For 2015, Professionals Talk About How Startups Can Avoid Rookie Mistakes

Service providers have always been a big part of the New Jersey tech startup ecosystem. They are in contact with startups every day, often mentor them, and know when company founders are making big mistakes.

So we asked several of them the following questions: What is the one major mistake you see tech startups make that could have been avoided with the right professional advice? And what specific steps should they take to avoid that mistake?  Here are their answers:

From an accountant/consultant’s point of view: Jim Bourke

Photo: James C. Bourke, WithumSmith+Brown, PC Photo Credit: Courtesy Jim Bourke
James C. Bourke, WithumSmith+Brown, PC | Courtesy Jim Bourke

One of the biggest problems or mistakes we see with tech start-ups relates to their choice of entity. 

Since most tech start-up’s tend to be “bootstrapped” on day one, they don’t have a lot of cash sitting around for seeking the advice of professionals when it comes to entity selection. Since the Internet is a wonderful and powerful thing, it allows start-up entrepreneurs to easily form an entity and get it quickly registered for a nominal fee. A very tempting approach, and one followed by many in the space.

If the start-up never really takes off, then the path chosen is not necessarily a bad one. However, if the start-up is successful and continues down the path from equity infusion to exit plan, the initial entity choice could result in additional complexity, as well as federal and state tax implications and/or hurdles that would require additional capital to remedy prior to an equity event taking place. 

I always encourage start-up entrepreneurs to spend extra time with this selection process, and to understand the pros and cons of each option as they consider their own short- and long-term goals. Most important, an entrepreneur should sit down with a professional who understands the needs of the startup, one in a position to properly guide them for a minimal up-front cost.

(James C. Bourke, CPA, is technology niche practice leader at WithumSmith+Brown, PC, Certified Public Accountants and Consultants. He is based in Red Bank.)

From a public relations and marketing point of view: Domenick Celia

Photo: Domenick Celia, Springboard Photo Credit: Courtesy Domenick Celia
Domenick Celia, Springboard | Courtesy Domenick Celia

One mistake I see is not having a clear story to tell. Many startups begin by identifying a need or solving a problem, but they often lack a clear story that articulates the value proposition of their product or service, and to whom it is pertinent. It is important for startups to understand the messaging and positioning of their offering, and to overlay this with an identification of the appropriate customers and their challenges. Garnering this information through demos and surveys will help create evidence-based data to help shape the story, need and value.

(Domenick Cilea is the founder and president of Springboard, a full-service marketing, public relations and design firm based in Marlboro.) 

From the insurance point of view: Greg Colen

Photo: Greg Colen, Ultimate Benefits LLC Photo Credit: Courtesy Greg Colen
Greg Colen, Ultimate Benefits LLC | Courtesy Greg Colen

From the insurance point of view, the one mistake that tech startups make that could be avoided with the right advice would be: they don’t market their benefits as a strategic advantage for recruiting/hiring the best talent.

Business owners don’t recognize how important benefits are to key employees, especially those with the responsibility for a spouse and family. Business owners should establish a waiting period to motivate new hires to aspire to regular full-time status. Employees value group dental and vision plans, but many startups only offer group medical. Employee benefits are a strategic advantage for companies that want to grow quickly, using the best talent.

(Greg Colen is the founder of Ultimate Benefits LLC , a full-service benefits consulting brokerage firm based in Morganville that offers a wide range of benefits plans for startups and small businesses.)

From a marketing consultant’s point of view: Pavita Howe

Photo: Pavita Howe, Orange B Strategic Marketing Photo Credit: Courtesy Pavita Howe
Pavita Howe, Orange B Strategic Marketing | Courtesy Pavita Howe

The main mistake that tech startups make is that they are technology-focused rather than customer-focused. Every startup begins with a great idea. You often hear that the founders were sitting around saying, “Wouldn’t it be great if we could develop a solution that … ,” and the next thing you know, they’re high-fiving, starting a company, and thinking they’re going to be the next Zuckerberg. The problem is that the next step is usually to start building the product, and that often happens without any customer input. You might have a great idea, but before you start development, you need to answer these questions:

·       Who will buy it?

·       Why will they buy it?

·       Why is it different or better than any other option out there?

·       How will you get customers?

Without customers, you have no revenues, and without revenues, you don’t have a business. So what will make your potential customers change the way they do things and switch to your solution, especially if there is a cost involved? The number one reason that startups fail is that nobody wants their product. Avoid this mistake by involving customers right from the beginning of your product-development process. Find a few real customers, ask them for their input, and get their feedback at each phase of development. You will likely end up with a product that is different from what you initially envisioned, but chances are that it will be a better product, and you’ll get to market a lot faster, too.

