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FAST 25: Common startup slip-ups

July 18, 2015

The rough-and-tumble business world has crushed many a tender startup. But according to academicians who specialize in helping entrepreneurs succeed, newborn businesses are just as often doomed by human foibles as they are by the invisible hand of commerce.

According to Mike Goldsby, Stoops distinguished professor of entrepreneurship and executive director of the entrepreneurship center at Ball State University, one of the biggest of those foibles is arrogance.

“The paradox is that, if people aren’t confident in their idea, they won’t take action,” Goldsby said. “But that confidence is often ill-founded and not grounded in reality.”

While he most commonly deals with college students, the problems he encounters with kids apply to adults as well. Often in spades.

He recalled one young woman who put together an interesting restaurant concept that unfortunately required multiple menus and a breathtaking amount of manpower to execute. It was a killing flaw that experts and advisers pointed out to her often and in excruciating detail. To no effect.

“Whenever she was given advice that would change her idea, her eyes would glaze over,” Goldsby recalled. Fortunately, the concept was for a class (which the student failed) rather than a real-world venture, which would have resulted in a bankruptcy instead of an F.

Nathalie Duval-Couetil, director of the certificate and entrepreneurship and innovation program at Purdue University, sees similar problems with the students and grownups she observes and counsels. Though instead of ascribing it solely to arrogance, she blames love. Sometimes people become so deeply infatuated with a particular business concept that they can’t see its most obvious flaws.

“It’s like a dysfunctional relationship,” Duval-Couetil said. “You’re so in love that you ignore the negative aspects of your business model far longer than you should.”

Another common mistake Duval-Couetil noted is slavishly following cultural trends. These days, for instance, everybody wants to do apps. So many apps. A couple of years ago, everyone wanted to launch specialized social media sites.

“Everybody was going to create a social network, whether it was for adventure-sports enthusiasts or beer-brewing enthusiasts,” Duval-Couetil said. “And for years, we used to put in our syllabi, ‘No more textbook sales websites.’ That was another fad, because it was clearly a problem that students could relate to.”

Ideally, she said, entrepreneurs should vet concepts a bit earlier in the development process, rather than develop an exquisitely refined plan in a vacuum that crumbles on contact with reality.

“Your first idea is probably not going to look anything like your last idea,” Duval-Couetil said. “Be ready for that, and be nimble about seizing opportunities.”

Stephanie Fernhaber, assistant professor in the entrepreneurship and innovation program at Butler University, sees her share of people smitten by business plans. But she also sees would-be entrepreneurs who cloak their projects in Howard Hughes-like secrecy. Either because they want to hoard all the (entirely theoretical) glory/credit/profits for themselves, or because they’re worried someone might steal their concept. Fernhaber has even had such folks ask her to sign nondisclosure agreements before they talk to her.

“Which is the silliest thing I’ve ever heard,” she said. “Everyone thinks someone’s going to steal their idea if you share it with them. But most people aren’t passionate enough about it to pursue your idea. And ideas don’t do anything by themselves. I can come up with tons of ideas, but actually putting them into motion is something completely different.”

Keeping an idea under wraps can actually harm it. Fernhaber recalled one woman who developed a concept for a business that nurtured the parent/child relationship. It attracted the attention of a national firm that was interested in backing it—until another national company, Build-A-Bear Workshop, challenged her (belated) attempt to copyright the business’s name because it was similar to its own. A legal battle ensued, the national backers disappeared, and the nascent company evaporated.

Entrepreneurs also make a lot of mistakes with names, both using a name already used by another company, or even more important, realizing too late that a website isn’t available.

“In today’s world, you have to develop a website first before you come up with the name,” Fernhaber said.

Entrepreneurs slaving over a hot startup also sometimes slight the “boring bits” of their business plan, such as bean counting, at their peril. Fernhaber offered the cautionary story of her husband’s real estate business. Unfamiliar with and uninterested in bookkeeping, the couple decided to farm out their payroll functions to a third party. A not-very-carefully-vetted third party.

“We looked online and found the cheapest payroll company,” Fernhaber said. “And suddenly we realized that they weren’t paying our state taxes. We were out ten grand and the company went out of business.”•

Check out more of IBJ’s ranking of Indy’s fastest-growing companies.

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