Updated: Dec 30, 2021
“I can’t start the sales and marketing until I receive the investments.”
- An anonymous founder
Question: Any investor out there who would want to invest in this startup?
More than likely, most investors would probably shy away from founders who share a similar mindset – that “something” needs to happen (e.g., investment), before they take important actions (e.g., selling). After all, what else will the founder wait for, when unexpected events happen? Wait for the pandemic to be over? Wait for the economy to grow? Wait until the right personnel is found?
It begs the question, what kind of founders would investors look for? Well, founders who don’t see investments as a dependency, but the ones that take the situation as an issue to be solved, or work around the situation.
The famous story of Airbnb comes to mind, where the two founders, Brian Chesky and Joe Gebbia resorted to selling election themed cereals – Obama O’s and Cap’n McCains - when they could not raise funds and were flooded with credit card debt. And real entrepreneurs won’t wait for the investments, but come up with creative ideas to overcome the challenge.
An entrepreneur will constantly face unforeseen challenges, and he/she will have to come up with creative solutions to overcome those challenges. Waiting for an ideal situation – e.g., investments – will result in failed business. The entrepreneur, who wait for the ideal solution, is better off looking for another line of work. Or, change the mindset and start solving the problems.
As successful solutions go, there was one founder who also worked part-time to generate necessary cash for the startup. Yet, he focused on the startup, not the job, to grow the business. In another case, the founders sold the concept, before the MVP, to a large corporate and with the initial invoice, got the company going.
And why not? If the product or the idea is compelling, and the prospect thinks the founder has the hutzpah to succeed, they will take a chance and buy an unfinished product.
Yet other founders started a consulting business to generate sufficient cash flow to fund the product business. It turns out, though, they sold the consulting business for $30M, before they started a single line of code for their product business.
Examples after examples, “real” entrepreneurs do not wait for things to happen – they make things happen. They drive the business forward. Not enough money? No problem. Will take on multiple roles until the first stream of revenue comes in. Too much work to do? No problem. Will focus on the important items, and drop the “noise”. Can’t find the customer? No problem. Will pivot, or define the right persona and continue to knock on the door until the right idea or the right customer is identified.
So, why does one founder wait for investment, while another founder will find ways to work around the lack of funds? There are many factors, of course, but it boils down to the most important aspect: the founders’ psychology. Or the mindset.
Many times, the biggest barrier to the growth of a business is the founders themselves. It’s almost as if the founders subconsciously do not want the company to grow beyond a certain size, even though they might say they want to grow the company. Perhaps they secretly fear the company becoming too big. Perhaps they dread the added responsibility of many employees depending on the company for their livelihood. Perhaps they feel they do not deserve a bigger company. Perhaps they are comfortable with where they are – and if this is the case, that’s perfectly fine if the founders are at peace with themselves. Not for most investors, though, probably, as investors would want to see their returns maximized, and reach a certain plateau.
But, let’s delve into the mind of founders. For example, the founder who feels that he can’t start selling until he received an investment, so he can hire marketing and sales personnel – by the way, this is a true story, and on more than one occasion, founders have shared similar sentiments. Hypothetically, perhaps the founder had it easy when he/she grew up, in childhood, and had parents or others always helped him/her out during the time of difficulties. Oh, you can’t do your homework? Mommy will do it for you. Oh, you want this toy? Stop crying, Daddy will get it for you.
Perhaps it wasn’t the ‘spoiling’ parents or grandparents syndrome – perhaps it was the opposite, where the parents were overly strict, or uncaring, i.e., didn’t even know that the child had homework he/she could not do. Of course, parents will do what they will do, but how the younger founder saw the situation also matters. And, most importantly, and coming to the present, how the founder digested and dealt with the trauma or childhood issues if any, matters. Did he/she fully digest the childhood issues, or is there a remnant still visible in his/her psychology or daily actions?
The following examples are all based on true stories, first-hand experiences, but obviously with pseudonyms to protect the identity and hypothetical cause for their actions.
