I’m getting jaded. Entellium hurt. Count Me In hurts. And no matter which platitude you choose to look at – “tip if the iceberg,” “they come in threes” – you just know that there is more lying going on. We’ve all seen “them” pitch and heard them talk about how great their companies are, when we know from their investors and employees and friends that they are one pay-period away from shutting their doors. We’ve heard them overstate sales, simplify development process, exaggerate TAM. Hell, we’ve all done it.
“It’s how the game is played.” Right? That’s what everyone says.
Perhaps it’s time to change the game.
You only have to watch 5 minutes of any beauty pageant to realize that there is no difference between the Miss America contest and any “pitching” event like ESIF, Keiretsu and Zino. (Except, of course, the number of Y chromosomes.) It’s all about how it looks, a fancy pitch deck, some key phrases, and a few canned answers to expected questions. If I can fool you into thinking that I am perfectly poised for an extravagant exit, I will win the contest, and with it, your investment. (Never mind that I’m bulimic, hooked on coke, failed 11th grade, got this dress by sleeping with the designer and still can’t find Iraq on the map.)
I don’t know how many entrepreneurs ever say to potential investors, “It’s taking 100 times longer than I thought, my crack team is really a bunch of crack pots, I’ve maxed out my credit cards and am not sleeping at night because I don’t know how I’m going to pay them, and frankly, Acme Corp is developing something that may well kill us. But I really think that if I can go for 3 more months, I can change a key component of the plan and get some traction. It’s a bit of a gamble, but I think it might work.” We can’t. Why? Because we need the money to keep going, and we think you won’t give it to us if you know “the truth.”
Okay, maybe pessimism isn’t the answer, but we need to look at how and why we lie to each other, then we need to change the game – from both the investor and the entrepreneur side. Here are some thoughts.
1. Manage Expectations.
As long as we are defining success as “the next Google,” we are going to create a pressure cooker in which fear and dishonesty fester. It’s a simple equation. The investor is looking for the largest exit in the room. They are looking to make money, period. So entrepreneurs will inherently do anything they can do convince investors that they can make more money for the investor than anyone else – they will understate risk and overstate TAM in order to get them on the hook. (“We’re going to replace the US Postal Service.”) Once that happens, and the first check is in, the entrepreneur can’t very well say, “well, I didn’t really mean that….” That said, entrepreneurs are guilty of the Google Delusion also, and we all need to get a grip. A small handful of us will have something that gets a 30x exit, larger handful of us will get acquired as a feature for a 6x exit, many of us will chug along as successful businesses until we get tired of doing it, and most of us will fail. Them’s the odds.
2. Educate Investors
We have, in this AWESOME city of ours, a lot of investors who made money by just showing up for mid-level jobs in high-growth companies. That does not inherently make them good business people. Ergo, it does not necessarily make them savvy investors. We, as a community, need to do some educating of the angel investors, (and hey, maybe the VCs after that whole Entellium thing) about what really makes a solid business, what it really takes to run a business, what are the common “exaggerations.” And also, educate them on reasonable expectations.
I will say that I, very cynically, think that the popularity contest model that we have right now – in which a small handful of companies get paraded around by a small handful of investment “clubs” - is pretty dangerous. It is a great way for investors who don’t really know better to get sucked into something they don’t understand and bank on a startup that is in roughly the same situation.
Investors, it's okay to admit that there's a lot you don't know. Seek unbiased information, ask questions, and NOT of the guy with the fancy suit and the top hat who's calling you into the circus tent.
3. Get Naked
We all pretend to be superheroes. Investors want superheroes. We’re kind of stuck. It’s like that common complaint you hear that the depiction of women’s bodies in media is making it “bad” to be a “normal” woman. Same thing is happening in the ego-inflated ecosystem of startups. We need to all start getting good and honest about our challenges, our obstacles and our fears. We also need to think about working together to change the collective image of what’s reasonable and what’s attractive.
4. Ask For Help
We need to work together through all the challenges. It’s not just a case of getting money, it’s a case of getting wisdom, experience and connections. It’s a case of getting help when we need it. When we are honest with our investors, and make them part of the process, they will not only be fully aware of “the truth” but will also be more willing to help and, because they are part of the process, they will probably be more willing to reinvest if it turns out money really will solve the problem. And hey, if nothing else, if we are honest and include them, then when we fail, there will be less anger and lawsuits. That’s good for something.
5. Redefine Success
This one’s on the entrepreneurs. It’s okay to drive a beat up old car. To have small, reasonable offices. Not to have fancy parties. You know, all that “stuff” that makes you look successful. It’s part of the act, and it’s dangerous. It’s too expensive, straddles you with a monthly burn that will scorch you, and keeps up the false image that that’s what’s expected. It’s like the beautiful gown on the beauty queen – who can only wear it because she’s a bulimic coke head.
Let’s start looking at what’s inside. Let’s get real. Let’s get honest.
Oh, I forgot to answer the question. It’s NEVER okay to lie to your investors. It’s bad karma, and, in case you haven’t been paying attention, it’s against the law and you will get caught. That said, there are better reasons to be honest – like, it makes a better world for all of us, one in which we are no longer tempted to lie.
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Alyssa, who is neither bulimic nor a cokehead, does have an unnatural attachment to the gym and does not know how she's going to pay this month's bills, but is no less convinced that
Just Cause It will be a winner and is totally committed to getting it done.