Startup Opportunities, 2nd Edition

CHAPTER 12Pitfalls 

Even after hearing tens of thousands of pitches, there are some statements that still turn our stomachs. Some of these issues show a lack of business acumen, others illustrate the dark side of the optimism of entrepreneurship, and some simply make the founders look naïve. As we wrap up our discussion about startup opportunities, we explore various pitfalls that undermine an investor’s confidence in a company. As an entrepreneur, think hard about whether you are falling into one of these traps when describing your new company.

Showstoppers and Red Herrings

Showstoppers are major obstacles facing the entrepreneur. They can also be statements that you might make about your business or market that would give an investor doubts about how well you understand your business, and therefore, your likelihood of success. They include:

• The market is wrong.
• We haven’t found our customers yet.
• We don’t own the solution.
• Making money isn’t our primary goal.
• Large Company X (e.g., Google, Ford, AT&T) just doesn’t get it.
• We have no revenue model.

A red herring refers to a distraction that diverts attention from more important issues. In evaluating a new business, these are some statements that cause an investor to think that the entrepreneur doesn’t have a clue. Here are few of our favorites:

• “We have no competition.”
• “Our financials are conservative.”
• “If we get only 2 percent of the market . . .”

When entrepreneurs make such statements, investors interpret them ...