Let’s take a case of a founder X. The founder X said the product was almost ready to be released. That was 3 years ago. To this date, the product is still not released. 3 years ago, he already worked on the project for 3 years. So, six years into the effort, no product is available, yet one is left wondering where the “real” issue lies – the product, or the founder? Why would X say it’s almost ready when it is not?
Well, perhaps, X has the need to please others at the moment – and rather than saying it will take another 10 months, it’s easier to say it’s almost ready. Or X has a problem with perfection and is unable to release anything that X deems not good enough, even if it’s good enough. When will it be ever good enough? Probably never. Which also means that the company is doomed from the start, as the product will never see the light of the day, as it will continue to go through improvements and iteration without generating a single euro of revenue.
Let’s now take a look at founder Y. The founder Y sold fresh produces boxes, ordered online, and delivered to homes. Each box, including the delivery, cost around €18, but a box was priced at €9.99. The price wasn’t based on any strategy, let’s say, to gain the market share. The price was based on fear – that if the price were higher, people would not buy the product.
One begs the question, why bother to have a business if the business is losing money every time a product is sold? It took a lot of convincing and time to increase the price, and decrease the size of the box, and ways to cut costs. How should founders, and also the investors, deal with such fears? Obviously, selling below costs without clear objectives isn’t a real business, nor an investable one.
Countless examples can be shared with “flawed” founder behaviors, but more importantly, what are the ways to address these behaviors, as a co-founder or as an investor? Let’s explore three ways to help founders overcome their worst impulses.
Educate the founders. Education can come in various forms, including sending the founders to an MBA or a business school, to get the basics of how a business should be run. The upside is that the founders will come out swinging and will have accumulated valuable knowledge. The downsides, however, include that likely, the knowledge is more or less theoretical, and the “real” learning will take place as the founders actually deal with the situations, she/he learned in the program. In short, the entrepreneur would have gained information, but not necessarily the knowledge, where he/she can actually put the theory into practice. The second downside is that it will take a long time – at least a few months, if not a couple of years – and will also accumulate opportunity cost.
Learn by doing. The second option is without formal training, learn by doing – this sounds like the best option, and it can be in some ways, but also the most expensive option. Formally, there is no fee, so it won’t cost anything – but without certain knowledge, founders might make mistakes and bad decisions that could have been avoided, that could result in catastrophic outcomes. As Andy McIntyre once remarked, “If you think education is expensive, try ignorance.”. More often than not, he is quite right.
Find mentors or coaches. Mentors and/or coaches come in many different flavors. There are accelerators, consultants, individuals, or organizations that help entrepreneurs in various ways. ACE, in Amsterdam, for example, provide structured workshops and coaching services that help the startups get off their feet. .Cocoon, in Tartu, focuses on the psychology and emotional root causes for bad decisions and behaviors. This helps the founders better understand themselves, and perform “emotional hacking” that will end with better outcomes for the business, and even in his/her personal lives.
Many investors and founders emphasize the importance of people and the team. But few really pay attention or analyze people in a structured way. Investors say founders are the most important part of the startups, but will not invest in companies without revenues. Many leaders say that the people are the most important asset. Yet, few invest in people.
To walk what they preach, however, they have to assess what they are doing to make people better and improve the emotional well-being of founders and everyone in the team. Whether it’s through formal education, informal education, or joining relevant programs, understanding founders and their psychology will benefit all involved – founders, investors, employees, and everyone that belongs in the company ecosystem, including suppliers and vendors. Founders will have higher success rate. Investors will enjoy lower failure rates and higher returns. Employees will work in a supportive culture with higher productivity and a sense of purpose. Let’s maximize the ROI by investing the time and resources in where it counts – people.
Jin Han is also a well known investor and entrepreneur. He has grown a company from 0 to $21M in 30 months, he has consulted over 500 startups in US, Asia and Europe and made 9 investments.
Jin is also one of .Cocoon Program mentors. .Cocoon is a startup founders personal and business growth program, that supports founders who want to solve their challenges. Let's talk and see if we can support you to solve your biggest business challenge.