Lessons From A Failed Founder #8: When To Bark Back At Your Investors
Feeling like you have to cater to your investor’s every whim? Learn to say ‘no’ every now and then – It’ll be good for business!
Our investors ran the show. Usually for the better, but many times for the worse. I can’t really blame them, they had their own interests at stake. Every single investor, from the smallest business angel to the biggest venture capital group, keeps their mind on the prize: A big, fat Return On Investment in the shortest time possible.
Unless you’ve found yourself that unicorn among the investor herd, the one who acts like your mentor, your private bank, your confidant and your conscious, chances are you’re stuck with someone who doesn’t give a damn about your flowery vision. They invested in your startup because your concept looked viable and, in the not-too-long run, profitable.
Investing in startups is nothing more but a disguised “take a chance” type of game.
This sobering fact leaves you with a stakeholder who is solely handling in their own best interests. Make no mistake about it, dear founder: Investing in startups is nothing more but a disguised “take a chance” type of game. You invest in 20 startups, knowing 17 will go bust, leaving it up to the surviving three to wholly make up for the rest.
While the ideal investor will be there for you every step of the way, most shareholders will only acknowledge your startup’s existence once a month. After you sent them your carefully crafted Investors Report, your investors will bombard you with questions that make you want to tear your hair out. They never got past the Executive Summary.
“Why do you need more developers?”
“It doesn’t look good on my phone.”
“How come you’re still not ready to go to market?”
“Competitor XYZ is crushing it — where are we?”
“My niece’s babysitter’s stepbrother could help you with Google.”
While many of these questions and comments are just a monthly ritual you have to politely sit through (“We’re on it!”), some investors tend to go a bit deeper. Or maybe I should say: They tend to get a bit more under your skin. As if your daily balancing acts aren’t enough to get stressed out over, some investors will pressure you even more by saying things like…
“Your burnrate is too high, you need to fire some devs!”
“Send your product to the press for review. Now.”
“I expect a full analysis of your sales funnel by EOD.”
“Find a cheaper alternative, or just cut it altogether.”
“You must be break-even by the end of autumn.”
We dealt with all of the aforementioned questions, if you can call ’em that, and we usually gave in. Our biggest mistake was allowing our investors to take key decisions in areas they knew very little about. We were too afraid to piss them off, unsure what the consequences would look like. Only in the final year did we realise the power we, founders, really have.
Blaming our lack of experience, we sincerely believed investors would storm away if we didn’t give in to their demands. Cap table be damned. Now, I know the relationship may go a bit sour the first time you say “No”; but in the end, it’s just business. This is also why you probably don’t want to get too chummy with your investors: You're an investment vehicle.
Our biggest mistake was allowing our investors to take key decisions in areas they knew very little about.
In the companies I worked at after our startup went down, I turned down many “suggestions” made by the most frantic of investors. When you acknowledge that9 out of 10 comments were made in the spur of the moment, you realise these statements are rarely backed by a sound strategy. Remember: If it doesn’t fit your OKRs, it’s not good for business.
So how do you separate the ideas from the idiocies? I like to pull every piece of feedback through my inner “usefulness analyser”. It goes like this:
- What will the immediate effect be?
Since everything is always urgent, nothing is urgent. What makes this suggestion stand out from all the fires we’re trying to extinguish? - What will the long-term effect be?
Okay, let’s say we play ball: What good will it do our business? Will it result in higher revenues? A better company valuation? What, exactly? - How does this fit into our strategy?
Stay. On. Course! Don’t get distracted by every little wanna-have. Ask if this contributes anything to your roadmap. If not: Toss it aside! - What happens if we don’t?
The mother of all questions, really. If we simply ignore the request, will it result in a higher churn rate? Lower customer acquisition? Again: What? - Do we have the resources to get it done?
Assuming your investor came up with a great idea, can you actually afford to get it done? Is it worth interrupting your team’s sprint for?
A founder who is more a yes-man (m/w/d) than a leader will never be respected by their investors. You don’t have to turn into an impossible prick, but saying “No” every now and then will show your stakeholders that you know your stuff. You won’t get distracted, you stay on course – just like them, you keep your mind on the prize.
Stand up for your startup: In the end, your investors will thank you!
Lessons From A Failed Founder is a series of blog posts by a thirty-something entrepreneur who made all the mistakes in the big startup playbook, and then some. My posts are no pearls of wisdom: Consider them the cautionary tales of a young founder who wants you to avoid making the same mistakes.
Feel free to reach out to me at failedfounder{AT}gmail.com