(Pavita Howe is the founder and principal at Orange B Strategic Marketing, a marketing consulting firm based in Green Brook that develops business plans and marketing plans for emerging startup and established companies.

From an attorney’s point of view: Christian Jensen

Photo: Christian Jensen, OlenderFeldman LLP Photo Credit: Courtesy Christian Jensen
Christian Jensen, OlenderFeldman LLP | Courtesy Christian Jensen

While start-ups that fail to seek professional advice from the outset face many thorny issues, the major mistake that is easily (and often cost-effectively) addressed on the front end is a failure to deal with employee issues.  Most start-ups focus on founder issues — although they rarely treat those sufficiently enough — but they (1) completely ignore distinctions between employee categories and independent contractors and, as a result, often run afoul of labor laws, including those concerning the payment of overtime and benefits; and (2) fail to protect confidential/proprietary information through confidentiality agreements, restrictive covenants like non-competition agreements, and/or non-solicitation clauses to protect the key assets of the business.

(Christian J. Jensen, an attorney with the Summit-based firm OlenderFeldman LLP, focuses his practice on intellectual property and complex commercial litigation, including business and consumer fraud, construction and employment law.)

From the financial point of view: Rob Ripp

Photo: Rob Ripp, Fintelligent Photo Credit: Courtesy Rob Ripp
Rob Ripp, Fintelligent | Courtesy Rob Ripp

The one mistake I see over and over again is startups not taking the time to properly set up and maintain their accounting systems.   

Many entrepreneurs we work with will tell us “we’re not accountants” or “we don’t have time.”  They want to focus their precious cash on making and selling their product.  The problem is that a company can very quickly lose sight of how it is performing financially, leading to cash-flow problems.  In fact, accounting systems such as QuickBooks and Xero can be set up rather quickly, and they have automated features to make them easy to maintain.   

Taking the time to set up a proper accounting system not only provides feedback on important company measures, but also aids in tax preparation, and it is required by investors as due diligence.  Making a small investment in a sound financial system at the start of a company’s life is a wise choice that will generate a return on investment many times over.

(Rob Ripp is the founder and president of Berkeley Heights-based Fintelligent, which runs financial operations for growing companies, handling everything from transaction processing to strategic CFO support on a turnkey basis, so that executives can focus on growing their businesses.)

From an attorney’s point of view: David Sorin

Photo: David Sorin, McCarter & English, LLP Photo Credit: Courtesy David Sorin
David Sorin, McCarter & English, LLP | Courtesy David Sorin

While tech startups inevitably make multiple mistakes in the course of moving from concept to commercialization, some mistakes can be so materially detrimental that they cannot be overcome.   A common mistake for tech startups may be found in those instances in which the founders’ passion and enthusiasm for a new technology blinds them to important business realities, such as meeting a market need on a cost-effective basis.

Not every exciting technology can support the creation of a profitable business.  Accordingly, it is critical that founders of tech startups seek to solve real problems with solutions that drive revenue, reduce costs or increase productivity for target markets.  This mistake can be avoided by tech entrepreneurs who are advised by lawyers, accountants and others who have deep experience serving companies from startup to commercialization and monetization.

(David Sorin is a partner and chair of the Venture Capital and Early Stage and Emerging Growth Companies practice at the law firm McCarter & English, LLP. He is also the managing partner of the firm’s East Brunswick office. )

From an entrepreneurship coach’s point of view: Chike Uzoka

Photo: Chike Uzoka, entrepreneurship coach Photo Credit: Courtesy Chike Uzoka
Chike Uzoka, entrepreneurship coach | Courtesy Chike Uzoka

I think the one mistake tech startups make is not taking the time to develop their customer base and market before committing to a specific product or service. The way to avoid it is to do research, and let your decisions be driven by data, not by assumptions.

(Chike “Entrepreneur Coach” Uzoka is the founder of Valentine Global, LLC, a  social entrepreneur, a certified small business coach, and an author and speaker. He is based in Newark.)

From an attorney’s point of view: Alan Walter

Photo: Alan Walter, Counsel Photo Credit: Courtesy Alan Walter
Alan Walter, Counsel | Courtesy Alan Walter

One mistake that startup founders make is failing to consider the possible ways in which their personal relationships can founder, and thus failing to fully address these risks in their organizational documents. An LLC operating agreement needs to be fairly robust to handle the potential problems between members. It must deal, among other matters, with the death, disability or divorce of a member, with the removal of managing members, and with the value of membership interests in key events. It’s imperative that founders consider the possibilities, before those possibilities become actualities.

(Alan N. Walter is a general business and real estate lawyer whose practice, based in Montclair, is focused on entrepreneurs and status.)

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