A comedy of errors is only funny when it happens to someone else. Enjoy these tales of start-up blunders-but don't let them happen to you.
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10 min read

This story appears in the August 2000 issue of . Subscribe »

Roberto Goizueta, by all accounts, was a swell guy-a philanthropist and a brilliant businessman. But his 1997 obituary, published in newspapers across the country, still made it clear: This was the man who came up with the idea for New Coke.

We're all entitled to mistakes. Goizuetta fixed his, three months later, and he left a fortune of $1.3 billion to his heirs; so after changing the Coca-Cola recipe in 1985 and then changing it back again, he probably didn't spend the rest of his life in complete misery.

But you drink Coke; you don't own it. You don't have $1 billion to fall back on. If you make a big blunder, it could cost you your company. In a few weeks, you might be telling your customers "I'm not sure what toy comes with your Happy Meal. Let me ask my manager."

And that's why we spoke to these current and former entrepreneurs, who were nice enough to share their insights on mistakes that they probably wish someone else had made.

Geoff Williams is a frequent contributor to Business Start-Ups. One of his most embarrassing mistakes happened when, as a teenager, he opened a unisex bathroom door on an unsuspecting woman. After they screamed, Williams slammed the door shut, reopened it to say "Sorry about that" and, realizing what he was doing, slammed the door again. His family still chides him about it.

Joel Haspel

COMPANY: AliVE Multimedia Group LLC is a Herndon, Virginia, consulting firm that also develops software and databases for companies' specific needs.

BLUNDER: partnering with people who had very similar strengths

Let's say you love flying, but you've never stepped foot in a cockpit. If you wanted to start an airline business, you'd probably hire a pilot, right? Two years ago, Joel Haspel, 22, vice president of AliVE and Bid Outlet (DBA AuctionOctopus, a subsidiary of AliVE), teamed up with his brother Daniel, now 18, Tim Simms, 26, and Basil Carter, 27. There's not a "pilot" among them.

Many times, that's fine. Entrepreneurs are often created on the job. But the foursome, having only computer programming skills, soon found that running a business can be just as hard as distinguishing RAM from ROM.

The AliVE business plan was pretty lean. "Mistakes we made," says Haspel, "included not [thinking about] product-development planning while providing services, not bringing in more developers as the cash was earned, and not knowing enough about expense projections to determine how much we'd need to save in order to shift into product development."

The crew lacked marketing experience, too. And money. Their mistakes, says Haspel, were "juvenile." So they found someone who wasn't so juvenile: Jim Senker, a 39-year-old who had already run his own successful company. And now AliVE Multimedia Group brought in $200,000 last year, helped greatly by its subsidiary, AuctionOctopus, an auction meta-search engine.

But never mind that. What's Haspel's advice? Find a local or regional entrepreneurial center or business incubator. In Haspel's case, he and his crew went to the Morino Institute, an incubator in Reston, Virginia. That's how he found Senker, the new CEO of AuctionOctopus and a man who apparently has a knack for understanding business plans, raising venture capital and all the other pesky pitfalls that can cause a company to stumble. Haspel is grateful for having learned a lot about entrepreneurship, and as executive vice president of strategic development, he'll continue to learn.

Oron Strauss

COMPANY: Net.Capitol Inc. is a Washington, DC, developer of Internet-based products for public affairs and political organizations. The company is now a subsidiary of Inc., a medical and political solution provider in Post Falls, Idaho.

BLUNDER: not raising enough money to finance his business

Greed isn't always a bad thing. It comes in handy when you're asking for a loan-Oron Strauss, 27, certainly couldn't finance his business out of his own wallet. "I had nothing," says Strauss, who started his business in his modest apartment living room, alongside his yellow lab, Bonzo.

Something of a politics and history junkie at Dartmouth College in Hanover, New Hampshire, Strauss combined both of his loves by creating Net.Capitol Inc. He found three partners around his age, one with a tech background and two with political connections; he raised some cash from angel investors and "from, as they say, the three Fs: friends, family and fools." But he should have found more fools-or asked for more money. Back in 1996, Strauss initially raised around $60,000 when he actually should have tried for half a mil'.

Eighteen months later, "we were in a tough situation," says Strauss. "We were having a hard time raising money-which is a kind way of saying 'We were out of money.'"

It was hurting Strauss both personally and professionally. Personally, he was killing his credit rating with six figures-worth of credit card debt; professionally, his company was dying a slow death. "All the managers took significant pay cuts," reports Strauss, and often he and his staff received no money. At one time or another, "our cell phones, Internet service, phone system and copier were turned off-or threatened to be turned off-because we didn't pay the bills on time." And investors, it seemed, were happy to heap on their best wishes but not their money.

