Top Ten Mistakes of Startups Rising from Nokia’s Ashes

I usually tell people that most everything I learned about being an entrepreneur I learned by screwing up at my first company. Oh boy how I sucked as the first-time CEO. That’s how it usually goes. Therefore it is a great idea to do your mistakes as early as possible, learn, and then move on to build a great company.

I think the sign of a good entrepreneur is the ability to spot your mistakes, correct quickly and not repeat the mistakes.

In my role as sweat equity angel investor (yeah, more knowledge and work, less cash) and startup advisor, I have lately engaged with a large number of Nokia-based startups. I identified the top ten most common mistakes in Nokia-based startups, and decided to openly share and discuss them in a series of blog posts titled as Top Ten Mistakes in Startups Rising from Nokia’s Ashes. This is the summary post. The original introduction is here.

I wanted to share my observations as I believe that increased awareness helps to avoid certain mistakes. I, however, painfully recognize that good judgement comes from experience, but experience comes from bad judgement. So most entrepreneurs just need to do their own mistakes and learning from others’ mistakes thus has limited value.

While I have written the posts with Nokia angle, the mistakes and lessons are relevant for any startup as there is a strong connection to not applying lean startup principles.

So, below is a short summary of the posts.

1.     CEO Who Can’t Sell or Lead The Product

Startup CEO’s job is to transform a collection of raw ideas into a product that can be sold to paying customers. If he is not hands-on with the product and how it is sold – and I mean really, really hands-on – how could he drive the operations then? He can’t. Instead he becomes a helpless figurehead who runs around doing non-essential chores such as talking to press, networking with investors, or spending quality time with a beloved excel. While useful and important, these are not the core of a startup CEO’s job prior there is at the minimum a product prototype available. I have seen a number of these general management focused CEOs in Nokia-based startups. There, however, is nothing general to be managed in a startup until it has a sellable product. At the early stage, a CEO who can’t sell or lead the product becomes the worst-case free rider and cost center whose time has not yet come.

For more details, please read the blog post.

2.     The Free Rider Issue

Each co-founder with a working shareholder status is expected to contribute full time every single day while occasionally working one’s ass off day and night to get the startup off the ground. A co-founder whose skills and contribution are not relevant for a startup on a daily basis is essentially a free rider, or an advisor disguised as a working shareholder who should accordingly have only an advisor stake. Although the free rider issue is common in any startup, it is likely even more common in Nokia-based startups. Why? Nokia’s offsprings are oftentimes co-founded by a team that has been working together at Nokia. While the team’s composition and their combined skill set might have been a good fit in a product line with 100+ people, the fit is quite likely suboptimal for a startup employing five to ten people. The Nokia Bridge Program further negatively influences both the ownership structure and team composition. A free rider situation when it arises must be solved swiftly because if left unresolved it easily develops into a cancer that kills your startup.

For more details, please read the blog post.

3.     The Ownership Problem

If the founders’ pie is distributed evenly, it means in practice that no one is in charge. An equity stake for a co-founder is essentially a prepayment for expected future contributions. If we take an average Nokia-based startup with five co-founders, it is a good educated guess that each co-founder holds a flat 20% stake. So, their expected future contributions must then be equal as well? Not really! They just haven’t had either understanding or balls to talk  how to divide the founders’ pie. I strongly recommend co-founders, prior to founding a company, sit down and engage in these profound what-do-I-bring-on-the-table series of discussions. Potential free riders are spotted and a capital table that is collectively perceived as fair is nailed down. Things change over time, and especially so in a dynamic startup – and there is nothing wrong with that!  A shareholders’ agreement, especially stock vesting, helps co-founders deal with this change in a predetermined way.

For more details, please read the blog post.

4.     Culture Gone Wrong

Building a great startup starts with building a great culture. It glues unique, talented co-founders with diverse backgrounds and values into a high performance team with shared vision, common goals and winning attitude. What makes a great startup culture? It begins with the fact that you are valued based on your ongoing actual performance. This is in stark contrast how things work in any large corporation. In a startup, there are no silos and everyone does everything. A startup co-founder can have a family but when the servers are down, it is the wife’s (or husband’s) job to wait until a critical bug is fixed and the servers are up again. Low salaries, commitment, passion, sense of urgency are all key elements in a great startup culture.  It is a big challenge for any team coming from Nokia without relevant startup experience to succeed in building the right kind of culture for their first-ever startup.

For more details, please read the blog post.

5.     High Burn Rate

High burn rate in a startup means increased requirements for external funding and shortened runway to reach either profitability or critical milestones for the next funding round. I have seen catastrophic burn rates in many Nokia-based startups. I believe this problem starts with people who are used to pay a lot even for mediocre services as they have had the money in the budget, and who don’t have a clue on how to be frugal and run a lean startup. In a pre-revenue startup, salaries should be low, preferably in the range between 2000-4000€/month, with no relation whatsoever to previous salaries paid at Nokia. Other contributing factors are poor startup culture, easy money from Nokia combined with easy public funding leverage from Tekes, and the share ignorance how detrimental high salaries and premature scaling can be for a startup and its culture. High burn rate will kill Nokia-based startups in numbers.

For more details, please read the blog post.

6.     Not Being Close to The Customer

It is hard, if not impossible, to develop a world-class product in a lab far from where the lead customers and key ecosystem players are. The place to be is rarely Finland, often USA, China or an emerging market in Asia or Africa. This is an arena where Nokia-based startups could excel if the founding team has members physically located in target markets to bring instant reach and local customer development. In some Nokia cases, I have been delighted to see this local customer development element in play from day one. In way too many cases, the customer development part is handled from Finland via Skype and email, by using local agents, and once and awhile hopping on a plane to have face-to-face meetings with far away customers and partners.

