I have invested in a couple of businesses that were unsuccessful, but my worst investment ever was in my own start-up business. My team had won a start-up competition a few years back. Our company was a web-based enterprise, but it failed for several reasons.
Weak expertise, poor sense of duty, and gender imbalance were key faults
Firstly, all the team members were working full-time and joined in with this business as a part-time job.
Secondly, none of us co-founders were coders or programmers, as we were all from marketing and sales backgrounds and did not have huge sums to invest in hiring a full-time coder.
Lastly, the nature of the business was centered on women, and three out of the four partners were men, who were not interested in the type of products we were offering.
Believing in a business and acting with dedication are crucial for success
What I learned from this was to never invest in a business in which the team members are not fully committed; that there always needs to be at least one team member who is really into the industry or has accumulated experience in it. And finally, apart from commitment, passion from the management team is essential.
Andrew’s takeaways – Avoid these mistakes to become a better investor
Investing in a start-up – just don’t do it!
Investing success is hard enough, start-up investing success is nearly impossible. All odds are against a start-up. Why would you trust your hard-earned money to such a high-risk investment? Oh, I know, “It just feels right”, or “it’s a hobby, I don’t mind if it fails” or “Nobody has come up with this idea”, etc. The reality is that survivorship bias is acting so strongly in this area that it will empty your wallet. All those successful start-ups you see, they are the very few survivors. What you don’t see is the graveyard of dead start-ups, trust me, it is an ugly place. So, about start-ups, remember my advice, don’t do it!
But if you must, the key to a sustainable start-up is a visionary leader
Key-man risk is a major risk in investing. If the key man exits, for most businesses the company collapses and all money quickly evaporates as the remaining staff fumble and fiddle to try to recover from the loss. But in this story, the opposite is the case – there was simply no true leader, no visionary. Without that person, most businesses will eventually fail. So, if you have the choice, invest with someone like Steve Jobs, the key man.
And what puts this company’s goods or services ahead of its competitors?
When it comes to start-ups, the founders and managers will be pulled in all directions and resources will quickly disappear. So, if you do invest, at least make sure that the company has one little niche where it has a competitive advantage. Finally, it is critical to stay on top of your investment, keep information flowing about what is happening, if not you could wake up one day to a big loss.
Mistakes in this story
5. Failed to monitor their investment
- Failed to review investment strategy regularly
6. Invested in a start-up company
- Invested in a start-up that lacked a clear leader
- Invested in a start-up that lacked a competitive advantage
Learn about the six ways you will lose your money and how to avoid them here.