I was recently reading an interview of Bill Draper, an American Venture Capitalist, recalling his good and less good experiences with the SME’s his firm invested in. This guy is certainly not the less talented in the industry since he invested in firms like Skype, Hotmail ad OpenTable.
I was particularly interested in his answer on the most common mistakes made by entrepreneurs. Here is en excerpt:
“[…] They overestimate market size and underestimate how long things will take. But what happens most often is that entrepreneurs underestimate the importance of what they don’t know. They know their competition as it is today, and they know that their own product is going to be significantly better. But they don’t know what’s going on in the backroom of their competition”
Oh my God … this is so true. Draper mentions three mistakes that we see very often when starting new projects
1. 0verestimation of market size
Remember first that the minority of new businesses are backed by a meaningful business plan and even less by market research.
I always remember Hills and LaForge saying that 60% of bankruptcy could be avoided with a better market study.
2. Underestimation of lead times
Entrepreneurs are inpatient by nature and are by definition based in their estimation of how long their project will take. At IntoTheMinds when an entrepreneur tells us that his new product will take 3 months to launch, we use to double that estimation to get a more realistic idea.
3. Knowledge corridor
You can’t estimate what you don’t know. Because entrepreneurs usually start ventures in the same industry / sector that the previously worked in, they suffer from what academics call “the knowledge corridor”
Years ago 10 venture capitalists (who invested in more than 200 firms) were asked to choose and rate the most importance criteria for the success of a new venture. Surprisingly marketing came first and was rated 6.7 on a scale of 7 and without exception all VC’s were calling for more marketing research.Tags: entrepreneurship