5 Lessons From Devastating Mistakes in Business

What's up, everyone. This is Alex Lieberman, co-founder and Executive Chairman of Morning Brew. Welcome back to Founder’s Journal, my personal audio diary, where I give you the business builder, the tools you need to think better in order to build better, whether that's building a business, a team, or a new product. Today, I'm talking about five profound mistakes leaders have made in business and what we can learn from them. Let's hop into it. 

Five profound mistakes leaders make in business

So I want to take a walk down memory lane. It's the early years of building Morning Brew. And one of my fondest memories of those early days is actually nothing that has to do with building the company. It's a startup event that I went to one day after work. The startup event was called Startup Graveyard, and basically what it was was a TED Talk-style event where three different founders gave 15 minute TED Talks on their businesses and what ultimately led to their businesses’ demise. The entire event was mind-blowing and the people I met there were really cool, but there's one presentation that I'll never forget. It was the founder of one of the original hoverboard companies. As you can imagine, his hoverboard business absolutely crushed it in 2015 as the entire space was on fire, but then it came crashing down due to two fatal flaws.

Two fatal flaws

And just to paint a picture, imagine this guy is talking to a whole group of people and he has one slide up on the screen and it basically shows the revenue of his business. And it looks basically like a hockey stick to a complete cliff where sales just dropped off from basically tens of millions of dollars to zero in a matter of weeks. The two fatal flaws in the business that the founder ended up sharing were as follows. He shared how he didn't build his website with the right credit card security, and so what ended up happening was hundreds of his hoverboards were fraudulently being bought online and then sold as knock-offs on the black market.

Basically what people were doing was they would go onto the website, they'd buy the hoverboard, which I think was like $1,500, put in fake credit card numbers until one of them hit. They would buy it for free because they would just use someone else's credit card. It would be sent to them and they'd sell it on Canal Street or in the black market. The second thing that happened was, if you remember the whole hoverboard boom, when it was like really in the zeitgeists, there was this whole issue where hoverboards started to catch on fire and it cast a huge shadow over the entire industry. What had happened was a bunch of counterfeiters were manufacturing hoverboard knockoffs in China, but they weren't being done safely. And those were the models that were bursting into flames when people were using them. The problem with this is consumers didn't know which hoverboard companies were safe versus which hoverboard companies were the fake ones. So it destroyed the entire space because hoverboards as a brand were dealt a major, hit, not just specific companies. So reflecting on Startup Graveyard, I left the event on one hand, feeling horrible for these founders, but also feeling this newfound appreciation for how quickly learning about a business can happen when it's through the lens of mistakes and failures. This is exactly why a second time founder or manager has such a higher probability of success than a first-timer is because you've simply been through more reps. You've seen more things and you've made mistakes that you won't make again. 

Which is why since Startup Graveyard, six years ago, any chance that I get to learn from founders about their greatest mistakes, I hop on the opportunity. With that, a few days ago, I reached out to dozens of world-class founders that I know, and I asked them one simple question: What early business mistake will you never make again? I got dozens of responses, but I wanted to share my favorite five with you on this episode. So let's hop into it. 

Mistake #1: Hiring reactively instead of proactively

Mistake number one: hiring reactively versus proactively. This is something that my co-founder Austin and I were so guilty of in the early days of the Brew. Too often, young executives like ourselves recruit talent for today's business needs, but instead we should be asking what will be required for the business 6, 12, 24 months from now. Our issue personally was that because we were always in reactive versus proactive mode and we were so in the thick of the day-to-day of the business, we didn't even know what we needed 12 months from now, so we couldn't ask the question of, who should we hire based on our 12 months down the road needs? But you need to be able to answer that question. You need to be able to answer that question, because if you want to hire for the future, rather than hire someone that the company ends up growing beyond shortly, you need to know where you're headed. 

Mistake #2: Being ignorant of your impact

Mistake number two: Don't be blind to your impact. So many companies have poor culture, or at least unintended consequences in their culture because founders and managers don't realize the impact of their actions. Founders, and senior leaders, we set the tone for the entire company, good or bad. If you're a gossip, the entire company will have a gossip culture. If you run ourselves til failure, the company will have a burnout culture.

