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Here is list of Yu-kai’s top 10 mistakes in life as an entrepreneur

By Yu-Kai Chou – world leading gamification expert 

 I’ve made many mistakes in my life. Some were more penalizing than others, and some may have cost me my company or set back years of my efforts.

Fortunately, because I also did a few things correctly, I ended up okay. But these mistakes are valuable lessons for me today, and likely for new entrepreneurs who want to maneuver the crazy startup/life jungle.

Interestingly, as I look through the list below, I realized one of the common themes in the mistakes below relate to caring too much about what other people think but not following what made sense to me. 

Good advice is golden, but following bad advice or mere pure pressure may be detrimental for an entrepreneur.

10) Listen to MBA students from Anderson School to write a 60 page business plan

When I started my first technology startup as an undergrad at UCLA, I looked towards some students at the Anderson business school for some mentorship. To an undergrad student interested in business, MBA students were like masters of the universe, and we believed in everything they said. They advised that I create a very robust business plan that factored in all the MBA training they were receiving.
This whole process took more than 4 months of valuable startup execution time, especially when our plans keep changing. When the business plan was already 55 pages long, one of the MBA students said, “you still missed a section on listing out and describing the 5 Risk.” That was another one week.

At the end of the day, once I finally proudly displayed my 60 page bullet proof business plan to a Venture Capitalist, she annoying told me,

 “Oh we don’t look at anything beyond a presentation deck or a 1-page executive summary.” 

That crushed me.

Lesson Learned: just because someone is successful in their own rights doesn’t mean they are the expert at what you are doing. MBA students are generally smart individuals who worked mostly entry-level at big corporations like Consulting or Investment Banking Firms. Their achievements of being there is highly respectable, but often they don’t know a lot about how the startup world works.
Your divorce lawyer uncle is not a corporate lawyer. Don’t mistaken success to true relevant expertise.

IK comment – when doing a business plan – presentation – understand what you want that business plan to achieve – (a meeting , a call) – understand the process – We call it BAMFAM – book a meeting from a meeting ! 

9) Spent too much time making my first business “look legit”

Similar to the mistake above, when I started my very first business (not tech startup) first year in college, I was enthralled with the idea of having my own business.
I spent a lot of time figuring out legal options, website stuff, logos and business cards – basically the things that made me look like a “legitimate business.”
I did that for a couple months, and I felt great about it. However, I later realized I didn’t spend any time making my business actually more valuable. My ego probably got in the way (you know, like giving people a business card with a fancy logo that says you are CEO of your company), but since my business didn’t have true value or content, eventually all that was trashed as I moved on to other ideas, logos, websites and concepts.

Lesson Learned: many of the most successful companies came about as hobby projects that didn’t have any business structure before they got traction. Instead of making your business “look” legit, it is much better to focus on your product or talking to customers to ensure that they would actually buy your service once it is ready.

Ik comment – just do it 

8) Trying too hard to fit into my business fraternity

In my second year of college, I was already a budding entrepreneur, and I was attracted by the Business Fraternity Delta Sigma Pi on my campus because I wanted to build relationships with other student entrepreneurs on campus.
I initially thought that everyone there would be running businesses too like I was, so I could learn from their advice and experiences. However, the group was mostly inspired and very intelligent college students who wanted to get into big corporate jobs like Investment Banking, Management Consulting, and Accounting.
I was the weird one out in the group, and for a long time I tried REALLY hard to fit in. Don’t get me wrong, joining Delta Sigma Pi was one of the best things I did in my life. The pledging for Delta Sigma Pi was difficult but superb training (I still muse about how good that training was a decade later), and I have met some of my closest friends in my life, including my past Co-founder Jun Loayza, through DSP.
However, my mistake was that, in the years after I joined, I worked too hard to do things that tried to fit in. I showed up at every single gathering and event, ready to help and create value. I worked to become an expert at case interviews for management consulting and even coached a few people into those careers. But ultimately, I was very bad at fitting in, and it seriously distracting to what I really wanted to do, which was to start new companies.
After a year or two of trying really hard to become more like those around me, one member of the fraternity mentioned in the group, “The one thing I really respect about Yu-kai is that he doesn’t give a crap about how others see him.” Clearly I failed miserably at becoming more like them.

