Founders: 5 Mistakes You’re Making Right Now (and What to Do Instead)

I’m guilty of having made many mistakes starting, growing and exiting companies over the past 25 years – some big and some small. It took me a while, but I learned that’s OK. Being an entrepreneur is about trial and error, failing fast, continuous learning and having a growth mindset. 

Here I identify the five mistakes I’ve found to be most frequent and meaningful as you grow. I made them at the company I started and exited. I’ve seen them in many of the 20 companies in which I’ve invested. And they show up consistently in conversations with the hundreds of startup founders I’ve talked to over the years.

#1 – You’re almost definitely underpricing your product

When founders start selling, we’re extremely customer-focused. We’re passionate about our product and the market we have chosen to serve. We want a product that everyone can afford. At the same time, we likely only have an early version of our product and may not be confident in our product-market fit. It’s natural to err on the side of pricing low.

And I’m the first to admit I underpriced my products — and not just for the first year or so, but for many years. I left a large amount of money on the table. This didn’t just hurt short-term cash flow, either. It impacted how much we were able to reinvest in our products and even our valuation when I exited. I also didn’t realize the other implications on unit economics. For example, since salespeople compensation is commission driven, lower prices mean lower sales targets which makes salespeople less likely to join and stay. And since you need to sell more at lower price points, each person on your customer success team will likely end up with more accounts to manage.

Raising prices is scary, but it’s well worth the discomfort. Startups tend to overestimate customers’ memories and the importance of what others are paying. But I’ve found customers don’t talk about pricing with each other that often. This may become harder as you become more established, but in the rare case that a customer pushes back because the next customer is paying a lower price, it’s pretty easy for an early-stage company to explain the difference. You’re likely continuously adding features and it’s standard to offer discounted pricing to early or long-term customers. 

Signs you’re pricing is too low 

• You rarely get pushback on pricing
• Your close rate is extremely high
• Your renewal rate is really strong
• You’ve never tested pricing
• You’re not increasing prices annually

My advice

You’re likely between 10–25% short of where you should be. Maybe even as much as 50%. But you won’t know unless you test. And keep in mind that if you ever sell your company to a private equity firm, the first thing they’ll likely do is increase prices.

How to increase your prices 

• Test during the sales motion: Implement a pricing increase for the next quarter — say 15%. Give your salespeople, or yourself if you’re the one selling, the ability to discount up to that 15% if there is pushback. 
• Test different terms: Test quarterly, annual, and multi-year deals — paid upfront — against higher pricing for monthly subscriptions. Start by presenting the new terms as your standard contract and discount or adjust terms if needed to close the deal. 
• Auto-increase renewals: You don’t even need to test this one; just do it. If you have a recurring revenue business, your contracts should have an automatic annual price increase of at least 3%. If that seems steep, consider that many companies start at 5% or more, particularly in an inflationary environment. 

#2 – You’re not empowering your team 

As an entrepreneur and a founder, you’re smart. You’re driven. You’re probably putting in 100 hours a week. You can and want to do everything. You’re passionate, the company’s your baby, and you want to manage all of the details. 

That approach can help you get through the founding stage because there’s so much work that needs to be done but can quickly become counterproductive.

It’s not an environment that will work for the people you hire to take your business to the next level. Mid-level and senior team members need the runway to be successful and take ownership. They want to be creative and own what they’re working on. They won’t appreciate an environment where you’re breathing down their neck, scrutinizing every move they make. 

Letting go is hard, right? I still struggle with it. It’s a very standard challenge most founders face as they move to the next level. 

Signs you need to take a step back

• Every problem comes to you; everyone expects you to solve it and that is what you do
• Projects need your ok to move forward and are often blocked waiting for your review or input
• Good people leave or you experience significant churn among your direct reports
• Someone on your team tells you (if you’re lucky)

My advice

There’s a difference between inspecting (which is your job) and micromanaging. Your job as a CEO and founder is to make sure your team is working on the right things, blockers are removed and that the quality is at the right level. It’s not to tell people exactly what to do. You set the objectives, paint the big picture, give people guidelines and ‌goalposts within which to operate, and let them draw on their expertise to meet those objectives. Coach, provide guidance, inspect and clear their path.

