8 HUGE Startup Mistakes to Avoid

And 8 surprisingly critical tips that will make you succeed

The idea of pursuing your passion and watching it come to life while being your own boss with an immeasurable potential for earnings is exhilarating! But it has significant challenges that come along with it, especially in the Technology industry.

My partners and I started our own IT business almost 3 years ago and we’ve had our share of trials and errors. We offered IT Managed Services in addition to Low Voltage cabling (POS, CCTV, SATV, CATV, A/V, VoIP, etc.), Web Design, Cloud Services, Data Backup and Recovery, and Cyber Security.

In having started a business from scratch for the first time, we have learned a ton and the adage “If only we knew then what we know now” couldn’t be truer for us. I’m writing this article to candidly share our worst mistakes with you to save you the time and MONEY in misdirected efforts towards starting your own IT business. Let’s get to it!

1. Ownership

The first order of business when starting your own company is deciding who you are going to be collaborating with. Choosing the right business partner is one of the most important decisions you’ll make. As partners, each person needs to be 100% committed and must bring assets the other may lack for balance, while collectively pulling in the same direction; meaning, having the same short- and long-term goals for the company.

Our company has 3 owners. Two of them have had very different visions for the company, and it becomes a problem quickly when trying to decide where funds are to be allocated. Not only does this strain the partner relationship bringing down the morale, but even worse, it keeps the company from having a clear mission and prevents it from growing. Choose your partners wisely.

2. Funding

The most essential element in being able to start your business is your source of funding. It is ideal to have saved enough of your own money to invest in your new company. We only invested about $50,000 and that was not nearly enough. When we ran out of money, we resorted to using business credit cards for operational expenses including payroll and equipment. I can’t stress enough what a HUGE mistake this was! Credit cards have astronomical interest rates that hold you back if you rely on them. The worse part about it was whatever earnings our business was bringing in was all going towards trying to pay down these credit cards and their interest.

A little side note I want to add is never ever use your own personal credit cards for business expenses. That will create a nightmare for both you and your accountant when your tax returns need to be prepared.

My advice to you if you don’t have capital upfront is to opt for a small business loan with a low-interest rate. Credit unions rather than standard banks offer them. Another means of funding could also be Angel investors. Angel investors focus on helping small businesses and start-ups by providing them with capital with the expectation of a higher rate of return than they’d receive by more traditional investments.

3. Organization and Budgeting

If you’re able to draw up a business plan, it would be ideal to do so. If not, at the very least document a Mission Statement all owners agree on. Outline what your primary services will be. Narrow down your niche at the beginning! As you probably noticed from my description of our services, our niche covered way too much. We should’ve chosen 3 of those services and focused on establishing a more specific clientele.

Another important tip to note is to be very careful in not selecting a niche that falls into a “grey area”. Do your research ahead of time. We made the mistake of making low voltage cabling our focus, later realizing this is a trade that overlaps with electrical.

Electrical contracting companies dominate this field. When a General Contractor (GC) awards a contract to an electrical company, most of the time, they will also include all the low voltage work in their scope as well. Unfortunately, we wasted our time and resources on a field that was already claimed by a bigger shark.

State what your action plan is going to be and your expected results for the 1st year, and the following years. This will allow you to gauge where the company is every quarter and will enable you to quickly tweak your strategy if needed, for better results.

After you’ve acquired funding, create a budget spreadsheet with your co-owner/s and decide how you are going to allocate those funds. How much will you pay yourselves? How many employees will you have and how much will you pay them? How much money will go towards equipment, software, office space, storage space, legal and accounting services, sales, marketing, conferences? Because this is a trial and error process, you will likely need to adjust as you see fit along the way.

Keep track of your inventory. Create a separate spreadsheet for this as well. Categorize your items and quantities, and make sure this tracker is kept up to date with every single purchase to prevent accumulating overstock of repeat and unnecessary purchases.

Having these metrics will help facilitate your continual assessment of the company and will be very useful when you need to make adjustments for improvements. We did not have any of these metrics in place which caused chaos when we were trying to figure what we were doing wrong with our budgeting. Mismanaging finances can potentially be the demise of your business.

4. Accounting

Your accountant has one of the most important roles in your business. This person will be making sure your i’s are dotted and your T’s are crossed with the IRS. For that reason, it is of the utmost importance to select one that is responsive, reliable, professional, knowledgeable, and experienced with other clients in a similar business as yours.

We had a negative experience with our first accountant. He was the only accountant in his firm alongside one assistant. Because he lacked the manpower to be able to sustain the volume of work that came with his client base, our company was neglected, and he ended up having to request an extension from the IRS for filing our corporate taxes.

He wound up filing our taxes 6 months after the IRS’s deadline! He did not like taking calls and when we would call his assistant, we couldn’t reach her either because her schedule was sporadic. We had questions that were only mediocrely answered when the accountant would agree to meet with us once a year for signing off on our tax returns.

Fortunately, we ended our business relationship with him and found a new accounting firm with 50 accountants and an abundant staff who are great. Since our old accountant never created a balance sheet or a profit and loss statement, our new accountant was faced with the laborious task of scrambling through our documents to get our corporate finances in order, which he did successfully and quickly.