Lessons Learned: sometimes when you feel like you don’t fit into a group, you feel compelled to alter your own plans to become better accepted. That often doesn’t work very well. Rather, it may be better to focus what you are passionate about, be the person you would respect yourself, and confidently live your life for who you are. Often, you will be respected and gain followers because of that.
A while later, I went back to pursue my own startups. Perhaps because I was doing things within my own element (or simply because I had more seniority within the organization), I felt I was more accepted and respected in the organization. That was also when Jun Loayza, who was always the “cool kid” I wanted to be like, came to me and said, “Hey, what you’re doing is really interesting. Can I join?”

Ik comment :- be yourself 

7) Not understand black hat motivation when raising funding

When I was running my startups, I spent a good amount of time raising funding. It appears that investors liked me, respected me as an entrepreneur, and was impressed by my business. However, they kept telling me to come back with more before they would fund me.
At the time, I still have yet to develop my behavioral design framework Octalysis and I didn’t know the difference between White Hat vs Black Hat Motivation.
In summary: White Hat Motivation makes people feel powerful, good, and in control, but there is no sense of urgency. Black Hat Motivation makes people feel urgent, obsessed, even addicted, but it may leave a bad taste in their mouths because they don’t feel like they are in control of their own actions.
Since I didn’t understand these principles, I focused on White Hat Motivation, telling investors how smart it would be to invest in my business and how big of an impact the business would do in this world. However, the nature of White Hat is that there is no urgency. They liked the business, but as long as they felt the opportunity would still be there a week later, they felt no urgency to invest immediately. This went on for a VERY long time and also cost the business greatly.

Lesson Learned: instead of just focusing on “being nice” and presenting a good investment opportunity, it’s important to add some black hat motivation during fundraising. I had to add more scarcity, exclusivity, and fear of missing out in my presentations, even if it made the investors feel slightly uncomfortable.
Interestingly, for one of my startups, when I finally raised $650k, I wrote to potential investors that were “waiting to see more” that we were closing the round. Surprisingly, many of the investors that seemed rather indifferent for an entire year suddenly seemed offended and pushed for us taking their investment. It was like we were burning bridges if we didn’t take their money. At the end, I was only looking for $600,000, but ended up taking $1,050,000 while still rejecting some money. It’s important to have both White Hat and Black Hat in any type of transaction.

6) Not letting go of people face to face

Being a leader sometimes means you have to make the hard decisions while stomaching the consequences.
One of most difficult, or emotional draining, responsibilities in my career is firing people. I have hired lots of people before, but I have also had to fire over a dozen of them, many of them being my friends. I once had to fire a guy I went to college with, whom I relocated from LA to Silicon Valley. I have only been living with him in the same apartment for a few months, where I realized even though he was a great guy and a cultural fit, his skill set wasn’t what the business needed for its challenges.
Sometimes the mistake I make is not that I let people go, but how I did it. In this one case (which is a life long regret), I was out of town and couldn’t come back in time. His team wrote to me asking me when will I do it because it was awkward that everyone else in the office knew besides him (so they wouldn’t give him more things to work on).
In that urgency (also Black Hat), I wrote a very long email informing him that he has been let go. There was a long side story of exactly what happened that day, but ultimately I saw later it was the wrong thing to do. I should have waited to come back first and do it face to face, show my concern and appreciation, and give him an opportunity to ask questions.
Since I was still living with him at the time, I was a bit scared to go back home at night since meeting him would be a quite awkward. He of course quickly moved out and relocated back to Southern California.
Years later I wrote another very long apology letter to him, telling him I was immature and made a big mistake, but he never responded. It still hurts me to this day.

Lesson Learned: quite simply, if you are to tell people of any decision that would negatively impact their lives, it would be better to tell them in person. Another small example was when one of my companies failed due to an unexpected event, I called our four interns that were driving from Berkeley and told them to turn around and go back, simply because I didn’t want them to drive an hour to the office, just to learn that they should go home. They all sounded so sad and confused on the phone.
Looking back, I should have had them come, giving them proper closure on why we had to shut down face-to-face and also allow them to ask questions. Telling them to turn back made logical and efficiency sense but was not emotionally appropriate for the occasion.

Ik comment – take responsibility – do things face to face vs email 

5) Hanging on to “promising hope” while risking personal well being

When that same startup above failed, we should have shut down our servers and ceased all operations. However, when we informed this news to an investor that is a public company, they told us not to and said, “Hey, we now decided that your space is a huge focus for our company. We could start our own devision, but we thought it would be better if we just invested another $1 Million into your business. If it takes off, we can then acquire you.”

