The Definitive Guide to Business

12 dumb mistakes even smart entrepreneurs make — and how to avoid them

Vivian Vance as Ethel Mertz and Lucille Ball as Lucy Ricardo in the I LOVE LUCY episode, "Job Switching."
CBS | Getty Images

The smartest, savviest, most successful entrepreneurs make mistakes that, with the benefit of hindsight, are pretty foolish.

That's because, even with the most diligent and thorough preparation, there are bound to be challenges that a startup founder isn't expecting in the moment. That's pretty much what an entrepreneur signs up for.

While it's unreasonable to expect anyone to get up to full speed without stepping in a few potholes, learning from the mistakes of more experienced entrepreneurs can save new founders headaches, as well as lost time and resources.

Mistake #1: Underestimate the amount of time it takes you to learn a new industry

"One dumb mistake I made is to underestimate the barrier and knowhow when entering into a new industry," says Zhifei Li, Founder & CEO of the Beijing-headquartered Mobvoi, the maker of the smartwatch called Ticwatch.

Mobvoi, which launched in 2012, has in-house artificial intelligence technology, including voice search technologies such as speech recognition and natural language understanding. Li himself is an expert in natural language processing, with a PhD in Computer Science from John Hopkins, and a former Google US research scientist who specialized in machine translation.

Zhifei Li, Founder & CEO of Mobvoi & Ticwatch
Source: Mobvoi

For the launch of the first Ticwatch, Li announced a shipment date before he had received confirmation of when the watches would be ready. When production was delayed, Mobvoi missed the "golden sales season."

"My experience in software development taught me we can always rush to the deadline by pushing our limit. However, I underestimated the complexity of supply chain, the long leading time of components shipping, and the process of slowly marching to mass production on factory side," says Li.

Lesson: Remember that experience in a related industry will still leave gaps in your knowledge

"Irrelevant experience can be a burden," says Li. "Stay humble, stay hungry."

The second generation smartwatch from Mobvoi, the Ticwatch 2, launched on Kickstarter and raised more than $2 million.

Mistake #2: Holding on to an under-performing employee for too long

Chris Myers, the CEO and co-founder of the Denver-based financial tracking and analytics tools for small businesses BodeTree, says he held on to an under-performing employee for too long.

Chris Myers, co-founder and CEO of BodeTree
Source: BodeTree

"I hesitated to take action, instead holding out hope that somehow the individual would fix their behavior and get back on the right track," says Myers. By the time Myers let go of the problem employee, the individual's negative attitude had already spread to other team members and caused strain within the company.

Lesson: If you have to fire someone, do it quickly

"The lesson I learned is that leaders should act swiftly when it becomes clear that a team member isn't going to work out. You may think that you're being nice or understanding by waiting to take action, but at the end of the day such delays only lead to more problems such as the contagion effect I witnessed," says Myers.

Launched in 2010, BodeTree now has 12 full-time employees and serves over two million small-business owners.

Mistake #3: Outsourcing development for too long

Neither of the co-founders of the social restaurant discovery app Wine 'n Dine writes computer code. When they came up with the idea for the social restaurant discovery app, Josh Stern and Adam Cooper outsourced early development to get the app out fast. "We got a decent product with sloppy code," says Stern. That was smart, he says, because that allowed the co-founders to get a read on whether consumers would like the product.

The mistake was iterating on the app with yet another development company, instead of hiring an internal technical team once the team got positive consumer feedback.

Co-founder of Wine ‘n Dine, Joshua Stern.
Source: Avi Gill

Lesson: If you're a non-technical founder, you need to hire an internal development team

"We learned the hard, long, and expensive way that building a team is a massively important first step. We were pulling all nighters to QA the app and were working in opposite time zones," says Stern, who is also the founder of Know the Chef, a premium restaurant reservation service.

"Once we hired our first engineer, everything changed. We learned two very important lessons. Get early traction and immediately build a team. Team comes first. The second: fail fast. We could've saved ourselves time and money, but instead doubled down on a bad process."

The Wine 'n Dine user base has made recommendations at over 70,000 restaurants in 6,000+ cities worldwide and employs 11 people.

Mistake #4: Launching a company with no customer validation

Victor Chang's first startup idea, LifeCrumbs, a social journaling app, seemed brilliant to him. But Chang never tested it with potential consumers and that was, he says, a "terrible mistake." He spent five months building the app in stealth mode.

Victor Chang, the CEO and founder of Tomofun, which makes the Furbo.
Source: Tomofun, LLC.

"This hurts a lot because when we finally launched the service, we realized this isn't what the customers were looking for!" In hindsight, Chang says, LifeCrumbs wasn't different enough from existing products to be successful.

