5 Things That Can Sabotage a Startup and How to Avoid Them

Being too late to market and dropping the ball on fundraising can spoil your business plans

4 min read
Image of a life preserver around a clear light bulb.
Image: iStockphoto

THE INSTITUTEThis article is part of a series on advice for engineering entrepreneurs.

In this column IEEE Fellow Chenyang Xu shares five common pitfalls he’s seen that can sink a startup and suggests how to avoid them. Xu is a founding partner at the Silicon Valley Future Academy of Palo Alto, Calif., and a partner at the Corporate Innovators Huddle of Menlo Park, Calif. The CIH provides a forum to help large companies be more innovative by investing in and partnering with startups. Xu is also a managing partner at Perception Vision Medical Technologies, a startup in Guangzhou, China, involved with artificial intelligence. He has advised hundreds of tech entrepreneurs and investors during the past two decades.

STAYING IN THE WEEDS

Engineering entrepreneurs sometimes are their own worst enemy, Xu says. They tend to be so passionate about their invention that they spend too much time on engineering tasks rather than on customer needs, business development, fundraising, sales, and growing the company.

“It’s understandable,” Xu says, “because engineering is what they excel in and are most comfortable doing. But this can bring down the company.

“You just have to change your mindset. The success of the company does not lie in staying in your comfort zone. It takes courage to leave your comfort zone to do activities you’re not experienced with.

“Often it requires someone else to alert them that they can’t just focus on engineering.”

WORKING IN ISOLATION

Don’t spend time developing a product without knowing there’s a market for it, Xu cautions.

“I’ve seen many engineers develop a product—some for far too long—thinking somebody will buy it. But when it’s finally ready, there are no customers for it, or the market has shifted,” he says. “That’s a lot of wasted time and money, and very sad to see.”

Never develop a technology or a product without doing your homework first, Xu says. He advises getting out of the lab or office and visiting as many prospective customers as possible to learn about their needs and workflow as well as their frustrations with current products. After you’ve done that, figure out the value proposition for your product and why a customer would want to buy it. Also learn about your competitors’ products and their selling points.

“It’s critical to show investors tangible evidence that you’ve done all this,” Xu says. “They want to make sure your invention is the right product or market fit for scaling up and growing the company.”

OVERLOOKING INTELLECTUAL PROPERTY

Xu says it’s important for tech startups to ensure the intellectual property (IP) on which their invention is based is their own and doesn’t violate that of another company. If it does, that’s a major risk with serious implications.

“I've seen startups sued by other competitors—large or small,” Xu says. “This prevents them from raising money from investors or selling the product. Eventually the startup goes out of business.”

Those who have left an employer to start their own company in the same market or are developing a similar technology have to be especially careful, Xu says. If the invention was derived from work done for the former employer, he suggests asking the company to license its technology to you.

He recommends hiring a patent attorney to regularly conduct IP audits at key company milestones, such as when the company starts developing a new product, makes improvements to an existing one, or adds a new feature.

And be sure to protect your own IP by filing for patents.

NEGLECTING SALES

Don’t overlook the challenges that come with selling the product, Xu says. Founders need to put a lot of work into developing the sales strategy and hiring the right people. The salesperson needs to know the product inside and out, as well as the customers’ needs—and be able to explain those needs to the engineering team.

A common mistake an engineering founder makes, Xu says, is hiring a sales manager who has prior experience selling existing products from established companies but is inexperienced in selling new products to new markets.

“I’ve seen many sales managers pull down a promising startup because they’re used to selling an existing product in an existing market to existing customers,” Xu says. “Selling a new technology from a startup is a very different process.”

Another mistake is hiring too many salespeople before the product is ready to hit the market.

“That can be a recipe for disaster,” Xu says, “because the company may not be ready to scale the product that quickly, but the sales people are waiting around to sell it. That puts pressure on the engineering team, and it’s not a good way to grow.”

