Top 17 Startup Mistakes You Can't Afford to Make A seasoned entrepreneur reveals the 17 most common mistakes startups make -- and how you can avoid them.

John Osher has developed hundreds of consumer products,including an electric toothbrush that became America'sbest-selling toothbrush in just 15 months. He also started severalsuccessful companies, including Cap Toys. He built sales to $125million per year and then sold the company to Hasbro Inc. in 1997.But his most lasting contribution to the business world just may bea list of screw-ups he jotted on the back of a piece of paper.

"After I sold my business to Hasbro, I decided I'd makea list of everything I'd done wrong and [had] seen otherentrepreneurs do wrong," explains the 57-year-old Jupiter,Florida, serial entrepreneur. "I wanted to make a company thatdidn't make any of these mistakes. I wanted to see if I couldcome up with the perfect company."

He came up with an informal list of "16 Mistakes Start-UpsMake"--since expanded to 17--that has been used in a HarvardBusiness School case study, has been cited in many publications,and has become a part of what he teaches budding entrepreneurs inhis frequent university lectures. He also used the list in 1999when he started Dr. John's SpinBrush to sell a $5 electrictoothbrush that quickly became America's best-sellingtoothbrush. In 2001, Procter & Gamble purchased the companyfrom him for $475 million.

"I didn't expect it to actually work like that, but itdid," Osher says. "It'll probably never happen again.But we made a perfect business, from the beginning to selling it toanother company." Since then, however, Osher has createdanother product, an electric dish scrubber that he also sold toProcter & Gamble. And he has yet another health-and-beautyproduct-development effort underway--although he's keeping thedetails close to the vest--in which he'll try again to createthe perfect business.

To home in on what lies behind the 17 mistakes, Osher toldEntrepreneur what they are and how you can learn from themto achieve your own level of perfection.

• Mistake 1: Failing to spend enough time researching thebusiness idea to see if it's viable. "This is reallythe most important mistake of all. They say 9 [out] of 10entrepreneurs fail because they're undercapitalized or have thewrong people. I say 9 [out] of 10 people fail because theiroriginal concept is not viable. They want to be in business so muchthat they often don't do the work they need to do ahead oftime, so everything they do is doomed. They can be very talented,do everything else right, and fail because they have ideas that areflawed."

• Mistake 2: Miscalculating market size, timing, ease of entryand potential market share. "Most new entrepreneurs getvery excited over an idea and don't look for the truth abouthow many people will want to buy it. They put together financialprojections as part of a presentation to pump up their investors.They say, 'The market size is 50 million people that could usethis product, and if I could only sell to 2 percent of them,I'd be selling a million pieces.' But 2 percent of a marketis a lot. Most products sell way less than 1 percent."

• Mistake 3: Underestimating financial requirements andtiming. "They set their financial requirements based onMistake 1, and they go ahead and make a commitment to this muchoffice space and this many computers, and hire a vice president ofsales, and so on. Before they know it, based on sales projectionsthat were wrong to start with, they have created costs that requirethose projections to be met. So they run out of money."

Mistakes 4 through 14

• Mistake 4: Overprojecting sales volume and timing."They have already miscalculated the size of the market. Nowthey overproject their portion of it. They often say 'There are200 million homes, and I need to sell [to] x number of them.'When you break it down, though, a much smaller number of those arereally sales prospects. That makes it impossible to make theirsales projections."

• Mistake 5: Making cost projections that are too low."Their cost projections are always too low. Part of the reasonis that they project much higher sales. There are also unknownreasons that always come out that usually make costs higher thanplanned. So on top of everything, their margins are nowlower."

• Mistake 6: Hiring too many people and spending too much onoffices and facilities. "Now you have lower sales, highercosts and too much overhead. These are the things that you seeevery day in companies that fail. And they all grow out of thatfirst mistake: failing to research the size and viability of theopportunity."

• Mistake 7: Lacking a contingency plan for a shortfall inexpectations. "Even if you're realistic in yourestimates to start, there are things that happen when you start anew business. Your sales ideas may be no good; bank rates may goup; there may be a shipping strike. These aren't the result ofpoor planning, but they happen. More often than not, entrepreneursjust feel that something will come along when they need it. Theydon't have contingency plans for it not working out at the sizeand time they want."

• Mistake 8: Bringing in unnecessary partners. "Thereare certain partners you need. For instance, you often need money,so you're going to need money partners. But too many times, theguy with the idea takes on all his friends as partners. Many peopledon't provide strategic advantages and don't warrantownership. But they're all going to get 25 percent of thecompany. It's totally unnecessary, and it's a mistake.Before people are made partners, they have to earn it."

• Mistake 9: Hiring for convenience rather than skillrequirements. "In my first business or two, I hiredrelatives. It was easy to do, but in many cases, they were thewrong people [for the job]. And it's hard to fire people,especially if they're relatives or friends. More time needs tobe spent handpicking people based on skill requirements. You reallyneed super-skilled people who can wear more than one hat. It justbogs you down when you hire people who can't do thejob."

• Mistake 10: Neglecting to manage the entire company as awhole. "You see this happen all the time. They'llspend half their time doing something that represents 5 percent oftheir business. You have to have a view of your whole company. Buttoo often, the person running it loses that view. They get involvedin a part, and they don't manage the whole. Whether I do thisproduct or that product, whether I hire somebody, [I consider] howthey [will] fit long term and short term in the big picture.Constantly try to see your big picture."