He also provided us with new significant warnings and advice. One example is warning us about the IRS flagging our company as a “hobby” if we didn’t start making a profit.

It’s the norm to not expect a profit your first or second year, but to carry that on after the 3rd year endangers your company into being considered an illegitimate business by the IRS.

If the IRS labels your company a hobby, you are no longer able to deduct any expenses or take any loss for it on your tax return. It’s important to ensure your company expenditures are less than your revenues.

5. Website

A website, especially for a tech startup, is essentially a universal business card. It can either make or break your credibility as a company.

This is one expense you do not want to go cheap on.

Because of our limited budget, we hired a mediocre team that at first seemed like a good deal, but later realized the massive number of hours we spent making corrections costed us more than if we had hired a highly skilled team from the start.

Invest in an exceptional web design team that will create an airtight website representative of your vision that is clear, informative, generates traffic, engages with prospects, and provokes conversions.

6. Legal

Protecting your company from exploitation is essential as a startup. Being the little fish swimming in an ocean of GC sharks, we experienced this firsthand.

Sadly, after submitting millions of dollars’ worth in bids, we discovered it is common practice for GC’s to use smaller subcontractors like us for our numbers. The whole time, they already had their favorite subcontractor pre-selected, but they would string us along for the sole purpose of using our estimate for comparison purposes only. While their actions are grossly unethical, they are not illegal. However, I do want to caution you about keeping a watchful eye and being prudent in this area.

We experienced exploitation on an illegal level as well.

We were hired by a prime contractor to perform all the low voltage work. In accepting this project, we did not have our own contract in place at the time. We had only signed his contract, naively accepting all his terms and conditions. After having had the prime contractor sign off on the completion of the project by us, weeks later we had not received any pay. We sought out payment directly with him as he continuously made excuses for not paying us.

After about a year of not demonstrating any intent to pay us, we decided to file a lawsuit for the labor pay he owed us in addition to the upfront costs of all the required materials we paid for.

It has been 6 months since our attorney initiated the lawsuit process and it still has not been resolved. Despite us having evidential documentation of our work being completed and pending payment owed, it is a long and aggravating process.

From such a negative experience, we learned to hire a corporate attorney to not only prepare our own contracts but also thoroughly review the contractors’ prior to signing to ensure a schedule of payment per milestone is set, instead of a lump sum at the completion of the project.

7. Outsourcing

We outsourced most of our positions to overseas countries to save money. It wound up being a revolving door for backfilling these positions because they were not performing to U.S. standards. The positions we outsourced were for IT help desk, Estimating, Marketing, and Sales. The greatest deficiency in our overseas staff was their wishy-washy work ethic. They didn’t care, and they did not take their positions seriously. Many of them had issues with attendance using outlandish excuses for their absences.

A couple of our overseas staff members produced fairly good work however, their English was decent at best (with a very thick accent U.S. leads did not understand) which caused communication problems both internally and externally. While you can maybe get away with accepting these drawbacks for some positions that don’t involve too much interaction with American leads, some positions like Marketing and Sales truly demand a high proficiency in the English language in addition to a strong understanding of idioms and the nuances of American culture to be able to perform their work effectively.

Outsourcing overseas was disappointing to say the least and at times, it hindered the credibility we were trying to establish.

My recommendation is to acquire proper funding to be able to hire your staff in the U.S. instead.

8. Marketing and Lead Generation

Launching your startup in any of the major cities in the U.S. is highly competitive.

For this reason, you need to find a solid team who can strategize creatively and execute aggressively to see results.

We went through 4 different marketing people from the time we started. Their approaches for social media marketing varied but were ultimately not effective.

A couple of them attempted to market our services on Facebook, Twitter, and Instagram, while another insisted we pay a lead generation company to help her efforts.

We found that marketing on Facebook, Twitter, and Instagram did little to nothing for our service-oriented business. LinkedIn is a more effective social media platform to use for this purpose.

We paid a lot of money to a lead generating company that wasn’t able to get us any clients; only 2 appointments that didn’t go anywhere. And most of the contacts from their shared lists were dead leads.

Our sales team was not strong either. They managed to maintain a friendly rapport with a decent number of prospects, but they neglected others they didn’t follow up with.

My recommendation is that you don’t waste time trying to get leads from platforms like Facebook or Instagram (use LinkedIn instead), and don’t waste money on lead generating companies for your startup.

We’ve come to realize the best way to market a service-oriented business is by networking, attending various conferences, doing an exceptional job completing projects, and as a result, by referrals.

Take-Aways

The gist of all my recommendations is to invest your resources where it matters. Quality over quantity saves you money in the long run, and if you do things right, it will make you money by running your business effectively. Don’t waste money on things like lead generating companies, contractor’s network memberships, or expensive software you won’t need for the time being.

Invest money in attending conferences and networking events that will help you make connections and acquire clients as a result. Invest in a good accountant, attorney (on an as-needed basis), and web design team. Do not outsource your Marketing & Sales positions outside of the U.S.

I hope you’ll find my recommendations useful. I can honestly say, if I could start over, I would take my own advice and I am certain our business would be in a better place now. If our business would’ve been more established prior to Covid-19, we would not have felt the impact as catastrophically as we have now.

If you have any follow-up questions, please feel free to comment below!

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