From my own experience, I know most deals that sound great end up falling through, so I was skeptical. I also wanted the company to show that they will support us fully with their resources. In response to my skepticism, the CEO and the VP of the company were meeting me once to twice a week, and I thought, “Wow, that is very sincere of them!” How often do you meet a CEO of a public company more than once a week? So instead of shutting down our servers and other overhead costs (when we had no money), we kept it running in hopes we can revive the company.
After 2-3 months of back and forths, everything seemed ready to go. They just needed one last board meeting for the board to approve and then we were a go. We were optimistic and excited – we really needed the funding. Unfortunately, after a few days of not replying to our emails, they responded, “Sorry, there was one board member that really didn’t like the idea, so it’s probably not going to happen.”
Generally, this is fine, but because we kept our operational costs going, we got into debt that couldn’t be paid for when the investment deal fell through. Most people at that point have moved on to other opportunities, but as CEO of the company I ended up trying to make income elsewhere I paid $18,000 out of my own pocket to cover the debt that wouldn’t have been there if we just ceased operations. (Note: one of my Co-Founders came back to me two years later and wrote me a $1500 check, saying that he felt bad not taking responsibilities along with me because it was emotionally too much at the time, but now he wanted to make up a little bit for it. I REALLY appreciated it.)

Lesson Learned: Most deals fall through. Honestly. It doesn’t matter how good it looks nor how promising/sincere the other side seems to be. Chances are, the awesome deal would not happen. This isn’t to say that you should stop pursuing these great deals, but you should not put all your eggs in that basket to the point where you are devastated if it doesn’t go through.
Since 9 out of 10 amazing deals fall through, you need to make sure you can afford to pursue 10 of these instead of committing to one company savior. The nice thing is, as long as one of the deals really came true (or was at least half as good as how they pitched it), it would take your company to a whole new level and thrive. You just need to be able to withstand the setback if this one didn’t come true (oh yes, and ALL deals take much longer than you expect).

Ik comment – there’s a fine line between failing fast and persevering – whatever you do is the right decision – it will just take you on a different journey – good, bad – hard to say! 

4) Focusing too much on customers, not investors (!!)

This is an odd lesson for me, because I still don’t like to believe this is a true principle to live by. When I was running that same startup from above, we determined that we shouldn’t focus our resources on “being cool” in Silicon Valley and impressing other entrepreneurs and investors. Those seem to be ego metrics that made us feel good. Rather, we should focus our resources on our customers.
We didn’t spend money creating presence at Tech Crunch and other startup conferences, nor tried to get press on startup media outlets. Rather, we sponsored conferences where our customers were at, such as the Multi-Unit Franchising Conference in Las Vegas and getting press in magazines our customers read. We figured, if customers loved us, investors would be logical to give us money later on.
Our strategy “looked” successful. We were really well known in our customer space, and many large franchise executives held meetings with us for national deployments. Our product was performing 11x better than our closet competitors, at least based on the press release they bragged about. We thought we were unstoppable.

Unfortunately, when it came to raise funding, as mentioned above, investors were impressed with our success but they lacked the emotional urge to invest. 

They carefully and logically invested in our track record and said they liked it a lot but would like to see more. Yes, this seems very natural for an investor, since investing should be a very logical trade. 

However, we had competitors that had less numbers but literally raised ten times more than we raised (so they did not need to worry about raising money before reaching new heights).

Lesson Learned: Besides taking up personal responsibility and saying I didn’t do the best job raising money, I believe it’s because the competitors were much more well known in the startup world and Silicon Valley. One of them came out of a famous incubator, and the other was closely related to another startup that also did something well-known. We realized that investors loved to invest into startups that they and their friends already knew about, so they could brag to their friends, “You know that company you keep seeing on Tech Crunch? I got in on that deal.”

Bragging rights! I learned later that instead of rationally looking at the numbers of a business, many investors decide to take that final jump for emotional reasons (which is actually true for all human beings). We may have looked good on paper, but the “Silicon Valley brand names” were emotionally more attractive. 

IF your startup relies on investor money to stay alive, THEY are your true customers

Your business customers are actually just a means to an end to raise more funding. As much as I hate this lesson, I will never forget it.

