6 Mistakes that may kill your Startup
We made so many mistakes that it's hard to count them all. What went wrong and what I would have changed. I'm writing this as a reminder to myself, to avoid doing the same mistakes in the future.
Recently I wrote about closing Bolt Motion, the startup I founded with my father 6 years ago after a successful crowdfunding campaign. We created Bolt, an electric skateboard with a focus on portability.
The reason we closed is that our startup never became profitable.
As expected as first-time entrepreneurs, we made several mistakes. The following are the main ones. I'm writing this as a reminder to myself, to avoid doing the same mistakes in the future.
Mistake #1 - Impatience to be an Entrepreneur
When I was a teenager in Italy, I read the "4-Hour Work Week" and TechCrunch. I was dreaming of never having a 9 to 5 job. I was thinking:
“I will start a startup and be my own boss”
I was not so sure about pursuing normal education, but without any viable alternative, I enrolled in Engineering. Knowing that having a perfect score on my Degree was not really my style, I always preferred to do some projects on the side. Over the years I’ve made several DIY projects with my dad. I was taking care of the software and he of the electronics.
In university, I had this idea for a small electric skateboard that could help me commute every day. With my dad, we turned that into a prototype, and then we started a crowdfunding campaign.
Thanks to crowdfunding I was able to start a company. I surely learned a lot and made a valuable experience. But financially and emotionally it was not successful. I ended up with a lot more stress than I was expecting.
While I do agree it's never too early to be an entrepreneur, I feel like it was too early for me to start a hardware company.
Being the founder of Bolt Motion was my first job ever.
I was 21, still living with my parents. Without any salary or savings.
As said by multiple people:
Hardware is hard.
It needs big capital to get started, the iteration is difficult and slow, the revenue is small and non-recurring.
Having more experience in the way companies work would have helped me. But maybe is the fact of being naive that made me start, otherwise, I would not have done it. (I realize now that having a normal job is not so bad after all. You have fewer responsibilities and always a salary at the end of the month.)
If you want to be an entrepreneur at all costs, you will end up in a very stressful situation. Like the people who have this dream of opening a restaurant, and put all their savings into it, only to close after 6-12 months because they don't have the skills required to run it successfully.
It's never too late to be an entrepreneur. The average age is closer to 45 years old than 20 as you might expect. The 21 years old CEOs you see in Silicon Valley (the real place or the TV series) are the exception, not the norm. Keep working on interesting projects and use all the skills from your previous work experience, you will eventually become an entrepreneur. Do it on your own term. Don’t take it too seriously. Try to always have fun.
Mistake #2 - Don’t Have Enough Margin
When the crowdfunding campaign reaches the goal, the real adventure starts. Because that’s when production starts. When the crowdfunding reached the goal, we had 200 Bolt preorders and about 150k$ of funding. In the campaign, you publish estimates for funds allocation and an ETA for shipping (like 9 months). This will never correspond to reality. Shit happens and you will end up late and over-budget.
We ended up being almost 1 year late on delivery, mostly due to a big problem with Customs that I will discuss later.
And the cost of the product resulted to be higher than expected, leaving us with basically no profit at the end. There are so many hidden costs that you don’t consider at the beginning. Shipping, materials, packaging, assembly, VAT, taxes, accounting, rent, lawyers...
When doing estimates, take your best guesses and double them. Or, if you want to be extremely safe triple them. Better to be safe than sorry. You will thank me later.
Mistake #3 - Never Overlook Things Just Because You Are in a Hurry
Every time we rushed through things, we ended up making things worse. Every single time. It's better to take a moment to think. Always choose the right thing to do, instead of the quick one.
During production, we imported batteries from our Chinese manufacturer. Chinese companies often declare a lower amount when shipping to customers. They do this to lower the import taxes for the customers.
However for an incorporated company, this is completely useless as the bigger part of the importing tax is VAT, which can later be used as credit. Moreover, there is the risk of being fined for importing goods with the wrong declared value.
We explicitly ask all our suppliers not to undervalue the goods for the reasons above. However, when importing the batteries, which was the most important part of our production (and the most expensive one), Customs asked us if the importing documents presented were ok.
We were rushing to receive the batteries, as it was one of the last components necessary to complete the skateboard, and we were already late.
We overlooked the value declared by the manufacturer and reported that everything was ok. We never had any problems with Customs before, and never had a detailed control.
Unfortunately, this time Customs wanted to go a bit more in-depth and asked to provide the bank transfers to the manufacturer, to check that the value declared was matching with what we paid for. We realized that the manufacturer had declared a lower amount than what we paid for and immediately noted the mistake to Customs.
It was already too late.