Meanwhile, Strauss and his team were trying other little projects: "We had put together, kind of for fun, the first online Congressional directory [called CapWeb Custom]," he says. (This is what they do for fun?) The AFL-CIO loved the tool, paid $1,000 for it, and suddenly Strauss and his partners realized their strength was in Web-based tools, not Web-based content. In fact, late last year, they allowed themselves to be acquired by move that helped turn Net.Capitol into a million-dollar company. Strauss, president and CEO of Netivation's Public Policy and Politics Division, is now the second largest shareholder. And Bonzo has his own doghouse, in Strauss's posh office. Strauss's advice for avoiding his mistake?

  • "Recognize that raising money is hard. It takes twice as much time to raise half as much as you think it will."
  • "Figure out what you need the money for, because if you think you need X, chances are, you need 3X or 4X."
  • "Get [advice from] people who have been through [raising money] before-whether they're advisors or investors or board members or whomever. I had some incredible board members, and I didn't use them enough. I didn't engage them into understanding what I was raising the money for."

Michael Conner

COMPANY: MCICK2 Inc. is an Internet and network solutions provider in Fresno, California.

BLUNDER: not doing his homework on the people he went into business with

Michael Conner,34, was just a mild-mannered Web architect when he went to work for a new software development company shortly before his 30th birthday. "They went on a big spending spree," says Conner of his employers. "They were spending their IPO money, and after about a year, it started drying up. My crew and I weren't getting our paychecks."

Conner quit before he couldn't afford to work there any longer. Wishing he'd known something about these employers before he had started working there, Conner then partnered up with two businessmen, and in 1996, the three of them formed a company called MCIC. And guess what happened? Conner didn't know enough about his partners. They didn't have the well of money that they had indicated they had; they didn't have a deep desire to work; and because he had given each partner 25 percent of the company while he had kept 50 percent, when the two men disagreed with Conner, they were often left at a standstill.

On top of it all, "It was my first year of marriage," recalls Conner, "and we had just found out, when I was starting the company, that we were having a baby." He eventually bought out his partners and built his company into a powerhouse, which recently merged with K2 Microsystems, forming MCICK2. The company now makes several million a year, has 18 people on staff, and creates and/or improves entire e-businesses.

Conner's advice? He now pre-interviews his employees and partners. Before you snort "Big whoop," realize that Conner's pre-interviews are FBI- and Pentagon-worthy. We'll let him explain:

  • "Always ask for things that you'd be willing to give-financial records, for instance, because they're going to want a salary of some sort that you'll need to pay them. Have them show you why they deserve this salary."
  • "Get personal references. Check out their portfolios. I have a partner who is into Web development, and I looked at that. I talked to the clients he serviced-he has a wonderful reputation; I talked to his parents; I talked to his family and friends; I talked to his girlfriend."
  • "I have a partner to whom I said, 'Tell me your life story.' He said, 'I've been through a divorce.' " And so I asked, "Well, what's your ex-wife's name? What kind of relationship do you have?" And he replied, 'Not a bad relationship.' And I talked to her." Turns out, it was family problems, not a major character flaw, that led to the divorce. This check verified him as an OK guy.

Isn't all this a bit extreme? Not to Conner. "When you're talking about going into business with someone, you've gotta realize there is nothing too personal you can ask-because you aredealing with a company that feeds my children," Conner explains. "You better believe I'm going to be focused like an eagle on you."

After all, why do you go into business? "You see a future," Conner concludes. "You'd better take that future seriously. If I knew then what I know now, it would be a totally different story. I like where I am now, but at the same time, I know that I would be much further along if I would have done my homework on all these people."

He's Making A List

You could call Charles Freeman "the Mistake Man," not because he's incompetent, but because it's his job to see that his New York City lending company, Commercial Capital Corp. (CCC), doesn't loan money to a business doomed to make lots of mistakes. Over the past five years, CCC, one of the most active SBA lenders in the United States, has shelled out $300 million in loans to entrepreneurs-which is why Freeman has a list of the most common start-up mistakes:

Asking to borrow too little money. "A lot of companies find themselves strapped in year two," says Freeman. "You need to ask for enough money so that you at least have a 20 to 30 percent cushion to help get you through those lean times."

Having a business plan that falls short. "If you don't have the answers for how you're going to accomplish your goals, nobody else will," Freeman explains.

Either not having enough experience in the field you're starting a business in, or not hiring somebody with enough experience to help you. Either way, says Freeman, experience "is not something you can skimp on."

Failing to keep up with technology. Need we say more?

Having bad personal credit. This is a biggie. "It's a business risk for us to take," Freeman reasons. "It demonstrates a lack of responsibility and ability to pay off debts and to keep their affairs under control. A credit card is an extension of their persona."

Contact Source

Commercial Capital Corp., 25 West 43rd. St., New York, NY 10036, (212) 719-0002


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