Starting a Business: Pitfalls Every Start-up Should Avoid

There is plenty of advice out there for start-up businesses looking for some essential guidance on what they need to do to succeed.

However, IBTimes UK also spoke to a number of start-ups to find out what new companies should avoid doing if they want to realise their dreams and become the next Facebook.

Jeff Rollason of AI Factory and Paul Gouge of Playdemic both have advice to share from their journeys on the way to becoming successful games companies.

Eben Upton and Kieran Kunhya - the men behind innovative products such as the Raspberry Pi mini-computer and an open source TV broadcasting system - also name some pitfalls start-ups should avoid.

Meanwhile, Simon Jenner - who runs Oxygen Accelerator - offers the benefit of his experience taking start-ups from an initial idea to a fully-fledged company.

Don't delay

Kieran Kunhya of Open Broadcast Systems believes that haste is important when releasing a new product.

"I would try and get the product out there a bit quicker. We still have a bit of feature creep. I probably would have released something that people could try out months earlier.

"At the moment we are just adding in things so we can get significant deployments. So and so wants this feature that is specific to them. So we have deployments now but we are just adding features slowly.

"Getting something out sooner, even if it was not perfect, would have been better for us."

Don't blow your savings

Simon Jenner, who's job it is to help out start-ups, warns that blowing all you csh early on is not a good idea.

"The thing that I see all the time and I was guilty of this myself three or four years ago is if you have got a great idea and a little bit of cash you will pay for a developer to build something for you. It happens all the time.

"99 percent of the time it fails because they outsourced it. So it cost them twice as much and they never really got what they wanted. Because they have got the cash they tend to just throw money at it. They never really do the research or attempt the lean start-up approach to try and prove the concept without spending anything.

"For me that is the biggest pitfall and we see so many people wasting their money by using the 'build it and they will come' mentality and it just doesn't work. You need to do the lean start-up. What is the minimum amount of work I can do to prove this might work? If that is literally stick up a page that says: 'Sign up if you are interested' then that is what you should do.

"Don't go and build the whole web infrastructure at £10,000, blow all your savings and then wonder why it never worked. You could have spent £500 and tested it."

Don't let bad news blind you to potential gains

Jeff Rollason reveals that cancelled contracts are not always bad news, and that start-ups should look to make the most of even poor situations.

"You have to look for opportunities when they arise. Sometimes bad things happen but actually they can turn out to be very good. We had a Globalstar contract to do a number of games and were just about to do another big product with them.

"As it turns out this was a casino product and I was not necessarily very happy with that because I didn't feel I had the casino mentality. So I wasn't sure this was good for us or the kind of thing we would naturally enjoy. Nonetheless it was work in hand.

"At the time I was also involved with a potential Japanese publisher. I was just ready to go to Japan and the night before I left, Globalstar rang up and said we want to cancel the contract. That would normally be terrible news but, thinking on my feet, I said if you are going to do that we would like some extra compensation.

"I said we have just done a bunch of products for you for the US and you don't need those outside the US, so how about letting us own these products to take into Japan, a territory you are never going to enter anyway? That would be nice compensation.

"Globalstar agreed on the spot and that was fantastic for us because I then took these products through Japan, showed them off and we started a whole new business there. So what should have been terrible luck turned out to be very good luck. Without that, we couldn't have started the Japanese business."

Don't target the wrong audience

Kunhya warns that just becasue hundreds of news outlets cover your story, it doesn't mean that anyone you want to take notice will do so.

"Getting your name out is quite hard in a niche industry. For what we offer, there are very specific people you need to target in an organisation. It is not the sort of thing where blanket coverage is good coverage because you could be featured in 100 different publications but it is meaningless if they target the wrong people.

"Let's say we are on the front page of Tech Crunch, which is supposedly what a load of start-ups aim to achieve. To us that wouldn't mean anything because it is completely the wrong audience. To target the right people we went to the big broadcast trade shows."

Know the legal requirements

Legal strictures and regulations can lead to serious headaches for new companies, as one of the people behind the Raspberry Pi, Eben Upton, found out.

"There were little glitches on the way. It turns out if you want to sell electronic products in the European Union you need to have this little CE mark on it - I didn't know that.

