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4 Common Startup Mistakes To Avoid

Posted on July 25, 2012

Published by Fast Company

With all the startups I’ve seen, and I’ve coached over 700 by now, I’ve become somewhat of an expert on common mistakes startups make. So when I find someone doing it right, I like to share.

Thomas Franchise Solutions is like no other startup I’ve worked with. Peter Thomas, the founder, is not a twenty-something. He is a mature, visionary leader, a man who has learned from his own experience as a serial entrepreneur how to start and run a company aligned with his personal values. He’s very blunt about telling you what those values are: health, happiness, freedom, and integrity. After retiring, he spent the last decade giving workshops and training others in values-based leadership. He donates the proceeds to charity.

That’s why, when he came out of retirement this year to start another company (he was bored), he was able to raise $13 million from friends and acquaintances to capitalize it. When he started making phone calls to raise money, he had already avoided the four most common startup mistakes: lack of a clear business model, insufficient market knowledge, not investing in human capital, and taking too much money.

Have a clear business model: Thomas picked a business at the intersection point of two industries he knew well, franchising and real estate. Real estate is a large part of the expansion of a franchise, because most of them involve brick and mortar. His experience bringing Century 21 to Canada and becoming involved with a massage franchise gave him the franchising experience, while the fact that he developed a luxury hotel in Arizona gave him depth in real estate. He had the business model: find franchisors of a certain size and experience who need to get to the next level, inject some capital into their businesses, and provide the strategic expertise along with the capital. Thomas Franchise Solutions, I’d guess, is a new kind of cross between a private equity firm, a VC and a consulting firm.. The business will have several revenue streams: return on the capital invested, and in cases where the franchisor isn’t ready for investment, strategic advisory services

Do your market research:Thomas’ first hire spent months exploring the market, actually looking at the competition and what they were doing, examining all the problems of small business finance, and making sure capital was the gating factor for the expansion of franchises. When the company launched, he was sure it would have customers from a numbers perspective.

Hire and develop the best people: At his stage in life, Thomas has no desire to do the grunt work, but he wants the end result to reflect his values. So he engineers that in from the get-go by surrounding himself with the best people. Not only are these people smart, but they are independent. They are not all “hired” either; some are assembled as a boardroom of equals, already independent, who will work on projects where they are needed. This is not the same as outsourcing things that aren’t part of your core competency–rather, it is bringing people to the table who may not be necessary full time, or who prefer not to have jobs.

Don’t take too much money: The $13 million fund, known as Fund 1, is a minimum viable product, now testing customer acceptance before TFS goes for a $100 million fund in three years. Thomas decided to do the initial market test to determine whether this is the best way to bring the franchise business model into the 21st century. As an entrepreneur with outside investors, he tells his team that its job is to minimize the investors’ risk. A novel perspective.

To bring a diverse group of inside and outside people together and put them on the same page so they can collaborate and develop into a team takes both vision and leadership. But in the three months that TFS has been conducting due diligence on its initial deals, I’ve watched the group come together. I’m beginning to think that successful entrepreneurship might take a blend of generations.