And again, bringing it back to Morning Brew and our own experiences, we face this. I remember an early employee making a comment to Austin and I, that they feel like they need to work every hour of every day because they feel like him and I were online on Slack every hour. It's such an interesting thing, right, in a digital age? Even if you talk about work-life balance, even if you take vacations, if your green dot is showing green at all times on Slack, people are going to interpret that in a certain way and mimic your behavior. That's the second profound mistake that founders have experienced. I want to get to the third, but first a quick break. 

Mistake #3: Thinking that being nice is the same as being helpful

Let's hop back into it. Mistake number three experienced by founders and managers: Nice does not mean helpful. One of the reasons that we are all traditionally bad at giving feedback is that we are afraid of confrontation. It's what's wired into the deepest parts of our reptile brains. The way we feel safe is through belonging. And the way we feel belonging is through people welcoming us. We worry that we won't feel welcomed if we don't coddle and compliment. Issue is sugarcoating with employees and business does not help anyone. It helps your ego short-term because you haven't had to confront someone, but it crushes it long-term when they don't improve and you have to fire them. And it just leaves your team confused. 100% of the time being clear and direct is more important than being nice. The best way to lead a company and people is being clear and direct. The best way to confuse a company and stifle people's growth as employees is by being nice, but not being truthful. 

Mistake #4: Thinking that hiring for experience is always the answer

Mistake number four: Hiring for experience is not always the answer. There are two ways to build a company; bottoms up, where you hire junior young employees first, and then you end up hiring bosses above them at some point, or tops down, where you hire senior executives first, you approve their hiring plans, and they go out and build their teams. There are pros and cons to both of these models, and Morning Brew has experienced both of them. While there are absolutely challenges with having a super junior team early in the business, I couldn't have imagined starting senior as a bootstrapped young company. Not only because Morning Brew specifically couldn't have afforded senior talent because all we had done was raised $750,000, but also because I don't believe senior talent is necessarily what gets you from a business that's at the ground floor to a business that has product-market fit and is doing a million dollars in revenue. The early days of a business are an absolute grind.It's about willing a product into existence that becomes accepted by your initial customers. What allows you to do that is grit, curiosity, and agility. And oftentimes I think smart junior hires with a chip on their shoulder are the way to hire for those skills that you need in the early years of the business. 

Mistake #5: Failing to build “process equity”

The fifth and final profound mistake that a founder shared with me is failing to build process equity. Let me explain what that means. In the early days of a business, you're dealing with 50 different things that all feel like top priorities, and you're just trying to keep the ship afloat. The last thing that you want to think about is documenting everything you do and creating repeatable processes. Not only is it not fun, but it doesn't feel like a priority today that will move things in the right direction at this moment. But process is one of the greatest creators of leverage in a business. Just like money, your process compounds. Building process equity early pays dividends later. If your business does well, new people end up joining. Old people end up leaving. How do you keep things running smoothly when natural attrition happens? You do it through documentation, early and often. If your business does well, you end up wanting to get out of the weeds as a founder or a senior leader and delegate responsibilities to new hires.

How do you do that? Having a process that you can train people in. I could go on and on just about the mistakes that we made in building Morning Brew, but I would love for you to just sit with these five mistakes and see what resonates. First hire proactively, not reactively. Second, don't be blind to your impact. Third, being nice doesn't mean you're being helpful. Fourth, hiring for experience isn't always the answer and fifth, it's so easy to forget to document and build process in the early days. 

What other mistakes did you make early in your business or early in your career that you'll never make again? Shoot me an email to alex@morningbrew.com or DM me on Twitter @businessbarista.I would love to share some other profound mistakes with the Founder’s Journal community. And finally, if you enjoyed the episode, please leave a review for Founder’s Journal on Apple Podcasts. It is the number one way to grow the show, so I would love for you to help me and this community get to 750 reviews for the pod. As always, thank you so much for listening, and I'll catch you next episode.