For more details, please read the blog post.

7.     Minimum Viable Product

For engineers with Nokia background, it seems rather natural to build gigantic MVPs. Nokia is not known for its agile, iterative software development capabilities, but rather on the fact that whatever they were building, it always required a hundred engineers to begin with. It takes a lot of product vision to define a meaningful MVP, and not having lean customer development operations at the vicinity of lead customers and partners makes it even more difficult. I believe that avoiding excess funding, having a small nimble software core team comprising three to five people on average, and establishing a feedback loop with a few lead customers early on are keys to keep the MVP scope reasonable and focus tight.

For more details, please read the blog post.

8.     Product-Market Misfit

I have been thunderstruck that some teams with Nokia background are not laser-focused on end users and their needs. They rather have a product and channel-centric mindset where building an average product based on internal product specification and perhaps on light feedback from prospective channel partners is the way to go. With a long product development cycle this is truly amazing, as it means a team is willing to bet their future on unvalidated product specification. They don’t know if there is any real end user driven demand, and therefore a sustainable market, for the product or not. It would make a lot of sense to pay more attention to end users as they will ultimately decide which products will fly or die.

For more details, please read the blog post.

9.     The Arrogant A**hole

Most startups are broke. To get things done, entrepreneurs need to leverage their own network and the networks of their co-founders, investors and advisors. Sometimes you need to get service from previously unknown service providers at below market price or paying with equity only. People don’t move their asses and do favors just because you say so and some time ago used to have a Nokia’s badge, and certain authority that came with it. To help you out, people want to get something in return – like feel good in helping you out, or get a pole position to offer their services later on when you can pay with real money. A startup co-founder, and this applies especially to the CEO, has to know how to ask help, and how to get people do things for him while most of the time the only instant payback is his gratitude. But make no mistake, earning someone’s gratitude and trust, and thus being able to someday ask help yourself, that’s incredibly powerful..

For more details, please read the blog post.

10.     Go-To-Market Strategy

Selling an unknown product built by an unknown startup is not easy. Some Nokia-based startups do have marvelous go-to-market plans that could work, but only if the startup had both the credibility and resources of a larger, more established company. As they don’t have either, the plans will most likely fail miserably. Every startup desperately needs an entry point to its market, an entry point to close the first customer, then second, and so on. Problems with go-to-market strategies stem from not understanding customers and their needs well enough, and perhaps with Nokia history it is a little bit easier to have an attitude problem and think that distribution and scaling up are not issues – as they never were while working at Nokia. Yeah, right.

For more details, please read the blog post. Not much extra here this time though.

Always make new mistakes!

I have received a lot of interest from startups to work with them on the above described issues. After thinking a while, I concluded that perhaps a workshop is the best way to address this need. The workshop is now available and is called the Tough Love Workshop, and If interested you can read more and order it here.

And here is a condensed set of slides on the topic. You can, for instance, use slides for facilitating important yet tough discussions in your startup.

Nokia-based startups can also have unique strengths.

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P.S. I also want to voice out, before anyone brings it forward, that some of the best startups I have seen lately are Nokia-based, and thus not all Nokia-based startups share these mistakes while most do.

 

8 thoughts on “Top Ten Mistakes of Startups Rising from Nokia’s Ashes

  1. Pingback: Introduction: Top Ten Mistakes of Startups Rising from Nokia’s Ashes | The Tough Love Angel

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  4. Dex

    Having seen so many ex-Nokia startups trying to enter eHealth market, I’d like to add one point — not all markets are product markets. If the customer wants to buy a service, you can’t sell them a product. It often seems impossible for these ex-Nokia guys to grasp that you can’t sell everything like you sell phones.

    Reply
    1. mikamarjalaakso Post author

      Dex, thx for a very relevant comment. I would say that the problem you describe is very tough pretty much for everyone.

      What should we sell first? Is technology enabler of a service or rather a core product? What is the core product? How our intended customers want (and/or) are used to buy / pay for the similar need?

      BR,
      ,,Mika

      Reply
  5. Joe McCarthy (@gumption)

    This is an insightful and lucid summary of mistakes that I can relate to on many dimensions. My only quibble is that I believe these mistakes are common to ex-pats of any large organization.

    Having worked at Nokia in 2006 and 2007, I encountered some of the attitudes and perspectives outlined above, and can see how they would affect prospects for entrepreneurial success. Having failed at my own startup before joining Nokia, and at a post-funding startup I joined after leaving Nokia, I have made or witnessed – and can attest to the potential harm of – many of the mistakes listed in this summary.

    However, having worked at several other large organizations, I suspect that entrepreneurial practices are difficult to adopt by most people who have spent a substantial portion of their professional lives employed by a large organization … and I imagine that most people who have what it takes to succeed in large, well-established organizations are unlikely to have the right attitudes and perspectives to succeed in establishing a new organization.

    In any case, the summary you offer here should be required reading for anyone – at Nokia or other large organizations – who is contemplating entrepreneuria, as the ability to learn from others’ mistakes is yet another valuable skill in entrepreneurial success.

    Reply
    1. mikamarjalaakso Post author

      Joe – thanks for an insightful comment.

      I agree with you 100% that the mistakes I have outlined here are typical mistakes for inexperienced people with large corporation background.

      It would be yet another blog post (or series) to try to assess how mistakes would differ or be more or less likely should the first-time entrepreneur come from Nokia vs Apple vs Google etc. I, however, think there would be differences, especially Google is a large corporation but known for their startupish ways of doing things. I believe you can have a large corporation (even in terms of employees) and still maintain relatively agile operations … as compared to other large corporations …. yes, naturally not to the extend possible in a real startup.

      ,,Mika

      Reply
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