FALLING DOWN ON FUNDRAISING

Founders need to raise capital constantly to keep their company afloat and growing. Fundraising is never easy, but it’s particularly difficult for those engineering founders who used to work for large public companies and never had to worry about where the money was coming from.

Preparation is key. Xu recommends creating a clear fundraising strategy, which includes a business plan with goals and objectives, as well as a timeline for how long the money is likely to last.

“The vast majority of tech startups require multiple rounds of fundraising to reach profitability,” Xu says. “Just raising the initial funding doesn’t mean you’re successful.”

After the first round of fundraising—the seed round—it’s on to others: first Series A, then B, then C. Each one targets different stages of the company’s growth. Potential investors expect different things from a business plan, depending on the fundraising stage, including a proof-of-concept demonstration, details on revenue realized and forecast, or expansion plans.

Xu says founders need to stay on top of each round’s investment requirements.

“My recommendation is the moment you complete the first round, get the investment requirements for the next round ready and build them into your product-development plan,” he says. “The key to successful company building is to not run out of cash.”

REQUIRED READING

Xu considers the following books to be essential reading for engineering entrepreneurs:

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The Inner Beauty of Basic Electronics

Open Circuits showcases the surprising complexity of passive components

5 min read
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A photo of a high-stability film resistor with the letters "MIS" in yellow.
All photos by Eric Schlaepfer & Windell H. Oskay
Blue

Eric Schlaepfer was trying to fix a broken piece of test equipment when he came across the cause of the problem—a troubled tantalum capacitor. The component had somehow shorted out, and he wanted to know why. So he polished it down for a look inside. He never found the source of the short, but he and his collaborator, Windell H. Oskay, discovered something even better: a breathtaking hidden world inside electronics. What followed were hours and hours of polishing, cleaning, and photography that resulted in Open Circuits: The Inner Beauty of Electronic Components (No Starch Press, 2022), an excerpt of which follows. As the authors write, everything about these components is deliberately designed to meet specific technical needs, but that design leads to “accidental beauty: the emergent aesthetics of things you were never expected to see.”

From a book that spans the wide world of electronics, what we at IEEE Spectrum found surprisingly compelling were the insides of things we don’t spend much time thinking about, passive components. Transistors, LEDs, and other semiconductors may be where the action is, but the simple physics of resistors, capacitors, and inductors have their own sort of splendor.

High-Stability Film Resistor

A photo of a high-stability film resistor with the letters "MIS" in yellow.

All photos by Eric Schlaepfer & Windell H. Oskay

This high-stability film resistor, about 4 millimeters in diameter, is made in much the same way as its inexpensive carbon-film cousin, but with exacting precision. A ceramic rod is coated with a fine layer of resistive film (thin metal, metal oxide, or carbon) and then a perfectly uniform helical groove is machined into the film.

Instead of coating the resistor with an epoxy, it’s hermetically sealed in a lustrous little glass envelope. This makes the resistor more robust, ideal for specialized cases such as precision reference instrumentation, where long-term stability of the resistor is critical. The glass envelope provides better isolation against moisture and other environmental changes than standard coatings like epoxy.

15-Turn Trimmer Potentiometer

A photo of a blue chip
A photo of a blue chip on a circuit board.

It takes 15 rotations of an adjustment screw to move a 15-turn trimmer potentiometer from one end of its resistive range to the other. Circuits that need to be adjusted with fine resolution control use this type of trimmer pot instead of the single-turn variety.

The resistive element in this trimmer is a strip of cermet—a composite of ceramic and metal—silk-screened on a white ceramic substrate. Screen-printed metal links each end of the strip to the connecting wires. It’s a flattened, linear version of the horseshoe-shaped resistive element in single-turn trimmers.

Turning the adjustment screw moves a plastic slider along a track. The wiper is a spring finger, a spring-loaded metal contact, attached to the slider. It makes contact between a metal strip and the selected point on the strip of resistive film.