• Mistake 11: Accepting that it's "not possible"too easily rather than finding a way. "I had an engineerwho was a very good engineer, but with every toy we developed, hewould say, 'You can't do it that way.' I had to becareful not to accept this too easily. I had to look further. Ifyou're an entrepreneur, you're going to break new ground. Alot of people are going to say it's not possible. You can'taccept that too easily. A good entrepreneur is going to find away."

• Mistake 12: Focusing too much on sales volume and companysize rather than profit. "Too much of your management isoften based on volume and size. So many entrepreneurs want to say'I have a company that's this big, with this many people,this many square feet of space, and this much sales.' It'stoo much [emphasis] on how fast and big you can build a businessrather than how much profit it can make. Bankers and investorsdon't like this. Entrepreneurs are so into creating andbuilding, but they also have to learn to become good[businesspeople]."

• Mistake 13: Seeking confirmation of your actions rather thanseeking the truth. "This often happens: You want to dosomething, so you talk about it with people who work for you. Youtalk to [your] family and friends. But you're only looking forconfirmation; you're not looking for the truth. You'relooking for somebody to tell you you're right. But the truthalways comes out. So we [test] our products, and we listen to what[the testers] say. We give much more value to the truth than topeople saying what we're doing is great."

• Mistake 14: Lacking simplicity in your vision."Many entrepreneurs go in too many directions at once and donot execute anything well. Rather than focusing on doing everythingright to sell to their biggest markets, they divide the attentionof their people and their time, trying to do too many things at[one time]. Then their main product isn't done properly becausethey're doing so many different things. They have an idea andsay they're going to sell it to Wal-Mart. Then they saythey're going to sell to [the] Home Shopping Network. And thenthe gift market looks good. And so on."

Mistakes 15 through 17

• Mistake 15: Lacking clarity of your long-term aim andbusiness purpose. "You should have an idea of what yourlong-term aim is. It doesn't mean that won't change, butwhen you aim an arrow, you have to be aiming at a target. This[concept will] often come up when people ask 'How do I pick aproduct?' The answer depends on what you're trying to do.If you're trying to [create] a billion-dollar company with thisproduct, it may not have a chance. But if you're trying to makea $5 million company, it can work. Or if you're trying tocreate a company [in which] family members can be employed, it canwork. Clarity of your business purpose is very important [but] isoften not really part of the thought process."

• Mistake 16: Lacking focus and identity. "This waswritten from the viewpoint of building the company as a valuableentity. The company itself is also a product. Too many companiestry to go after too many targets at once and end up with apotpourri rather than a focused business entity with an identity.When you try to make a business, it's very important tomaintain a focus and an identity. Don't let it become apotpourri, or it loses its power. For instance, you say,'We're already selling to Kmart, so we might as well make atoy because Kmart buys toys.' If you do that, the companybecomes weaker. A company needs to be focused on what it is. Thenits power builds from that."

• Mistake 17: Lacking an exit strategy. "Have an exitplan, and create your business to satisfy that plan. For instance,I am thinking I might run my new business for two years and thenget out of it. I think it's an opportunity to make a tremendousamount of money for two years, but I'm not sure [whether]it's proprietary enough to stop the competition from gettingin. So I'm in with an exit strategy of doing it for two yearsand then winding down. I won't commit to long-term leases, andafter the first year, we'll start watching the marketplace veryclosely and start watching inventories.

Simultaneously, I will keep the option open to sell it in case Ican't get something more proprietary. That means I won'tsign international agreements that would kill any opportunity tosell it to a multinational. I will make sure that the patent workis done properly. And I'll try to make sure manufacturing is upto the standards of any multinational company that I might try tosell it to.

Another exit strategy can be to hand the company to [your] kidssomeday. The most important thing to do is to build a company withvalue and profits so you have all the options: Keep the company,sell the company, go public, raise private money [and so on]. Abusiness can be a product, too."

5 Tips to Get You on the Right Track

Is there any difference between doing nothing wrong and doingeverything right? Peter Russo, director of Boston University'sEntrepreneurial Management Institute, says that while you'reavoiding John Osher's 17 mistakes, you should also try to dofive key things right. "If you do those five things,you're probably not going to make those other mistakes,"he says. Here are Russo's five things start-ups should do:

1. Know your goals for the venture. "A lot of peoplesee an opportunity without ever asking themselves what they'redoing it for," says Russo. "Are they trying to make aquick buck? Create a legacy? Have a lifestyle? There are a lot ofreasons. It's critical that you know from the beginning whatyour goals are, because everything else is going to revolve aroundthat."

2. Recruit and hire the best people. "It soundsalmost cliché now to say I'd rather have an A team with aB idea than a B team with an A idea. The right team can fix a lotof problems. If you don't have the right team, you don'thave much of a chance," Russo says. "Get the best peopleavailable at the time."

3. Develop a forgiving strategy. "Things are goingto go wrong," he says. "They're going to be harder,take longer and cost more money than you think. You have to have astrategy to survive. A lot of people put together a plan that willwork only if everything goes right. It's not goingto."

4. Be honest with yourself. "Recognize shortcomings,weaknesses and problems immediately. Do not ignore them or try totalk yourself out of them," Russo says. "Address themhead-on."

5. Commit to the business. "You can't really doanything significant without fully committing yourself to it. A lotof people try to dabble," he explains. "They thinkthey'll do it part time [and] see how it works out. If you planto be successful, you have to commit."

Mark Henricks writes on business and technology for leadingpublications and is author ofNot Just a Living.