Lessons for startups

I read a book in which The Motley Fool brothers advised readers on what to do with their money following the tech bubble burst. The advice seemed fitting for the current economic situation as well; however, the analysis of why so many tech bubble investments went wrong interested me most. The lessons translate so well for tech startups themselves.

1. We were impatient. Who wouldn’t want to be a runaway-success story? Unfortunately, the drive to achieve can lead to short-cutting due diligence, including market and customer research. Large companies can absorb the impact of some imprudent, rushed decisions; startups don’t have that safety net.

2. We didn’t play our game. It can be tempting to chase big opportunities, to think that if you can get just 1% of that monster market over there, you’ll have it made. ‘Playing your game’ is about knowing what your competitive advantage is and targeting customers in that market. You can expand beyond your core strength once you’re firmly established.

3. We didn’t respect profitability enough. Having a great idea is not enough. To succeed, your great idea must be paired with a business plan based on sustainable profitability. Key considerations include customers wanting your product at the price you set, your ability to differentiate against competitive offerings, and structuring your operation so that your great idea returns great profits.

4. We pursued growth at any cost. If you pay too much to acquire customers, hire too quickly, or cut too many corners in delivering your product, you top-line numbers may look strong at the expense of sustainability and profitability. Those are steep prices to pay.

5. We failed to recognize our errors. Starting a business involves trial and error. Errors are inevitable and can actually be incredibly valuable. Of course, they’re only valuable if you recognize them and change course accordingly. It can be painful to admit mistakes and cut your losses, but not admitting them will likely be more painful in the long run.

Thanks, Fools!

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