This is the first in a four part series.
John Osher is the consummate American inventor and entrepreneur. He started in college, selling used clothing and jewelry. Now in his 60's, John has developed a number of successful consumer products, including an electric toothbrush that became America’s best-selling toothbrush in just 15 months. He has started several successful startups, including Cap Toys, a company he built to $125 million in sales before selling to Hasbro Inc. in 1997.
Yet John's lasting contribution to the business world just may be a list of screw-ups he jotted on scraps of paper.
“After I sold my business to Hasbro, I decided I’d make a list of everything I’d done wrong and [had] seen other entrepreneurs do wrong,” he explains. “I wanted to build a company that didn’t make any of these mistakes. I wanted to see if I could come up with the perfect company.”
He came up with an informal list of “17 Mistakes Start-Ups Make” John's list has since been used in a Harvard Business School case study, been cited in countless publications and has become a central theme in his frequent university lectures. He also used the list as a guide when he developed and launched what was originally known as Dr. John’s SpinBrush; (now the Crest Spinbrush) a $5 electric toothbrush that he sold to Procter & Gamble for $475 million.
We asked John to share his list of 17 startup mistakes with us, which he graciously did below:
Failing to spend enough time researching the business idea to see if it's viable:
"This is really the most important mistake of all. They say 9 out of 10 entrepreneurs fail because they're undercapitalized or have the wrong people. I say 9 out of 10 people fail because their original concept is not viable. They want to be in business so much that they often don't do the work they need to do ahead of time, so everything they do is doomed. They can be very talented, do everything else right, and fail because they have ideas that are flawed."
Lacking a contingency plan for a shortfall in expectations:
"Even if you're realistic in your estimates to start, there are things that happen when you start a new business. Your sales ideas may be no good; bank rates may go up; there may be a shipping strike. These aren't the result of poor planning, but they happen. More often than not, entrepreneurs just feel that something will come along when they need it. They don't have contingency plans for it not working out at the size and time they want."
Lacking an exit strategy:
"Have an exit plan, and create your business to satisfy that plan. For instance, I am thinking I might run my new business for two years and then get out of it. I think it's an opportunity to make a tremendous amount of money for two years, but I'm not sure whether it's proprietary enough to stop the competition from getting in. So I'm in with an exit strategy of doing it for two years and then winding down. I won't commit to long-term leases, and after the first year, we'll start watching the marketplace very closely and start watching inventories.
Miscalculating market size, timing, ease of entry and potential market share:
"Most new entrepreneurs get very excited over an idea and don't look for the truth about how many people will want to buy it. They put together financial projections as part of a presentation to pump up their investors. They say, 'The market size is 50 million people that could use this product, and if I could only sell to 2 percent of them, I'd be selling a million pieces.' But 2 percent of a market is a lot. Most products sell way less than 1 percent."
Over-projecting sales volume and timing:
"They have already miscalculated the size of the market. Now they over-project their portion of it. They often say 'There are 200 million homes, and I need to sell to x number of them.' When you break it down, though, a much smaller number of those are really sales prospects. That makes it impossible to make their sales projections."
“Another exit strategy can be to hand the company to your kids someday. The most important thing to do is to build a company with value and profits so you have all the options: Keep the company, sell the company, go public, raise private money and so on. A business can be a product, too."
Read Part Two of the John Osher’s Startup Mistakes: Startup Mistakes in Financial Planning.
Gary Schoeniger Founder and CEO The Entrepreneurial Learning Initiative