9 Worst Pieces of B.S. Advice that you can take as a startup entrepreneur!
From a talk with Kleiner Perkins
- BS. Quit your day job to work on your idea/company.
Reality = The truth is you should only quit when the revenue from your idea/business can afford to pay you a living wage. Investors will tell you that this shows them that you are serious about the idea. In reality it just puts you in a weakened position, because now you have the stress of paying your bills from seed money, it limits your credibility to new partners, and it makes you dependent on future investor money. Plus output is not driven by hours put in, work smarter not harder.
Takeaway = Many entrepreneurs have failed because they quit their day job early and when they succeeded, they only owned small pieces of their company because they had to take more from investors to stay afloat, personally. Being unemployed causes’ stress which floods the brain with Dopamine which presents serious challenges for reasoning and memory, brain fog is the result.
- BS. I need other people’s money to start so I need to focus on my elevator pitch/pitch deck to get investor funding and enter pitch competitions
Reality = Last year approximately 800 US companies raised a Series A round of the 2.5 million businesses that ‘started up’, so few gain external money roughly 0.03%.
Takeaway = Which means that all the effort invested in getting your company and its message ready for investors; is wasted. All of that time is better spent on building product and selling your product to customer, generating revenue. Sales cures all.
- BS. You have to spend money to make money
Reality = Many web companies have free trial periods, you can have an office in your kitchen/apartment/garage/cowork space, you don’t need costly office space. Hewlett Packard HP a $52billion Revenue Company started in the founders’ garage.
Takeaway = Money in startups should only be spent on making the product or selling the product. Overhead/office expense should be kept as close to zero as possible.
- BS. If I make a best/better/first product, people will come to me to buy it.
Reality = Price of a Product consists of100% = (30% manufacturing + 30% Marketing/Sales Efforts + 30% Overhead/Office/Salaries+ 10% Net Profit(EBITA) Earnings before interest of loans, taxes, depreciation and amortization. No one seeks out new products to buy, they are sold to.
Takeaway = Sales are really hard. Harder than making the product or building the team, to make the company or product. The clutter or noise in the marketplace for the consumers’ interest and dollars is immense.
Google “cost of superbowl ad” = Super Bowl 2018 commercials cost $5 million for a 30-second ad – Business Insider.
- BS. Ideas are invaluable, worth more than gold.
Reality = The famous Thomas Edison quote “Genius: one percent inspiration and 99 percent perspiration.“ You cannot patent an idea, only a physical product. The most successful entrepreneurs that provide these products; electric vehicles, the lightbulb, the computer, online community, online bookstore, were not the inventors of them. They just refined and sold the idea as a product the best.
Takeaway = Ideas are dime a dozen. Go to any inventor club or talk to dreamers they all have a million money making ideas. 288,335 patents were applied for in 2015 in the U.S.
- BS. Patents on products are required.
Reality = After you patent an item, the design is made public as part of the patent approval process. The next person can make a change to your device, and apply for a patent of a modified version of your device, documenting your work as “prior art”.
Takeaway = in some cases a person can take your patented device outside the country and patent it there as new to make and sell. Patents only mean if another person makes/sells your exact product in the country you registered it, that you have the legal ability to sue them.
Companies in China regularly knockoff name brand items to sell them in the U.S. I have seen Chinese reps at tradeshows take pictures of prototypes to email back home, so they can knock off a copies for sale, weeks later.
- BS. Startups have to be fast and have hustle.
Reality = Amazon started in 1994, Ebay in 1995, Google and PayPal since 1998, Tesla since 2003, Facebook 2004, so fast to them is 10-5 years. Versus GE started in 1892, UPS in 1907, IBM in 1911, HP in 1939, Cisco in 1984.
Takeaway = Fast is relative, slow and steady does win the race. Stability and proven historical revenues, achieved milestones, patents, prior investments, and assets indicate the likelihood of future success.
- BBS. Your idea is unique and VC’s will sign you NDA and keep your ideas secret.
Reality = Nothing burns a hole in a persons’ pocket more than secrets/gossip. No VC is going to sign your NDA and they are going to talk about it. They will take ideas from your pitch and provide them to existing invested companies to improve the odds of those companies success.
Takeaway = Your ideas need to be patented or you must have defensible traction before pitching your secrets to anyone. You product is not your secret, how your products work, is your secret.
- BS. The goal of Angels and Venture Capitalists is to invest in startups to fund revolutionary ideas.
Reality = Investors prefer proven teams, companies, products and business models. They steer away from revolutionary ideas; they don’t want to invest in firsts, as these carry too much risk. Their goal is to not lose money and to provide an x multiple return to their clients (fund investors).
Takeaway = If you have a proven business and don’t need funding/financing, Revenue of $1-3 million per year, then venture capitalists will be interested in talking to you about your funding needs.