By Joe Spector WG’07
Editor’s note: A shorter version of this post was originally published on LinkedIn.
As a second year Wharton MBA, my friend and I entered the Wharton Business Plan Competition. We made it to the semi-finals and, with an abundant amount of optimism, we pushed forward with our venture. In short, it did not work out. Along the way, I learned a few lessons, and I offer them here. Failure, after all, is a great, if painful, teacher.
A great idea is not enough
Having a great idea does not mean having a great startup. While it may seem brilliant to arrive at a clever business idea, it is merely one of many pre-requisites for entry into the entrepreneur club. Success depends on the execution, not the idea. Anyone can have ideas, few can execute them.
Know how to code
For a tech startup, it is crucial that at least one of the founders can code. This is important because the founder(s) need to be directly involved in architecting the product and not be reliant on explanations given by others regarding what’s possible or implications involved with making certain changes. It’s also helpful because you can make quick adjustment and put together A/B tests without having to wait on others. Be cautious about starting a tech venture without this key component.
Contractors come with hidden costs
Contractors will never work as hard as founders or employees. It’s a fine short-term strategy until your company is off the ground, although there’s no such thing as short-term in the beginning. Most of the time, contractors are remote and work on multiple projects. This inevitably leads to miscommunication or misunderstandings, which in turn lead to costly delays. The quality of work will likely not be as high because they don’t have a long term stake. Also, contractors work on a project basis, so a new person/contractor coming in will have to spend time understanding the earlier work before being able to move forward.
Get to market & iterate
Get to market as quickly as possible and iterate. Don’t over research. In fact, you may not even need to write a business plan. This may be counterintuitive for business school thinking, but what you find out from actual users will show you things that you won’t find doing research. In the business plan, you build the perfect product and your customers behave according to the identified patterns. In reality, there’s a difference between what you think you will build and what you actually build given resource and time constraints. Focus on releasing a minimum viable product (“MVP”). This will allow you to move beyond your theories and into market realities. Make changes from there based on actual customer feedback and work towards making a product they love.
Be prepared to spend
Unless you know a billionaire or have a track record of success, be prepared to invest your own money to build the product and get to proof of concept. Investors today want to see some revenue or existing customers before investing. Getting to that point takes time and money. Be prepared to invest $100,000 of your own into this venture. That amount could come from your time and not necessarily be cash, but consider this your $100,000 investment and ask yourself whether you are willing to pay such an opportunity cost.
There will be hidden costs
Many entrepreneurs try the tech route because of its perceived lack of barriers to entry and low cost. There’s this false thinking that “I can build Twitter in a day.” This is seen as opposed to healthcare, for example, which could take years of trials and millions of dollars to get a product out. However, what tech lacks in physical capital costs, it more than makes up in human capital costs—most notably engineers. Even the biggest runaway hits like Instagram and WhatsApp had about a dozen employees and needed to raise millions of dollars to support salaries.
Forget public relations
You might think that being in the New York Times or TechCrunch will bring you tons of new customers, but it really won’t. Another perceived reason for focusing on PR is to get funding. Know that smart investors are going to ask for your metrics rather than be swayed by your smoke and mirror stories. Spending your time on PR takes valuable time away from focusing on your top priorities such as product, customers and revenue. Positive coverage should be the effect of your accomplishments, not the cause.
Things big and small will go wrong. It’s better to admit to the problems, face them head on, and learn from them rather than justifying the shortcomings and only looking at the bright side—you may end up going blind. You will also lose your team’s trust. If you aren’t honest with them when things are going wrong, they will think either that you’re a liar or that you’re incompetent.