Lesson: Seek feedback early and often

It's not always easy putting an idea out there to be critiqued, but we've learned that a little tough love can go a long way.
Victor Chang
founder and CEO of Tomofun, the company that produces the Furbo

Chang didn't make the same mistake twice. Today, he is the founder and CEO of Tomofun, the Taipei, Taiwan, headquartered company that produces the Furbo, a treat-tossing dog camera.

"This time around, we were determined to find actual problems worth solving for our customers. Before falling in love with just a 'cool' idea, we sent out a survey to 1,000+ dog parents to ask them what their biggest pain and need was," says Chang. Four of five survey respondents reported fretting about their dogs while they were at the office during the day. That led Chang and his team to develop a dog camera that lets people see, talk to and toss a treat to their dogs remotely.

Chang and the Furbo team talk to half a dozen dog owners every week to be sure that they are staying on the pulse of what customers want and think about current versions of the product. "It's not always easy putting an idea out there to be critiqued," he says, "but we've learned that a little tough love can go a long way." Furbo will be available for sale on Amazon this month.

Mistake #5: Underestimating costs

"When starting a business, you'll often hear the advice that everything takes longer and costs more than you expect. This is advice worth taking," says Zach Goldstein, founder and CEO of Public Rec Apparel, a men's athleisure clothing company. Headquartered in Chicago, Public Rec launched in May 2015 with a Kickstarter campaign that raised nearly $180,000.

The apparel startup founder underestimated the costs of shipping to Kickstarter backers.

Pubilc Rec founder Zach Goldstein, left, working with his manufacturer.
Source: Public Rec

"It wasn't anything that threatened our ability to fulfill our order, but enough that I wish I had at least budgeted for them or rather built in an additional buffer of 'extra' costs," he says. "I was off by about $5,000, which in the grand scheme isn't a huge number, but meaningful enough, especially in the earliest stages of our business."

Lesson: Budget more time and money than you think you will need

And if you think you have already built in additional time and costs, build in more, says Goldstein. "It's always better to under-promise and over-deliver, even when setting internal expectations, because they dictate how you interact with your customers, vendors, and the marketplace."

Mistake #6: Worrying too much about the competition

"A lot of my dumbest mistakes have come down to focusing on the wrong thing," says James Rohrbach, CEO of NYC-based Fluent City, a language school with locations in NY, DC, Boston, and Philadelphia that has 300 instructors and over 23,000 students. His rookie mistake was obsessing over his competition.

James Rohrbach, founder and CEO of Fluent City.
Source: James Rohrbach

Before running Fluent City, Rohrback was on the founding team of three other startups. He was the founder for Gulliver, a sort of Trip Advisor for study abroad programs, which was acquired by Noodle, a search engine for educational resources. "I spent a ton of energy tracking my competitors," he recalls. "What were they doing? How much did they know about our strategy? I've since realized that is a total waste of time."

Lesson: Focus on what you can control

Thinking about the competition is essentially a distraction. To get off the ground, a startup team needs to be devoting all of its energy to making itself better every day.

"You need to be laser focused on finding product market fit, on learning from your customers, and iterating quickly. You need to proactively drive your strategy. If you are focused on your competitors, you are in a reactive mode. You feel the pressure to follow them, have all the features they have, etc. That can send your strategy in a totally wrong direction," says Rohrbach.

Mistake #7: Using customer acquisition models that are popular, but not appropriate

When co-founder and CEO Leif Abraham launched AND CO, a New York City-based invoicing tracking software startup that helps freelancers run their business, he offered new customers a 30-day free trial.

"Everyone is doing it, so of course it should work for us as well. Well, not really," says Abraham.

Lesson: Tailor your customer acquisition model to your own business

AND CO co-founder and CEO Leif Abraham, left, with co-founder and CPO, Martin Strutz
Source: AND CO

The AND CO team learned that a 30-day free trial wasn't long enough for customers to understand the benefit of an invoicing software product.

"The assumption that the hook moment when a user is willing to upgrade is '30 days' turned out to be BS," says Leif. "Time does not hook people into a product, relevance and habit do. So we stopped what we started and switched to a freemium model where the hook is based on real, relevant usage, not time."

Mistake #8: Trusting advice too much without independently verifying it

Myers was 26 when he launched BodeTree and he was thrilled to have landed a partnership with Intuit, the makers of QuickBooks. As a new player in the space, he was star struck to have the partnership and developed the entire product to pair organically with QuickBooks. The Intuit partnership team told Myers that they could tap into their network of more than six million small businesses.

Confident in the advice from a giant in the field, Myers said he did not develop any other sales channels. Effectively, he put all his efforts to work with the Intuit product.

