Six Tips To Help Entrepreneurs Avoid Making The Most Common Startup Mistakes
Over the past few years, the UAE has become a rising star in the global market, attracting wide-ranging businesses across diverse sectors, and sending a strong message to global investors, business owners and companies. The strategic location connecting East to West, its rich growth opportunities, and its impressive response to COVID-19 crisis is one of many reasons the UAE is the #1 global destination for business startups.
Embarking on your startup journey is an exciting adventure, but you are often balancing the learning process with looking to the future in terms of growing and expanding your business. It’s difficult to juggle these equally important priorities, and easy sometimes to drop the ball. Here we have the top six tips to help you avoid some of the most common mistakes we have seen startups make in the UAE:
1. Create, evaluate, and refine your entrepreneurial roadmap Establishing a business roadmap for your business is vital. Firstly, it’s important to have a clear vision in terms of what problem your product, service, or technology solves. Understanding customer needs is the driving force here. Many entrepreneurs have created amazing products or services that they think provide a solution, but if your customer doesn’t need it, then they aren’t going to buy it. Investors will also be looking to see whether your business can scale up and provide them with increasing returns, so your roadmap needs to factor in plans in terms of your future growth and expansion. Start small, building a product concept that works for your target market, then shape this by identifying any issues and opportunities to optimise your concept.
There are various exit strategies that you can factor into your business roadmap. You may consider a merger and acquisition (M&A) deal. This is a great way in which startups can bundle up their services and sell to potential investors. The transformation of a company via a merger (either vertical or horizontal) also provides an opportunity to target a larger market share. An initial public offering (IPO) is another option. This offers the most liquid funding source to a company -the public markets- as well as providing a boost to your corporate identity and public profile. However, you need to balance this with the fact that the market reacts quickly to bad news, so be prepared for this eventuality. There are also cost implications in terms of upfront fees and ongoing compliance costs.
Successful entrepreneurs don’t repeat their mistakes, they simply learn from them. Monitoring your performance and being able to adapt your strategy and roadmap is vital. Typically, client acquisition rates, revenue and profitability should be measured, but also look at the bigger picture in terms of return on investment, cost control, audit performance and customer retention levels.
2. Choose the best corporate structure There are many ways to structure your business, depending on your business goals. The business infrastructure you choose impacts your legal risk, tax obligations, level of asset protection, and legal costs. Choosing the right structure early on ensures that you save both time and money in the long run.
Consider where to set up in terms of location. Does a mainland location offer you a better option in terms of trading with the local market? Is a freezone more cost-effective and flexible in terms of tax exemptions and zero-currency restrictions? Perhaps starting an offshore entity is a great way to expand operations, without any heavy administrative obligations?
Your corporate structure is also important. Holding companies offer the benefits of asset security, centralized control and flexible growth structure. An operating company/subsidiary takes on the trading responsibilities and day-to-day running of the business, including contractual obligations. This means that if a customer has a claim against the business, the claim will be against the operating company. Think carefully about the goals of the business in terms of protecting assets and mitigating risk.
Finally, identify if you need a more flexible structure that is suited to startups operating across multiple lines and verticals, or a more consolidated approach that will enable the achievement of expansion plans across the region or globally. The solution is for businesses to find a balance between flexibility and structure- enabling them to reach their full potential and maximize their footprint.
3. Establish the right team, and mitigate risks Henry Ford’s quote, “If everyone is moving forward together, then success takes care of itself,” sums up perfectly the power of teamwork. When you start up your business venture, it’s very easy to fall into the trap of doing everything yourself to avoid spending money, and so, eventually, you burn out. The point to remember is if you don’t create a team you can delegate to, it’s difficult to maintain increased productivity, client satisfaction, and overall business success. Establishing the right team, and inspiring them to work together to execute your vision, and be part of your success is critical.
Don’t rule out outsourcing as another option. Outsourcing can give you the benefit of more time to focus on your core business activities, improved cost-efficiency, and flexibility to increase resources. Ensure that you appoint reliable firms aligned to your vision, and are able to represent your brand as if it were their own.
Most importantly, whether it is an employee or outsourced services, ensure you have a robust employment agreement or service level agreement (SLA) with providers to mitigate the risks of competition, conflict, or non-performance, and avoid losing money or potentially suffering any reputational damage.
4. Avoid raising funds too early Timing is everything in business, and being patient and conservative with your fundraising strategy is actually likely to secure you more funding. So, when is the right time to raise funds? We recommend when you have a proof of concept, gained some traction in your market, generated revenue, and secured brand recognition. It is your job to convince an investor that you are the next big thing and worthy of their investment. Deliver a refined business model or product offering that is scalable with the right investment, and make the investor feel like they are missing out if they don’t jump on board.
Many entrepreneurs fall into the trap of blowing all their money before they have even started; for this reason, only a small amount of startups ever make it big. Bootstrapping may seem a tough prospect, but developing your company without external funding is an invaluable business skill. Building your startup with minimal resources and lean approaches will make you appreciate the value of capital when you do secure the funds. You will also avoid the nightmare of dealing with angry investors!
5. Avoid giving away too much, too soon, by managing your cap table As a founder, you should consider how an investment will impact your shareholding as well as the dilution of the percentage of your ownership. It is important to evaluate what you really need in terms of funds, before giving away too much equity. Remember, you are the one who is putting their heart and soul, along with a lot of blood, sweat, and tears, into the business, so it makes sense that you retain a high level of control in the early days. Further down the line, you will inevitably have less control, but at least, at that time, you will be rewarded in terms of negotiating a higher price.
An easy way to mitigate against excessive dilution is to have a cap table, which is essentially a spreadsheet listing all the companies shares, investors, and indicates percentage of ownership in the company, as well as showing dilution over time. We recommend cap tables be created first before other documents to help you in negotiations with investors, and assessing the impact of your deals. Be prepared for cap tables to become quite complex after a few rounds of financing.
6. Use professional help It’s easy to draft your own legal documents, use online templates, or sign agreements without checking the fine print. The impact of this may not be much at the beginning of your startup journey, but down the line, you could encounter difficulties in terms of an exit event, business termination, or liquidation. Correctly executing a legal document is a formality, but it is key to creating a legally binding arrangement and avoiding disputes or risk of a court finding a contract unenforceable, or not legally binding.
Navigating startup challenges and obstacles may seem daunting, but following reliable and professional advice will help you avoid time and money in the long run, and avoid mistakes your predecessors have made. Establish your goals, seize the day, and take action. The exciting part of business is the unknown and the opportunity to continually learn and grow across your startup journey.