7 Deadly Sins That Startups Make and How To Avoid Them

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This session is titled 7 Deadly Sins That Startups Make & How To Avoid Them, by Gabu Luna-Ostaseski.

There is this myth in Silicon Valley that some people have it all figured out and have all the secret sauce for creating great companies. The truth is that growing my business has been the hardest thing that I’ve ever done. I went through some dark times growing my business, and lot of the challenges happened between achieving customer validation and getting ready to scale.

Startups have a predictable growth cycle:

  1. Customer Discovery – you’re trying to put out a minimum viable product (MVP) and trying to put some product out there.
  2. Customer Validation – as you begin to accelerate as a business, you’re focused on hitting customer validation. This usually happens after 3 to 6 months.
  3. Upshift – this is piece that most businesses don’t talk about and where I think most businesses fail. This is where you’re focused on developing a repeatable process and getting ready to scale.
  4. Scaling – this is where you start to grow and stabilize. Initiate your repeatable process and grow.

The Upshift phase is uniquely challenging phase in the growth of your startup. Today I’m going to focus on 7 deadly sins startups make and how to avoid them.

7 Deadly Sins During the UpShift Phase

Sin 1: Boiling the Ocean

You cannot boil the ocean. In other words, you cannot break into all markets, segments, and industries at the same time.

When my business first got started, we were in 14 different markets and 7 verticals. What we found out though was that our best customers were coming from just 2 categories. Once we found this out, we made the tough decision to scale back and focus on these two categories. As a result, we were able to double the size of our business.

How to Avoid:

  • Focus on less segments & verticals, optimize them and then replicate them
  • Focus on customers with the most urgent, pervasive, and costly need.

Sin 2: Hire an Architect, Not a Builder

I believe it was Jason Lemkin who said, “Hire your first VP of Sales so that you can fire him/her, and hire your second VP of Sales.” It’s very rare for someone to be able to both architect a plan and initiate it as well. I hired 3 VP of Sales before I found someone who was a good fit for the role. Finding someone who is an architect and a builder is like trying to find a unicorn.

How to Avoid:

  • Recognize these are two different jobs
  • Blueprints first, build second

Sin 3: Scaling Prematurely

My business tried to scale prematurely at $8 million ARR and I almost bankrupted my company. I hired 40+ salespeople and we began doubling the number of deals each month and it seemed like things were going well.

A few months into beginning to scale, we noticed that our churn was beginning to rise dramatically. We went from an expected LTV of $5000 to $800 in a series of a few months.

In other words, we had not built a scalable, repeatable business yet. I had to fire 35 salespeople as a result in order to keep the business alive.

How to Avoid:

  • Recognize the difference between traction and scale
  • Get salespeople profitable before hiring more.
  • Total visibility into all stages of the sales process.

Sin 4: Burning Cash

Are you a startup with a ping pong table? Do you really need that ping pong table to get more revenue?

One big issue that startups have is that they spend money on things that don’t get your revenue. You need to make sure that you’re putting money towards things that lead to profit if you’re growing your business. Buying a ping pong table isn’t going to destroy your business, but it’s money that could be spent towards something that is going to directly impact your bottomline.

How to Avoid:

  • Start charging early
  • Focus on getting to breakeven
  • Cut frivolous spending

Sin 5: The All in One Salesperson

One common issue at startups is that their salespeople spend too much time doing things that don’t drive revenue. I encourage startups to focus on figuring out how to make things more efficient, automate, and specialize.

How to Avoid:

  • Segment job roles
  • Delegate or outsource low leverage taks
  • Remove client success from responsibilities

Sin 6: Relying on Emotion Over Data

Most of the time when I ask companies who the most valuable customer profile is, the most powerful person in the room will tell me, “this is who I THINK it is.” Instead of focusing on what you think or believe, focus on what your data is telling. Look at your data and understand what’s most important.

How to Avoid:

  • Remove ego from decision making
  • “What do the numbers say?”
  • Let data drive decisions

Sin 7: Flying Blind

If you don’t know what should be happening at each point in the sales process, you’re not ready to scale. How are you going to grow your company and reach your goals if you’re flying blind? You need to break down your goals and understand what you need to be doing day-by-day, week-by-week, month-by-month at each point in your sales process in order to be successful.

You don’t necessarily need to manage by revenue in – you should also be managing by specific actions that should be completed. For example, think about the # of bookings that each sales rep should be making each week, each month, each quarter, etc. in order to grow your business to your goal.

How to Avoid:

  • What gets measured gets managed
  • Trending in reporting
  • Identify and manage lead measures

As a Founder, operator, advisor and angel investor, Gabriel Luna-Osteseski has helped numerous companies launch and navigate growth and scale. Most recently, he founded Upshift Partners, a growth stage sales accelerator, to help companies bridge the gap between validation and scale. Before Upshift, Gabe Co-Founded CalFinder and bootstrapped sales to over $50 million. Gabe still sits on the Board and advises CalFinder which continues to be one of the fastest growing marketplaces in home services. Prior to that Gabe sold his first company at 21 (Started it at 18). In addition to investing and helping founders scale sales he is also actively involved in incubating additional businesses

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