Where you work out of doesn't matter. As long as you have a room that fits the amount of people you've got, you're good to go. Spend the money on your team, product and marketing. Plus fritos. We eat a lot of fritos.
Josh Stern
co-founder of Wine ‘n Dine

On launch day in 2011, Myers got a burst of interest from small businesses. But then the fish stopped biting.

BodeTree began to do its own research and found out that 90 percent of small business owners don't keep their financial books accurate or up to date.

Lesson: Do your own research, even if you get advice from a credible source

"That threw a wrench in our entire model. We dubbed the discovery the '90% challenge,' and reworked our entire system to solve it," says Myers. "The key lesson I learned was 'trust but verify.' I took the proclamations of the QuickBooks team at face value and didn't independently verify the claims. In the end, it proved to be a valuable, yet expensive, learning experience."

While BodeTree launched as a direct-to-consumer app, selling directly to small businesses, it now sells to institutions which co-brand the digital dashboard and give it for free to their customers.

Mistake #9: Spending a lot for a fancy office

Wine n' Dine started out as a team of three working at home. When they hired a fourth team member, they moved into a hip co-working space. As they grew, they were cramped and the office rent bill was steep, says Stern.

Lesson: Only spend money on what matters

The startup's lead investor offered some admittedly unglamorous but free! space. They took it, even though the space didn't have any windows. With the money saved, the team hired an extra engineer.

"Our team calls it 'the garage,' and everyone buys into what matters," says Stern. "Don't waste money, hustle when we have to, and keep your eye on the prize. Where you work out of doesn't matter. As long as you have a room that fits the amount of people you've got, you're good to go. Spend the money on your team, product and marketing. Plus Fritos. We eat a lot of Fritos."

Mistake #10: Marketing based on your own excitement for your product, not the customer’s reason to be interested

Kim Taylor, the co-founder and CEO of Ranku, which helps universities enroll more online degree students, tried to sell her ed tech product to universities by telling them that it was cheaper and better than what they were using. She wasn't getting much traction.

"Technology companies want the latest greatest products even if it means switching. This isn't the case in the higher ed industry where software is often bought by non-technical administrators," says Taylor.

Kim Taylor, co-founder and CEO of Ranku
Source: Ranku

Ranku, which launched in Seattle in June 2013, raised a $1.5 million in a funding round led by Mark Cuban, who reached out to Taylor on Facebook when he heard about the startup. Seven minutes into the pitch, Cuban told Taylor to stop talking, that he was in and he would lead the round. Ranku was acquired by the 208-year-old publisher John Wiley & Sons for an undisclosed sum.

Lesson: Focus your marketing on solving your consumers' problems

Taylor learned how to target her marketing to her audience. "Listen to what people do, not what they say," says Taylor. "Whenever we pitch schools we only speak about our product in terms of their programs and solutions that align with goals."

Mistake #11: Rolling out a product that tries to do too much

When CEO and co-founder Lee Mayer launched Havenly, an online interior decorating service, she tried to build in all of the features she had dreamed up.

"I tried to make a product to please everyone. Ultimately, a startup is really resource constrained, and you need to focus on the thing you do the best, as opposed to going broad and trying to capture all demand," says Mayer.

"I introduced too many products and ideas/features too quickly and my team wasn't able to support it. It ended up taking support away from our core product."

Lee Mayer, CEO and co-founder of Havenly
Source: Morgan Levy

Launched in 2014, Denver-headquartered Havenly has raised $13.3 million in Series A funding and has about 40 employees.

Lesson: Prioritize what you do best

Mayer had to choose what features to roll out first. She learned that customers' primary draw to the service was the ability to be in communication with an interior designer easily and effectively.

"What they don't care about as much are the fancy bells and whistles: fancy measuring tools, 3D visualizations (that weren't very good anyway, because the technology isn't there)." The add-ons that Mayer wanted to include from the outset seemed important from her perspective, but the customer, she learned, was more concerned about having a beautiful home. The technological features weren't as important.

Mistake #12: Targeting the wrong audience

In the very early days, Stern and his co-founder flew to Fort Lauderdale to host a booth at a food conference and promote Wine n' Dine. They got to the conference and there was no cell service, which made promoting an app a fool's errand. Further, the demographic of the attendees was totally wrong for the app and the traveling took time away from building the app.

Lesson: In the beginning, all that matters is your product

"When you're starting out, stay home and focus on the product. Product. Product. Product. Nothing else matters. Early on, we built a culture relentlessly focused on building a great product. We talked to our users, dived into data, and for a few months, only cared about getting the product as close to right as possible. If you do this, booths and events will come later," says Stern.