My city of Austin has emerged as a center for startups, 33 years after I picked it as the best city in America to start my first company, BOOKSTOP.  Our city is ranked among the top cities in the world for startup activity, sometimes even first in the US.  The other cities which contend for such accolades are generally much larger, with the notable exception of Tel Aviv.

I spend part of my time mentoring startups and emerging company leaders from around the world, including guest lectures and teaching.  I have judged dozens of business plan competitions and reviewed thousands of business ideas and plans.  My students and mentees have started several companies.

While there are a million things that can go wrong and derail your enterprise, here are 5 issues that I have seen repeatedly, especially in high tech, software, and Internet startups.

1. Technology in search of a need.

Engineers and computer and other scientists are often in love with their technology, be it hardware or software.  Too often, when they meet with me, they have started a company but are still searching for where to put the technology to work.  Many times they are testing this market, then that market, to see which customers “bite.”

To me, this is backwards.  Your odds of success are much greater if you start with the problem or the market vacancy, then figure out how to fill that need.  Having a clear, real need in mind makes every action you take more accurate.  Even with this leg up, starting a new enterprise is still a big challenge.

Perhaps the best entrepreneurs are those who start with a need, but are also very aware of all the technologies which might be applied to help solve the problem or fill the gap.  They at least hang out with people who do know the technologies, as well as the salespeople who know the most about customer desires.

2. Redundant ideas.

In a recent search for file-sharing and other collaborative tools, I found at least 20 options within a few minutes.  In my exploration of platforms for possible online courses, I found almost as many.  It seems like every category has at least a dozen clones.  Doesn’t anyone use their imagination?

I have kept a list of business ideas since I was about 12 years old, now up to over 300 ideas.  None of them, at the time I put them down, was pursuing the same opportunity as someone else.  I have observed that often it takes 15-20 years before someone discovers these gaps and runs with them, if ever.  Most of my deeply entrepreneurial friends have more original ideas in their heads than they could carry out in a lifetime.

There are times you can successfully enter a field with others already present.  Bricks and mortar businesses are a geographical game of regions and cities – you can take an idea from one state or nation and copy it in another without being redundant.

I don’t believe that “first mover advantage” works in most cases – often those folks end up falling off the bleeding edge.  The winners are those who do it best, not those who do it first.  If someone else is doing your idea, but doing it badly or radically different from you, then there still may be an opportunity.  But far too often when I press someone on what really differentiates their idea from present and potential competitors, they don’t have a good answer.  “Our site is just cooler.”

Why would anyone start a hotel recommendation site once TripAdvisor was established?  Why would anyone want to be the 15th company in any “space?”

3. Incompetent marketing. 

Tech companies have a long history of poor marketing.  When a firm does “get it,” like IBM under Watson or Apple under Jobs, they tend to run away with the business.  It puzzles me why, with all the marketing consultants one finds on every block, things have not gotten better.  In fact, they may have gotten worse.

The naming of companies provides a prime illustration.  In a recent look at the various software companies that integrated their services with software I was considering, the names included Netuitive, Librato, Panopta, Munin, Blossom, Telzio, Polly, and Gyazo.  Can you guess at what any of those companies make or do?

Getting the word out about your company and what it does is one of the hardest things to achieve in this media-soaked age.  Part of this burden is carried by the name in most great companies.  Having a nonsense name just makes this harder to achieve.  Of course, once success is achieved, the name does not make much difference: Dell dropped computers, Nike is just Nike, IBM and CBS use acronyms, and Radio Shack did great for its first few decades, even with its odd name.

I know some of you will say, “All the good names (and url’s) are taken,” but that’s not true.  It just takes more effort to come up with a great name.  Incorporating geography or people’s names adds many options.  Being specific has not hurt Southwest Airlines, Honda, or HJ Heinz.  Successful names which in some way convey information about the nature of the business include Netflix, Travelocity, Facebook, TripAdvisor, Mailchimp, Dropbox, and Survey Monkey.  These names make the learning curve easier and the chance you will be remembered much greater.

4.Failure to humanize.

Recently I met with a marketing expert and could not resist asking why his company’s website had no people on it.  No team, no leadership, no nobody.  He seemed taken aback, as if no one had asked him before.  I see this far, far too often in startups and small and emerging companies.

All business is, is people.  It is nothing else.  It is created by people, for people, and run and owned by people.  And most of us would like to know who we are dealing with.

This is especially true in service and professional businesses, like the marketing consultant.  I cannot tell you how many such websites I have seen which had no people on them!  They list their clients, they brag about what they can do for you – but all they really are is people trying to help others.  People with very specific backgrounds, skills, and interests, which I need to know about before I even return your call or email.  People are not replaceable, interchangeable Lego blocks.  If you are lucky, the people in your organization have some unique and valuable skills and insights worth crowing about.

5. Rush to exit.

I am on record as never having put an “exit strategy” in a business plan.  Why?

First, why would you want to get into a business just so you can get out of it?  Not loving what you are doing is a tremendous disadvantage in a world filled with entrepreneurial thinkers who are on a mission, who really care about their venture and its purpose.

Second, how can you know how your investors will see a return on their capital?  Some companies are destined for an Initial Public Offering (IPO), but that window opens and closes with little regard for your timetable.  Many others get sold, but the appetite for acquisitions also waxes and wanes, and each industry follows a different pattern in time.  Yet other companies pay large dividends and continue as successful private companies.  There are always ways to realize the value of your holdings if the company is indeed worth something.

The reality is that the first goal is to build something of value, which really serves other people or companies.  If you do this, you will have many choices about how to “liquefy” your investment.  And some of the richest people never do, they hold their stock for decades.

If you first tell me how you are going to build a great company, we can sort out the “winnings” later on.  In fact, we can only figure that out once we have built the enterprise and see what it is worth, who buyers might be, the appetite for IPOs, and all our other options.

I expect some readers will say you agree, but that investors are impatient and drive many of these decisions, especially the last one.  But history shows us that the greatest venture capitalists supported lasting independent companies like Google and Amazon.  Those founders have shown no desire to rush for the door and do something else.  The greatest stock investor of our time, Warren Buffet, is as long-term as they get.  And my experience with angel and other early stage investors indicates a huge range in what they are looking for and what their time horizons are.

Ultimately, these decisions are up to the leadership team of each enterprise, from the get-go.  I hope your enterprise focuses on real human needs and figures out how to let your customers know you exist.  As Peter Drucker said, the only two things that really matter in business, that drive results, are innovation and marketing.  A hefty dose of both would make our entrepreneurial efforts much more successful.

I would love to know what you think of my thoughts.  Click here to leave your comments and ideas.

Gary Hoover

Further reading and viewing:

On developing new business ideas: 
The Innovator’s DNA: Mastering the Five Skills of Disruptive Innovators
The Art of Enterprise by Gary Hoover

On marketing overall: 
Positioning: The Battle for Your Mind

On naming your company:
How to Name Your Company – Hoover Style
Don’t Call It That: A Naming Workbook
The Best Source for coming up with better words and names: Roget’s International Thesaurus, 7e, Thumb indexed 

A forthcoming book by a great author about the role of humans in life and business:
Humans Are Underrated: What High Achievers Know That Brilliant Machines Never Will


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