Sunday, February 24, 2013

The four biggest mistakes startups make

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A Famous Angel Explains The Four Biggest Mistakes Startups Make


Qualys founder and CEO Philippe Courtot has been leading companies to multimillion-dollar exits for decades.
He just did it again in September when he took Qualys public, raising $72 million for the company.
But along the way, as he's invested in startups and advised their founders, he's seen entrepreneurs continuously making the same mistakes that crash their companies, he says.
Courtot's first big exit was cc:Mail, an early email program sold to Lotus in 1991 for $55 million. He took his next company public, Signio, and also sold it to VeriSign for $1.3 billion. Including his angel investments,  he's been involved with 10 startups  during his decades in the Valley, he says.
He shared his insights with Business Insider in a recent interview:
Mistake No. 1: Not picking one goal—to sell or IPO.
"Some companies make the mistake of a dual strategy thinking, 'We are going to go public or sell the company,'" he says.
You've got to choose, he says. If you'll sell, don't waste money on marketing and sales.
"Build your technology and find customers that are relevant and that's a good time to sell your company."
Mistake No. 2: Impatience.
Courtot always believed in cloud computing and the software-as-a-service business model. But Qualys struggled in its early days. Its customers—IT personnel—didn't trust cloud computing back then. At best, they thought it wasn't reliable enough for their important applications. At worst, they thought it would put them out of a job.
 "I asked [ CEO Marc] Benioff in 2001, 'You guys are skyrocketing, you are going to the moon, what's your secret? We have resistance from customers,'" he recalls.
Benioff told him that he sidestepped IT and sold to the sales department. They "had the budgets" and "could override" a veto from the IT department.
Since Courtot's customers were always going to be the IT professionals, he couldn't do that. So he waited 14 years to take the company public, until cloud computing was as hot as he envisioned it would be.
Mistake No. 3:  Infighting.
Obstacles are inevitable.
"The market changes, you start to despair," he says. Changing directions isn't a failure, it's a necessity.
The founders need to always have faith that the company will "find a solution" and to bring people along when changes are made. "If you don't have the team with you, you will be divided by inside politics and be hurt from within."
Mistake No. 4: Not being choosy enough with your venture-capital investors.
"Once you've taken money, you have made commitments," he says. "You have to be sensitive" to your investors "and be aligned with them." If you aren't, find a way to buy them out.
In 2001, Courtot did exactly that, investing $7.5 million of his own money in Qualys to cash out an investor who wanted the company to retreat to the old enterprise-software model. Ultimately, he invested over $20 million himself and made sure subsequent investors were on board with his vision.

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