In the course of its first year any startup will confront issues it had not anticipated. Decisions will be made that are wrong. Every new business is different, and each will encounter its own unique problems. My experience, however, is that although the nature of the problems may be unique to each new business, there are fundamental steps that, if taken, will address many problems.
Here were the top 5 lessons we learned from our mistakes at CircleUp in our first year.
Pay Attention to Advice. Don't Necessarily Take It
One of the first "problems" you may experience is the problem of having many well-intentioned outsiders suggesting that you are making wrong decisions. Investors, advisors, friends, customers, family members, virtually everyone, will share advice. Your vision for your business is misguided. Your implementation of strategy is wrong. Essentially (when all advice from every source is considered) everything you are doing will "drive the company into the ground."
Many of our advisors encouraged us to take a generalist approach as we were building our marketplace. Our background, however, had been in consumer product-focused investing. It is what we know best. I felt we needed to focus the marketplace on an area we knew, one that would be best for our users. Repeatedly, we were told that with such a narrow focus we would not be able to get enough scale, critical to any marketplace.
This is not a lesson simply of following your own instincts and ignoring the advice of others. It's a lesson more of listening, paying attention, understanding the concerns of others and not ignoring them. We shared the same concerns our advisors had about too narrow a focus.
The solution, however, was not to broaden the verticals. The solution was to address the concerns related to supply in other ways. We worked hard to build the market organically within the narrow focus of consumer products, addressing the primary concern about critical mass, but without broadening into other verticals. The feedback forced us to build a better product, which in turn resulted in better word of mouth. This allowed us to grow. A good demonstration of word of mouth? The average investor that has joined our marketplace this year already has 3 friends on CircleUp.
Talk With People About Your Business
Every entrepreneur is paranoid. I've received a dozen calls from "colleagues" complimenting me on CircleUp and asking questions concerning its development, strategy and growth. In each case, I later discovered that they were planning on starting a competitor to CircleUp. My favorite one was probing me on issues so detailed that I was concerned, so I asked him, "are you talking with any other crowdfunding sites?" He said no, and I continued to answer his questions. I later learned that he was starting a competitor. When asked several months later about his response to my question, he said "I wasn't talking with a crowdfunding site, I was starting one." However many questions I may have answered for him that day, I'm confident that I learned more about him than he learned about CircleUp.
I've also had hundreds of calls with people I thought were trying to start competitors but were really just looking to talk with a fellow entrepreneur. Many of the conversations I've had haven't gone anywhere. But what I've learned is that as I have been more open, others are more open with me. That transparency has allowed me to learn more than I otherwise would. It also allows others to connect our company with new valued contacts. It allows us to form partnerships we would have never identified if we had not been open. Are there some competitors that are now taking what I've said and trying to use it against us? Maybe. But after our first year we believe the benefits far outweigh the risks.
Another aspect to this lesson is dealing with the press. While the attention that our space (crowdfunding) has received has been beneficial, it has also caused challenges. We risked being lost in the shuffle, or lumped together with models that were in fact very different from ours. To address this we frequently discussed our unique strategy publicly. We admitted mistakes and talked about what we were planning to do. In a word, we have tried to be transparent.
Building relationships with the media is time consuming and difficult. It has not been easy, but I believed it was important to the business. Looking back at referrer metrics, and the ancillary benefits that have come to us, we think transparency has been the right decision.
Hire Early -- There will come a time in the first year of a fast-growing company that you will need to hire. That time will be yesterday. Our mistakes in hiring don't involve hiring the wrong people. They involve failing to hire people we should have hired when we should have hired them.
The lesson we learned here is that you want to have the internal resources sufficient to capitalize on the growth opportunities the market provides. When the market favors your growth, it is very frustrating to be limited not by the market but by your own internal lack of resources. For example, we were far too conservative in hiring for the technical team. Every advisor, blog and business school professor in the country will tell you to hire an A+ team. That's so obvious that it has become an annoying cliché. The correct timing of those hires is what surprised us. We should have moved sooner. Because we did not, our product did not develop as quickly as we wanted.
We have made a decision internally to keep focus on hiring the right people. This takes time. Because of this, our focus now is to start searches earlier. You want to be ready for the growth you see coming. We could have, and should have, done this better.
Know Your Sandbox
Every business works within the framework of the laws that govern it. In a sense, it is the sandbox in which business plays. Crowdfunding sites are no different. When we launched, there were scores of other sites coming to market with similar business models. Their ability to operate, however, was dependent on regulatory changes that might expand potential investors beyond "accredited investors." We were criticized for our focus on accredited investors. Occasionally this public criticism came directly from our competitors.
Those other platforms are still waiting. In the meantime, we have been able to serve the small businesses and individual investors that remain largely excluded from the private markets today. The lesson is this: when dealing with a changing regulatory environment, assume it will take longer than anyone expects. If your "expert" says the change will take 6 months, assume 18 -- if it ever happens at all. You can't have your business model be dependent on external forces such as policy makers in DC. Just do it as the current sandbox (law) permits.
There are many other lessons I will take away from this first year. There is no way to get everything right. I have worked hard to maintain the focus not on what didn't go as well as we would have liked, but rather on what we learned from the experience. I have filled notebooks over the past year with takeaways from meetings, and short notes to myself about what I want to do better. The lesson is not to dwell on the missed opportunities, but to take the learning from them so you are better-positioned next time. Don't take mistakes personally. Everyone makes them.
A good friend, and successful repeat entrepreneur, recently recommended the book The Four Agreements by Don Miguel Ruiz. One of the best pieces of advice in the book is "Don't Take Anything Personally." You will make 100 decisions a day, and 20 will be wrong. If you take those mistakes personally today it will be hard to make more decisions tomorrow. I've done that. My learning now is to take those mistakes as growth opportunities and learn from them.
Entrepreneurship is a difficult, and rewarding path. We are only at the very earliest stages of crowdfunding, my chosen area of focus. There will be more lessons for me to learn the hard way, without a doubt. Hopefully, the five considerations above can help other entrepreneurs just starting out along the way.