The Five Biggest Mistakes to Avoid When Starting a Business

Unclear goals and mission statement.
When starting a company, it is extremely important to literally sit down with your executive team and write out your company’s goals and mission statement. One topic you should particularly focus on is:  What is your measure of success? When you will be able to say: “Yes, this is a successful company.”  Defining your goals and mission is so important because you will find that even though you think that everyone is focused on the same goals, sometimes they are not.

Starting a business purely for ego gratification.
Build a business to: do something great, solve a particular problem, bring technology to a needy world, etc. One of the problems that occur by starting a business for ego gratification is typically you don’t want to share the credit with other people.  You will discover that other people will very definitely be due credit under all circumstances.  By not sharing that credit you will not get their help or their support.

Starting a business purely for money.
This leads to a couple of key mistakes. One of the most common mistakes is not raising enough money. People have the attitude, “We can do it on the cheap; we don’t need that much capital.” The reason for this attitude is people believe they have worked hard and deserve to keep one hundred percent of the equity. But the truth is the question you should ask every time when trying to raise money: “Is my company worth more before or after I raise the capital?”

All companies are built on a process of taking in resources and converting them to value. Therefore, if you can take in a million dollars and convert it into two million dollars in value, everyone wins regardless of how much of the company you had to give up, to receive a million dollars.

Another mistake that happens when starting a business for money is not distributing the equity as widely as possible. The truth is, if you are successful in your company, you will do just fine. There is an old joke that goes like this, “equity is like shit:  if you pile it up, it just smells bad but if you spread it around, lots of wonderful things grow.” So, hoarding the equity and being stingy about giving it out is a big mistake.  If you focus on success in your organization, then the money will come.

Hiring people that you like rather than people you need.
I have news for you:   a company is not a social club. By only hiring people that you like, you will be leaving out people who bring to the table different skills and points of view that are critical to your company’s success. Overall, learn to respect people you might not necessarily like.

As an owner, not knowing when to let go.
Building a company is very much like raising children. As a parent, when your child grows up your relationship with them changes; the way you relate to them changes; and the value you can give to them changes. The same thing is true about companies. The fact is that just because you may be the perfect startup CEO does not mean you are even a good CEO of a one hundred million dollar revenue company. The things that you have to do and the skills that you need are very different.

One of the most important characteristics you need is the ability to determine realistically what you are and are not good at. Through this self-assessment, you will determine what weaknesses you need to hire for.  One of the finest comments I have ever heard was when someone seriously say, “My ambition in life is to be a vice president in my own company.” I think that says it all. He wanted the company to grow large enough so that his skills could be best applied in one particular role and the other roles could be filled by other people.

These are the five biggest mistakes to avoid when starting a business.