7 Mistakes of Startup CEOs That Are Killing Their Businesses

IT services companies

Every other day, I hear of new Startup IT products or IT services companies cropping up both in India and overseas.

In fact, there are way too many IT services companies claiming to provide everything under the sun without really having a direction or strategy to achieve sales and revenue growth.

One of the main reasons is that Startup CEOs and leaders are not taking the right approach at the right time to ensure growth.

Almost every day I come across various companies at various employee and revenue sizes struggling with similar issues related to growth, revenue generation, and finding new customers.

In this article, I’d like to share some of my observations and recommendations.

1) Most CEOs are purely technical

There is a huge trend in the IT services industry today – several senior developers or architects have quit their jobs to venture on their own after signing up one or two paying clients (typically, clients they have worked with in the past or obtained through references).

They set up small teams of 10-15 employees and run the show.

However, most of these CEOs don’t have a clear growth path and do not understand the sales performance or how to reach out to prospects and position their company’s value.

What you should do:

a) Have a clear growth plan, and revenue goals for the year, and reverse calculate what you will need to do to achieve those goals. It could be focusing on specific solutions, industries, or territories.
b) Have a clear plan on the effort it requires to achieve your goals and the team you will require.
c) Get a sales mentor or consultant who can get you a head start with sales planning and execution.

2) Working on everything

Over the past 5 years, right after the recession, the IT industry took off once again. And in the past 3 years, there has been an exponential increase in the number of Web and Mobile development companies with over 4200 startups in India alone.

Most development companies try to get a piece of the pie wherever they can, whether it is in web development, testing, product development, mobile app development, backend, web services, cloud, and the list goes on.

They do not create a niche or a competitive advantage by focusing on specific solutions and solving specific industry challenges.

Although the startup is in survival mode during the first year, trying to make it work by landing random projects without a focus on client evaluation, contract sizes, engagement, solutions, and value creation; will seriously jeopardize its longevity.

The problem arises when companies start building specific teams with extremely specialized skills in niche technologies to fulfill each requirement of each project.

This process results in organizations hiring more people than they need and when the project comes to an end, they are forced to either find a similar project to utilize the team on the bench or have them learn new technology.

This is what you should do:

a) While you may have been able to sign up a few clients during the first year, also spend time on strategizing your business model, your strengths, market opportunity, target industries, target geographies, and most importantly, your positioning.

b) Always try to look larger than your company actually is. I see several CEOs, in an attempt to be humble, tell clients that they are a small company, with a small team with a goal of organic growth. Larger organizations want to work with companies of similar size or companies with consistent growth and revenue performance. If you cannot position yourselves as a large growing company, it will become difficult for you to land bigger deals.

3) Working on one-off projects

Most IT services companies in the startup stage work on small, one-off projects that give them just enough revenue to meet their salary requirements.

Unfortunately, not being able to understand the right engagement model is a major drawback for such companies.

Focusing on long-term revenue generation is the key to sustainable and profitable growth.

Here’s what you should be doing:

a) Work on different engagement models for your business along with the right pricing strategy

b) Evaluate your customers to see if they can be your long-term partners and give you long-term business

c) Set your engagement models based on the type of requirements, if you don’t have a clear scope, I always recommend time and material engagement.

4) Going after new business and ignoring existing clients

This is a grave mistake.

Successful organizations make over 60% of their revenues from mining existing clients.

Any organization that you are working with, especially if it is large, no matter what the size of the project, is always a mining opportunity.

Ignoring your current clients for new opportunities may cause you to lose out on a lot of business.

What you should do:

a) Your team should be set up in such a way that equal focus is given to gaining new business from new clients as well as new business from existing clients by identifying new opportunities across the organization.

b) Have an account profile of each existing client you’ve identified to possibly have long-term potential. Use your contacts for introductions, understand challenges, and position solutions and value.

5) Hiring the wrong people

There are several expert opinions on hiring by Elon Musk, Richard Branson, Jack Dorsey, and many others.

Hiring the wrong people, especially family and friends means that your business is on the road to failure.

Most startups and services company CEOs do not take expert help in hiring people with specific skills whether in tech, sales, or marketing.

Wrong hiring decisions can be expensive.

What you should do:

a) Get expert help in hiring the right people

b) Never hire your friends or family members, you cannot get them to work

c) Stay lean, only hire if you desperately need that skill in-house.

6) Focusing on sales but not marketing

Most startup IT products and services companies have poor, old-looking websites.

These websites do not generate any traffic or inbound leads.

Successful companies spend equally, if not more, on marketing activities as they do on sales because inbound marketing drives better-qualified leads that close faster than working on traditional b2b sales cycles with a huge team.

What should you do:

a) Either build a marketing team in-house or outsource your website enhancement and inbound marketing efforts to an external agency.

b) Make sure you set up your sales and marketing budgets and spend on each activity based on your annual revenue goals. Typically this budget is about 8-10% of your annual revenue goal.

In the upcoming series of my blog posts, I will be talking about each process in the organization and how you can evolve with special emphasis on Sales and Marketing.

If you are an IT product or IT services company CEO or Entrepreneur, you must have come across various challenges and addressed them efficiently, please share your thoughts, experiences, and comments below.

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