Learning from Startup Mistakes at SpringSource
Based on his experience, Rod proposed a framework for launching a technological startup and gave advice on decisions to make and mistakes to avoid at each stage. These stages are: identifying the problem, building a core team, setting up the company structure, creating a plan and choosing a funding strategy.
Focusing on a clearly identifiable problem that customers will pay to solve instead of focusing on technical achievements is key to attracting investors according to Rod. To progress at this stage a (often fragile) balance between certainty (belief in the idea) and openness (to criticism) needs to be maintained diligently. Honing a clear elevator pitch is essential before moving on to the next stage, says Rod.
Rod also stressed the importance of co-founders agreeing upfront on a company culture that is both ethical and comfortable for employees. This approach led to a stable and highly committed team at SpringSource.
In terms of recruiting, an honest assesment of your own limitations and finding complementary people that bring in the lacking competences is key for sustainable growth, according to Rod:
Avoid extinction: hire people with different experience and strengths, expand your gene pool
Setting up a proper company structure with professional (albeit expensive) legal advice early can save large amounts of time and money later on, says Rod. Fixing SpringSource's company structure and early legal mistakes cost nearly $200K.
The importance of having a clear vision and writing down a realistic plan (as opposed to formal, often unrealistic, multi-year enterprise plans) should not be underestimated, Rod warns. If nothing else, the mere process of writing them down will uncover many open questions that need to be addressed. Rod suggested that a compelling vision should not stop at the financial side but focus also on other goals that matter such as reducing complexity, increasing openness, increasing competition and empowering end users.
In terms of funding, venture capital typically goes towards startups that show rapid growth, so that should be the most important thing to focus on. Once you have investors interested, educate yourself beforehand (types of investors, contracts, structures) to avoid signing contracts that you might regret later on, says Rod.
You will be married to your investors, so chose wisely. Everyone’s nice to each other till they marry.
Finally, beware of common financial shortcomings due to bad estimations or a couple of negative quarters and accept that spending inevitably increases once money is raised, says Rod. Multiple rounds of financing are essential: series A allows proving the technology, series B expands to proving the market and series C supports scaling the business.
Randy Shoup Jul 03, 2015