Ceramic Disc Capacitor

A cutaway of a Ceramic Disc Capacitor
A photo of a Ceramic Disc Capacitor

Capacitors are fundamental electronic components that store energy in the form of static electricity. They’re used in countless ways, including for bulk energy storage, to smooth out electronic signals, and as computer memory cells. The simplest capacitor consists of two parallel metal plates with a gap between them, but capacitors can take many forms so long as there are two conductive surfaces, called electrodes, separated by an insulator.

A ceramic disc capacitor is a low-cost capacitor that is frequently found in appliances and toys. Its insulator is a ceramic disc, and its two parallel plates are extremely thin metal coatings that are evaporated or sputtered onto the disc’s outer surfaces. Connecting wires are attached using solder, and the whole assembly is dipped into a porous coating material that dries hard and protects the capacitor from damage.

Film Capacitor

An image of a cut away of a capacitor
A photo of a green capacitor.

Film capacitors are frequently found in high-quality audio equipment, such as headphone amplifiers, record players, graphic equalizers, and radio tuners. Their key feature is that the dielectric material is a plastic film, such as polyester or polypropylene.

The metal electrodes of this film capacitor are vacuum-deposited on the surfaces of long strips of plastic film. After the leads are attached, the films are rolled up and dipped into an epoxy that binds the assembly together. Then the completed assembly is dipped in a tough outer coating and marked with its value.

Other types of film capacitors are made by stacking flat layers of metallized plastic film, rather than rolling up layers of film.

Dipped Tantalum Capacitor

A photo of a cutaway of a Dipped Tantalum Capacitor

At the core of this capacitor is a porous pellet of tantalum metal. The pellet is made from tantalum powder and sintered, or compressed at a high temperature, into a dense, spongelike solid.

Just like a kitchen sponge, the resulting pellet has a high surface area per unit volume. The pellet is then anodized, creating an insulating oxide layer with an equally high surface area. This process packs a lot of capacitance into a compact device, using spongelike geometry rather than the stacked or rolled layers that most other capacitors use.

The device’s positive terminal, or anode, is connected directly to the tantalum metal. The negative terminal, or cathode, is formed by a thin layer of conductive manganese dioxide coating the pellet.

Axial Inductor

An image of a cutaway of a Axial Inductor
A photo of a collection of cut wires

Inductors are fundamental electronic components that store energy in the form of a magnetic field. They’re used, for example, in some types of power supplies to convert between voltages by alternately storing and releasing energy. This energy-efficient design helps maximize the battery life of cellphones and other portable electronics.

Inductors typically consist of a coil of insulated wire wrapped around a core of magnetic material like iron or ferrite, a ceramic filled with iron oxide. Current flowing around the core produces a magnetic field that acts as a sort of flywheel for current, smoothing out changes in the current as it flows through the inductor.

This axial inductor has a number of turns of varnished copper wire wrapped around a ferrite form and soldered to copper leads on its two ends. It has several layers of protection: a clear varnish over the windings, a light-green coating around the solder joints, and a striking green outer coating to protect the whole component and provide a surface for the colorful stripes that indicate its inductance value.

Power Supply Transformer

A photo of a collection of cut wires
A photo of a yellow element on a circuit board.

This transformer has multiple sets of windings and is used in a power supply to create multiple output AC voltages from a single AC input such as a wall outlet.

The small wires nearer the center are “high impedance” turns of magnet wire. These windings carry a higher voltage but a lower current. They’re protected by several layers of tape, a copper-foil electrostatic shield, and more tape.

The outer “low impedance” windings are made with thicker insulated wire and fewer turns. They handle a lower voltage but a higher current.

All of the windings are wrapped around a black plastic bobbin. Two pieces of ferrite ceramic are bonded together to form the magnetic core at the heart of the transformer.

This article appears in the February 2023 print issue.

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