How to manage through empowerment

• Move from micromanaging to coaching. As your startup grows, you won’t need to do everything anymore. Instead of providing lists of what you want done, shift to setting better direction, asking probing questions, sharing your experience and removing any barriers to your team’s success.
• Be mindful of dominating conversations and being the smartest person in the room. In areas where you’re most comfortable, taking the lead can feel automatic. Resist that urge. When you’re in a meeting on a topic, be aware of how often you are talking versus everyone else. Resist the urge to add value everywhere. Listen. Ask questions. Let your leaders lead, learn and grow. 
• Provide supportive resources, not solutions. Instead of providing people with a solution, it’s much better to outline your experience and resources. For example, share a situation where you were dealing with something similar, and explain what you did. Connect them with an outside expert or advisor. That way, they can benefit from others’ experiences, but still be empowered to choose their own path.

#3 You’re underinvesting in sales* 

It’s relatively rare for founders to have a background in sales. When you start a company as a product person, technologist, or as a subject matter expert from your target market, you’re likely to put disproportionate resources into product development, technology or support. Or if you’re running a services business, you may lean too heavily into providing customized solutions and responding to every customer need.

*And if you’re a sales leader, you’re probably overinvesting in sales and underinvesting in product and support. 

Signs you need to step up the sales budget and build sales into your culture

• You’ve got a 3:1 (or similarly unbalanced) ratio between engineering or maybe customer support and services to sales and marketing.
• As founder, you are the top salesperson. 
• Your product functions are far more sophisticated than your sales motions.
• You don’t have a revenue growth model, nor are you looking at metrics like LTV over CAC if you’re running a software business..
• The company sees salespeople as a necessary evil, rather than heroes out on the front line growing the company.

My advice

Recognize that you are likely to be biased when you allocate resources. The challenge of starting and scaling a company is making sure that each of the different domains or functions in a business is resourced proportionately ‌ — ‌ whether that be engineering, operations, customer success, product, sales, or marketing. You don’t want to have an advanced product and technology function or incredible customer support, but a primitive sales and marketing function.

Sales is especially important for businesses that aren’t raising a ton of funding and need to bring in revenue to support growth and reinvestment. 

How to invest the right amount in sales and other teams

• Balance each of your different domains or functions. If you’re spending far too much resources or time on technology and you have a great product offering but sales are low, something’s not right. Make sure that there’s balanced spending across each area and that you’re not over-investing in one area and under-investing in another. 
• Understand your LTV/CAC particularly for software businesses. Lifetime customer value (LTV) over customer acquisition cost (CAC) measures the total average value you expect from a new customer over their lifetime compared to the average cost to acquire a new customer.  A good rule of thumb is that if the ratio is over 3, your product economics are healthy and you should be spending more on sales and marketing.
• Know when to start building up your sales function. Once you have product-market fit‌ — ‌where you’re able to sell a product to customers, they’re giving you good feedback and they’re renewing‌ — ‌start thinking about balancing reinvestment in product versus investment in sales and marketing. 
• Get outside perspective. An advisor can help you look at your resource allocation with less bias, and see where you’re spending too much (or not enough) money. 

#4 You’re over-promising to early clients, and overcomplicating your offering 

This one is especially challenging if you serve large, enterprise clients and have a small number of really big customers, but I’ve seen many founders over-promise to even small customers. You committed to what you’re building and you want everyone to love it, which makes it hard to say no. 

What ends up happening is you spend far too much responding to one-off feature requests and customizing your product offering, adding features that one customer requests but aren’t a priority for the rest of your customers. 