Ik comment – It’s not what you know – it’s who you know – focus on who your stakeholders are going to be . Place as much importance in each one 

  • Customers
  • Investors
  • Employees

3) Trying to do something too far into the future

This is also an odd lesson for me, but apparently it would be “don’t be TOO visionary.”
After being an entrepreneur for a decade (with varying levels of success and way more failures), I realized that a big problem I had was that almost all my ideas were considered “too early.”

 Ever since my first business in college, I would talk to VCs (notice this theme of depending on VCs? Bad.) and they would tell me what I was doing was ridiculous and wouldn’t work. I then decide to give that up and pivot to something else (after all, of course these grownups were smarter than I was). 3-5 years later, all the VCs were suddenly fighting to fund other companies with that very model I did earlier, but unfortunately I had moved on.

When I approached them again with my new companies, they would say, “Yu-kai, your last business was actually right on! But your new thing here….that’s just ridiculous.” And of course, the same thing would happen again. Now keep in mind celebrity entrepreneurs who has had big exits in the past could raise a lot of money for crazy and audacious ideas. They then had the funding to truck through a few years until the market caught up. At the timing I wasn’t that celebrity entrepreneur, so I shouldn’t play by those same rules.
This is important for all those new aspiring entrepreneurs that often read how companies raise tens of millions of dollars before launching a product on Tech Crunch. In general, if you can’t raise money just on your past exit records, you generally need traction before you can raise significant money. Now how to get traction without the money you are raising is the difficult work of a resourceful entrepreneur.

Lesson Learned: Upon recognizing my tendency and problem, I realized I could adapt and adjust to that…no more crazy startups. Focus on what the world needs, not what it deserves (thanks Batman for bitter-sounding concepts haha). Sometimes your idea is brilliant and could really change the world (and every once in a while a lottery winner really does it), but if the world isn’t ready for it (investors or customers) and you don’t have the resources to stay alive until it does, you are only doing marketing work for new startups that will come out after your death.
LUCKILY, all my startup ideas and concepts surrounded this theme called Gamification (or Serious Games, or Gameful Design, Loyalty Programs etc.), so when gamification really became an industry that people KNEW they cared about, I was one of the very few people who have been doing it for close to a decade. I became a known pioneer in an industry that I had no idea was one. I wish that was a lesson regarding following your passion, but honestly I was just lucky that the world started to care about what I was passionate for a few years after.

2) Believing in a law firm even when it made no sense (a long one…)

Lesson Learned: Don’t fully trust lawyer BS if it doesn’t make logical sense to you. (And be careful of “startup friendly” packages from law firms).

1) Not caring about my health when being a workaholic

Okay, the last one was way long so I’ll try to make this a straight forward one. When I was a young entrepreneur, I worked over 100 hours a week (40 hours to sleep, 28 hours to eat, restroom, shower, no social life, and the rest of the 100 hours working). I was young and felt invincible. My work was my game and I loved it. I ate microwave food and worked in bad postures. I did not smoke (at all) or drink much, but didn’t exercise much either.
Unfortunately, it later all caught up to me. Even though to most peoples’ standards, I’m quite successful, especially for someone who’s not even 30 yet, I also have a lot of problems with my health. I have chronic spinal pain that feels like electrical shocks on my spine. Occasionally my right shoulder would hurt as it if was burning. My knees have pain too and sometimes they would fail me when I’m just walking randomly. I have migraines that come on and off. And there’s other stuff.
The reason why I’m not sugarcoating the severity of my conditions is that I want people that are younger to know that THIS IS SERIOUS! My dad used to tell me that, “With your posture right now, you’ll later regret it when the pain comes in.” I didn’t believe him. Working with a laptop on my legs felt very comfortable – how can it be bad for my health when it’s so comfortable? I now SERIOUSLY regret that I don’t listen to him.
Of course, every time I see an acupuncturist, chiropractor, or some other doctors, I would feel better. But after a few weeks either it would come back, or some other pain would creep up. Honestly, if it stayed like this my entire life, I would be okay about it. However, most people get these types of problems when they are in their 40s. If I start getting these pains when I’m 30, I can’t imagine how bad it would be when I’m 45. So for 2016 my goal is to seriously focus on improving my health and pay back the “debt” I accumulated over the past 10 years.

Lesson Learned: Your health is truly your greatest asset. If you gain the world and lose your health, it becomes meaningless. Please, as much as you love your work, take care of your health.

Ik comment – as my mentor Allen a Pathmarajah keeps telling me  – “balance your life” – FAMILY is so important 

Posted on January 15, 2018

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