They blocked the batteries indefinitely. (Goods under seizure)
We tried to get them back, as re-ordering them again would take several months and be very expensive, but it was almost impossible. Communication with the Customs office alone was very difficult. We had to use legal email and wait 1 or 2 weeks for an answer. We had no idea if and when we could get the batteries back, and we had no idea what to tell our customers.
It took 7 months and 10k€ of fine.
Long story short, don’t overlook things just because you think you are in a rush. It can be counterproductive.
Mistake #4 - Being Late to Market
We were able to finish production and ship the products to customers. People were pissed by the delay but the reception of the product was good.
When the crowdfunding campaign finished and the preorders closed, we were still receiving an email like “Can I buy a Bolt?”. This was 2015, the product was new and was addressing a completely new niche. So we thought there was a nice market for an ultra-portable electric skateboard with good performance (and high price point).
We were in a sort of limbo.
Demand was there but we didn’t have any product to offer.
We were totally relying on Indiegogo contributions and when those run out we didn't have any other way of doing another batch of production.
By chance, we were approached by a neighbor/friend that liked the project and half-joking asked if we needed some investment. His brother-in-law also joined. After thinking about it, we decided to raise some angel capital with them. This way we had enough resources to do a 2nd batch. Everyone agreed, only some small details had to be figured out before funds could be transferred.
The process of raising money lasted 1 year.
We had several meetings and discussions about our Business Plan. We re-wrote 5-years sales projections multiple times listening to our potential investors. We defined Call and Put options. We hired external consultants as supervisors. We defined a repayment strategy for their investment.
We were a company of only two people and basically zero profit. As you can imagine, most of what was written in the 5-year plan resulted to be completely useless.
Mistake #5 - Overestimating the Demand
During investment discussions, we said multiple times that we should get to market as quickly as possible. It took us 1 year to raise money and several more months to get the product back to the market again. In the meantime, competitors started to appear like mushrooms. Boosted Boards, the leading company in the electric skateboard world launched a small version of their popular electric longboard. (They went out of business in 2020) Chinese companies started producing electric skateboards coping our photos, design, or logo.
This is now 2017 and we launched a new version of Bolt with several improvements.
We have some sales but the figures are far from what we expected. We made projects made on the idea that in 2 months of crowdfunding we got 200 preorders. We were expecting a somehow similar pace and invested most of the funds into having the warehouse ready to supply this demand.
But selling on your shop instead of doing a crowdfunding campaign is a completely different thing. It’s really difficult to move people to your site. You should expect 10x less or 10x slow. This is the post-crowdfunding effect.
Crowdfunding gives you a lot of visibility and people that are always looking for the latest gadget. They will be your early adopters, but it does not mean that your idea is validated and there is a market for it.
Having known this, we should have remained lean and do smaller production batches until we reached product/market fit. Trying to iterate as fast as possible and don’t care for profit immediately. But it’s difficult when you have investors ready to get their money back.
Mistake #6 - Raising Money
Another thing that I regret was raising money. And going with the wrong people.
I wish I would have been wise and courageous enough to turn down the investment offer. The startup should have been closed after the crowdfunding. But I was ambitious and the idea had potential. Getting investors completely sucked out the fun out of my startup.
When you get an outside investment you are in debt. And for me is one of the worst feelings. I realized that I’m not comfortable with being in debt to other people.
An investment is money with strings attached, your signed promise that you’ll make it 10x more.
So you are feeling the pressure to deliver, you can’t make mistakes because of your resources.
We also chose the wrong people.
First, because we already knew them before, and it means the relationship is going to be ruined.
Second because they were not experienced in investing in an early-stage hardware startup. These investments are really high risks and the loss should be expected. Unfortunately, they seemed not to realize this.
When we saw that the company was not going according to the plan, we put a lot of effort into making it change the trajectory. We tried several different marketing strategies but nothing changed.
I was feeling trapped and hopeless.
This is completely the opposite of what I wanted to be. I wanted to be my own boss to be free. And now I was just working for some else and feeling terrible.
I was willing to close the company and move on, but since I was not the only shareholder I could not do that. And somehow I had a sense of guilt to do this to people who believed in me and gave me their money.
Eventually, I took the difficult decision to do an internship in Switzerland (my first real job), while working on my startup on the side.
Fast forward to the end of 2020, we have sold every Bolt we had in the warehouse and we can close the company.
This was a difficult text to write, a lot of history and emotions condensed into 2000 words. I had to do it mostly for me, write everything down before I forget.
I’m not a fan of thinking about the past with regrets. What is done is done and can’t be changed. Take this as a learning experience to avoid doing the same mistakes in the future.
Let me know what you think about this story on Twitter @lorenzcella