Best case scenario, you’re spending too much money on support, and you’re over-investing in existing customers. Worst case is you’re overcomplicating your product offering by adding one-off features that make it difficult to scale. 

Signs you need to just say no

• You find yourself managing multiple instances or versions of your product for big customers.
• You’re spending a disproportionate amount of resources on support or services.
• Client-specific customizations are making it harder to scale your core product.
• You don’t have a talk track on how to say no to requests.
• You aren’t charging for customizations, new features or additional support.

My advice

This is a difficult topic to navigate. Of course, you want to keep the early customers and keep them happy; they’re going to be reference accounts for investors or other customers. 

But it’s important to acknowledge the bias to over-serve. If you’re not careful, this tendency can lead to death by a thousand paper cuts. It’s in your best interests to learn when and how to say no.

How to satisfy your startup’s early clients without overpromising

• Create a very clear product roadmap and refer to it often. Show you’re building and improving your technology in ways that will benefit everyone. When someone asks for a customization or something that won’t ‌move the needle, you can show them your roadmap and the vision that you’re building towards. Sometimes those small requests fade away when you demonstrate a clear, compelling vision.
• Determine importance. Not all requests are created equal. How important is the request? Would the customer pay to move it up on the roadmap? What would they do if you said no? What could you do instead?
• Remember customers come and go. Not all customers are created equal, nor are all customers good customers. Sometimes firing high-cost customers or letting those customers cancel is a band aid that needs to be pulled off.
• Set clear parameters in your contracting process. Establish a number of hours or amount of development work that comes with the contract, rather than leaving customization open-ended. 

#5 You’re not spending enough time out in the market

I get it. Running a start-up doesn’t leave much time for anything. You’re likely deeply embedded in your company, putting out fires and applying the elbow grease you need to grow or maybe even just survive. Add a family or pets, and how do you find time to do the extras? 

Answer: Getting out there isn’t an extra; it’s an essential part of running your business. 

Even if you’re not thinking about selling your business today, tomorrow, or in 10 years, you still want to get out there and make sure you’re on everyone’s radar.

Signs you need to get out more

• You haven’t met the CEOs of your top competitors and those adjacent to you in your market space in person.
• You’re not up to date on the latest M&A in your space and current valuations for your type of business.
• You’re not taking at least one or two speaking engagements per year.
• You’re not attending the top conferences or trade shows in your market.
• You don’t have a couple of bankers you trust could call when someone comes knocking to buy your company.

My advice

I’ll tell you what one of the advisors and investors in my business, who ran a large private equity firm, told me: “You need to get out from under your bushel basket.” My first question was ‘What is a bushel basket’? My second question was what should I do.

How to build the relationships that put your startup on the map

• Think of your job as operating at three levels. Most founders are working deep in their companies. They struggle to lift up their heads and think about company strategy, much less spend time out in the market. Your job is to allocate at least some time between all three.
• Introduce yourself to competitors and the leading companies in your space. Literally call them up and say, “Hey, I’m so and so. Here is what we do. Just thought I’d introduce myself.” Your objective is to get to know the other companies in your market, both those that compete and those that are adjacent. Say you meet the CEO of a company that’s 15 times your size and has an adjacent but not competitive product. You’ll be surprised at how receptive that CEO will be. M&A is likely a focus for them and you’re probably going to end up on a list of companies for them to keep an eye on. Maybe they’ll write you a big check in a couple of years to buy your business. 
• Build relationships with investors and investment bankers in your space. Get on the list of companies they’ll watch when they’re talking to other folks who are buying and selling their businesses. They’re also going to give you valuable feedback on valuations, who’s buying, and what buyers are going to see. 
• Get active in industry conferences and organizations. Find the five or so conferences you need to be going to and getting involved in, and start setting up speaking engagements. Find out which organizations you should be a member of, and get active in them. 

If you’re a founder who’s not making any of these mistakes, I’d love to hear about it‌ — ‌or if there are others I’ve missed!!