July
22, 2003 – Entrepreneurial follies
by
Bill Snow
In a former life
working for a dotcom era company (the company is currently “between servers”), I
had the great privilege of reviewing thousands of bad business ideas and talking
with hundreds of clueless entrepreneurs. I say great privilege, because when
scrutinized properly, ineptitude is a wonderful teacher. While I will not name
specific companies, I have summarized some of the most basic, common, and
irritating entrepreneurial follies subjected upon this humble columnist.
Ignoring the sound advice of knowledge people a bad
idea
I have attended enough venture capital events, and
talked with enough organizers of said events, to know this: Too many
entrepreneurs do not listen! I know this sounds very basic, but you would be
surprised at how often otherwise intelligent people completely ignore the good
advice proffered to them by industry experts. When an organizer of an event is
a VC, and that VC offers advice to you, it is probably a good idea to heed that
advice.
I was at a recent event where the entrepreneur,
against the advice of the experienced hosts, wildly forecasted sales of over
$500 million in year 4. He also tossed in phrases such as “no risk,”
“guaranteed returns,” “these projections are conservative,” and other phrases of
death. When I later spoke with one of the hosts and mentioned the
entrepreneur’s folly, I asked, “don’t you work with them to make sure they know
these phrases are verboten?”
The answer was they do coach the entrepreneurs, and
the entrepreneurs usually nod and agree, only to get on stage in front of an
audience and revert back to their old bad habits. I don’t know what advice I
can offer beyond saying: Entrepreneurs who ignore sound advice are simply lining
up to shoot themselves in the foot.
The engineer’s plan
This is a classic bit of entrepreneurial folly.
The entrepreneur’s basic misjudgment here is to this: “I’m an expert in this
field, and I think everyone is an expert in his field. If you are not an
expert, then I don’t want to work with you.”
Guess what? Most VCs are not experts in every
single field of study. While VCs are typically very smart, and can usually talk
about many subjects with a high degree of knowledge, it is improbable to think
every VC is an expert and knows every minute technical detail about every field
of science and business.
Entrepreneurs need to write their business plans
for laypeople, not industry experts. Engineer’s plans typical gloss over, if
not completely leave out, details such as market research, industry trends,
competitors, financial analysis, operational plans, and much more. Actually,
engineer’s plans usually talk about the technology, and little else. If your
company has some technical bit of IP, provide technical details in a white
paper. Write your business plan as if your audience were 6th
graders.
“This is the greatest thing!” (b/w “You don’t
get it!”)
Entrepreneurs are imbued with an incredible sense
of optimism, but using the “presumptive close” in an introductory phone call or
email will not work. Every entrepreneur hopes his project is the greatest, most
unique thing in the world. The fact of the matter is VCs probably see 10 deals
every month that are very similar to yours.
Too many entrepreneurs make the mistake of thinking
if they pile on the hyperbole and accolades, investors will be intrigued. The
reality of the situation is that investors learn there is an inverse
relationship between the hyperbolic level of self-propping up and the underlying
quality of deal. When you start talking about how the investors should jump in
now because you’ve got three term sheets coming tomorrow, this is usually taken
as a sign of desperation. More accurately, you sound like a like a huckster
selling snake oil, and you will be treated as such.
Here’s a better approach: 1) make sure the
investors you contact actually invest in your space, 2) eliminate the breathless
sales approach and adopt a rational, evenhanded approach, and 3) talk about
facts and limit your opinions. Deals get done on facts, not opinions. And if
opinions enter into the decision making process, they won’t be the
entrepreneur’s opinions.
When in doubt, throw it out: Don’t whine about
past injustices
My mother was a nurse. She once told me the modus
operandi in operating rooms as it relates to surgical equipment: If you’re not
100% sure a scalpel is clean and sterile, it is therefore dirty and
contaminated. When in doubt, throw it out.
I wish more entrepreneurs would utilize this same
philosophy. Instead of applying it to scalpels, entrepreneurs should apply it
to what comes out of their mouths. If no good can come from what you’re about
to say, don’t say it!
I bring this up because I’ve had dozens of
conversations with Chicago area entrepreneurs who insist on talking about how
this VC or that angel diluted their ownership and screwed them out of their
companies. This may be the case, but why mention it? What good can come from
whining about past mistreatment? Talking like this makes it sound as if you
have an axe to grind. In addition to determining the quality of your deal,
investors are determining the quality of you, the entrepreneur. Investors
really care about your past failures. If they think you are a head case, they
won’t work with you. Sorry to break it to you, but life isn’t fair and people
are mean. If you want “fairness” and egalitarianism, join Greenpeace and hang
out at a Phish concert.
Here’s a simple rule: If it doesn’t add value to
your conversation, don’t say it. If there isn’t any good that will come from
it, it must be bad. When in doubt, throw it out.
In conclusion…
A hole in the head has a unique
way of leading to foot problems. If you insist on proffering entrepreneurial
folly, you’ll eventually shoot yourself in the foot. If
you see me at a networking event and would like to hear more, buy me a drink and
I’ll be happy to tell you all about “Space Miles,” the “clear plastic talking
Jesus doll,” or dozens of other precious stories best served with a stiff drink.
Has your company been profiled by Bill Snow? Send
an email to introduce your company:
bill@billsnow.com
About the author
Bill Snow runs this site. If you haven't figured that out yet, I can't
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