"Strictly I did know that, but it has been convention for a long time that low-volume development hardware does not get CE marked. If you talk to BIS [Department for Business, Skills & Innovation] they say we have a regulation that as long as you don't get any complaints, then they won't go and beat anyone up.

"However, if you do what we did, which is become very large in our profile before you have done any volume, you are effectively a large company before you have shipped a single unit out of the door. We were very lucky that the product, which hadn't been tested, was certifiable."

Beware pushy clients

In what is no doubt a worry for all start-uops, Rollason reveals he ahs been burnt before by a company pushing for a product too much.

"When I was at Oxford Softworks we had a Chinese client that said this will be great, we will pay for this, blah, blah, blah. We got a contract signed.

"Then suddenly the client said, oh gosh we really need to show this at a trade show, please can you give it to us now? And Oxford Softworks gave the stuff over on trust and they just disappeared. It was a complete scam."

Don't sabotage your own business

Upton warns that getting too far ahead of yourself can have dire consequences for your cash flow, and in the end your very existence.

"We are very careful - there's the Osbourne story - and we don't want to Osbourne ourselves. There was a computer company called Osbourne in the 1980s and it pre-announced its next-generation product.

"I think the company felt its current product was under threat, so they responded by preannouncing their future product and killed the cash flow that would have paid to develop it. So we are very careful not to do that."

Don't rush to change your business model

While it may be tempting to change things when they don't go well from the start, this is not always a good decision. Rollason believes that looking around for like-minded groups you can partner with.

"Once you get a little bit established you might think, actually we could do more. You can potentially get funding money and start employing people but I would avoid that like the plague.

"A much better deal is to find other mature groups that can do the same things you do if you want to expand. You can then collaborate with them on a revenue-share basis. The advantage of that is you won't need to organise them.

"If you employ somebody you are going to lose an engineering resource, because the chances are the people who start a small company are all engineers. If they have to start organising other groups they lose the capacity to function themselves and it wastes a lot of time.

"It also means you can detach easily. So if you do a project together and it is finished and you don't have other work to share, you separate at that point and maybe join up again later on. It is very low risk and is very effective. It's a very good model."

Launch with like-minded companies

Kunhya agrees with Rollason as he believes that working with other groups, even ones less technically capable than you, can help solve a range of problems.

"The clients we worked with at the beginning have been the ones that have been able to iron out the creases. That was very lucky on our part. The first client was another start-up run by a professor of computer science and they were very technically capable.

"The next company was a little less technically capable but if it solves a problem for them and it saves them money then they will happily iron out the creases in your start-up."

Delegate

Paul Gouge of Playdemic warns that trying to do it all yourself is not a good way to do business. However realising you need to delegate can take a while, as Amazon's Jeff Bezos found out.

"Entrepreneurs are, by their very nature, driven people but that can lead to them trying to do everything themselves. There are a lot of individuals who are seen as great leaders of companies, driving them forward, but they didn't do that on their own. They did it by surrounding themselves with other great people they could count on.

"You have to delegate. If you don't it can lead to important decisions being slowed because you are not there to sign them off.

"Jeff Bezos [founder of Amazon] tells this story in his autobiography where he is just about to sign the IPO for Amazon. He has all these big important bankers in the room at what is arguably the biggest meeting of his life. While he is half-way into proceedings there is a knock on the door and he can see the guy through the window and he shoos him away.

"The guy doen't move and a minute later there's another knock on the door and Bezos this time interrupts the meeting, gets up and goes to see what the matter is.

"'What do you want?' he asks the man. 'I need the key to the Coke machine,' he replies. 'Are you kidding?' Bezos asks. 'No, you are the only one with a key to the Coke machine,' the man replies. At that point Bezos realised he needed to start delegating a lot more."

Think about your milestones

Finally, Upton believes it is important to be able to mark important milestones in your company. Unfortunately he didn't take his own advise with Raspberry Pi and won't be able to celebrate its anniversary for another three-and-a half years.

"Raspberry Pi launched on the 29 February, which is dumb because we can't have first-year anniversary celebrations," Upton admits.