation, a public-private partnership that assists high-growth potential companies throughout south Florida. He has been the CEO of a number of successful companies and received his BS in engineering at Cornell University and an MBA from Harvard University.

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Start-up Advice

Put On Your Wellies: It’s Time To Wade Into Risk

Entrepreneurs aren’t all leaping into the unknown like lemmings off a cliff, but they do need to consider it…

Chris Ogden

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You’ve had a great idea. You’ve looked into its development. You’ve recognised that it has potential beyond just what Auntie Mabel and Mike From The Grocer think. And you’ve clearly nailed a pain point that can make money. Now it is time to take the risk of running with it.

Every big idea comes with risk. You can’t step out into the world of entrepreneurial thinking and business development without it. Your idea may fail. It will also be time consuming, demanding, hungry for money, and hard work. It is unrealistic to expect that your project will leap out into the world and be an unmitigated success.

It is also unrealistic to assume that it isn’t worth taking this risk.

There are steps that you can follow to ensure that your risk is managed so you aren’t blindly leaping off that cliff…

Step 01: Do your research

No, canvassing your neighbours, friends and family is not doing research. You need to know that your idea will appeal to a broad market and that it will have significant legs. This may sound like daft advice, but you would be surprised how many people think an idea will take off just because Susan in Accounting said so.

Step 02: Understand the costs

Projects are hungry for money and investment. Realistically work out your budgets and how much it will cost to take your project off the ground and then stick to it.

A calculated risk is a far better bet than one that shoots from the hip and hopes for the best. You can also use this as an opportunity to draw a clear line under where you will stop investing and end the project. If it keeps eating money and isn’t getting anywhere with results you need to be able to walk away.

Step 03: Know when to walk away

As mentioned before, this can be defined by a line you’ve drawn in the proverbial sand (and budget) but no matter where you draw this line, you have to stick to it. Often, when time, money and energy have been poured into a project it can be incredibly hard to walk away.

You think ‘but I have put so much into this, just one more’ and then it gets to a point where the ‘just one more’ has taken you so far down the line that walking away feels impossible. Leave. Learn the lessons. Apply them to your next project.

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Start-up Advice

Mind The Gap

The entrepreneur’s guide to finding the gaps and building the right solutions.

Chris Ogden

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Innovation may very well be the key to business success but finding the gap into which your innovative thinking can fit is often a lot harder than people realise. Some may be struck by inspiration in the shower, others by that moment of blinding insight in a meeting, however, for most people finding that big idea isn’t that simple. They want to be an entrepreneur and start their own high-growth business, but they need some ideas on how to find that big idea.

Here are five…

1. Network

It sounds trite but networking is actually an excellent way of picking up on patterns and trends in conversation and business problems. The trick is to note them down and pay attention. Soon, you will find patterns emerging and ideas forming.

2. Look for pain

Just as networking can reveal trends in the market, so can spending time reading. The latter will also help you find common business pain points. These are the touchpoints that frustrate people, annoy business owners, affect productivity, or impact employee engagement.

Be the Panado that fixes these pains.

3. Luck

luck

This is probably the most annoying of the ideas, but it is unfortunately (or fortunately) very true. Luck does play a role in helping you capture that big idea. However, luck isn’t just standing around and random people offering you opportunities. Luck is found at networking events, it is found in research and it is found in conversations with other entrepreneurs.

4. Luck needs courage

You may have found the big idea through your network, a pain point or pure blind luck, but if you don’t have the courage to take it and run with it, you will lose it to someone else.

Being bold in business is highly underrated because most people assume that everyone is bold and prepared to take big leaps into the unknown. However, not all brilliant entrepreneurs were ready to throw their family funds to the wind and leap into an idea – they were courageous enough to figure out a way of harnessing their ideas realistically.

5. Pay attention

This is probably one of the most vital ways of finding a gap in the market. Often, people are so busy that they don’t really pay attention to that niggling issue that always bothers them on a commute, or in a mall, or at a meeting. This niggling issue could very well be the next big business opportunity. Pay attention to it and find out if that issue can be solved with your innovative thinking.

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Start-up Advice

5 Things To Know About Your “Toddler” Business

As you navigate this new toddler phase of your business, here are five things to bear in mind.

Catherine Black

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Ah, toddlers. Those irresistible bundles of joy bring a huge amount of energy, curiosity and fun to any family – but there’s also frustration and worry that comes with their unpredictability, as they grow and start to become more independent. If you own a business and it’s successfully past its “infancy” of the first year or so, it’s likely it will also go through a toddler stage of its lifecycle.

Pete Hammond, founder of luxury safari company SafariScapes, agrees with this. “Our business is now three and a half years old, and we’ve found that we’re not yet big enough to justify employing a large team of people to handle the day-to-day admin tasks, yet we still need to grow the business as well,” he says. “As a result, our main challenge is finding the time to step back and see the bigger picture. Kind of like when you are raising a busy toddler and you spend most of your time running after them!”

As you navigate this new toddler phase of your business, here are five things to bear in mind:

1. This too shall pass

Everything in life is temporary – and that goes for both the good and the bad. It’s as helpful to remember this when you’re facing the might of a toddler temper tantrum, as it is when you’re facing throws of uncertainty in your business. If your new(ish) venture is going through a rough patch in its first few years, it can be easy to think about giving up – but don’t. As long as you have an overall big idea that you believe can add value to your customers, keep pushing through the rough parts until you come out the other side.

2. Appreciate what this phase brings

The toddler years mean that the initial newborn joy is officially behind you. But these small humans also bring their own kinds of joy, as you watch them learn new skills, say funny things, and give affection back to you. While your two-year-old business may not hold the same exhilaration for you as it did during those first few months, there are now different things to appreciate about it: Maybe you’re expanding your product range, or employing new people who can take the workload off you.

3. Establish boundaries

Toddlers thrive on boundary and routine – and your toddler business will too. As it grows into a new phase, try and establish limits in terms of the type of clients you want to work with and the type of work you’ll do. It’s also a good idea to make a decision about the hours you’ll work and when you’ll switch off, which will help you establish a good work-life balance.

4. Take a break

Every parent with a toddler needs a break every now and then, even if that means a walk around the block (on your own!), a dinner out with friends, or even a few days away. The same is true for a demanding small business: every so often, remember to take time out to rest properly, where you switch off your laptop and completely unplug. You’ll return much more inspired and resilient to deal with the everyday uncertainty that it brings.

5. Give it space to make mistakes

While the unpredictability of a young business can be stressful and tiring, it’s also a time for trying new things without the risk of huge consequences if they don’t quite work. After all, it’s much simpler to change your USP if you’re a small business employing a few people, rather than a big company where 50 people are relying on you for their salary, or where you’ve received a huge amount of investment capital. While you may fail in some of the things you try with your business (in fact, this is almost guaranteed), see it as a toddler that’s resilient enough to pick itself up, dust its knees and keep moving forward.

During this phase of business growth it’s also essential to have the right type of medical aid cover. There are medical schemes such as Fedhealth which has a number of medical aid options and value-added benefits to ensure that your health and wellness is taken care of too. After all, the healthier you and your staff are, the more productive your business will be – during the toddler (business) stage and beyond.

While this phase can be frustrating, it’s a sign that your business is growing and adapting, rather than remaining in its infancy, and that can only be a good thing! So embrace the difficulties, learn from them, and watch as your business strides forward confidently into the next exciting phase.

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