March 18, 2010
Great entrepreneurs tend to be great salesmen. They have vision and passion and are able to communicate it.
While this is a great asset most of the time, on occasion entrepreneurs forget that they need to check their sales pitch at the door when it comes to working with their board and investors. Sometimes consciously, often times unconsciously, entrepreneurs have been know to “pitch” their boards instead of informing and collaborating with them. This is a big mistake, for at least two reasons.
The first reason is that the entrepreneur is isolating him/herself on an island when it comes to dealing with challenges and problems. While the prospect of sharing bad news with investors can be unpleasant, the reality is that, whether we like to admit it or not, VCs hear bad news all the time — it is part of the startup process and part of the VC job description. Any VC worth his or her salt should respond to bad news, provided it is shared in a timely fashion, by helping the entrepreneur figure out the best way to respond rather than dwelling on what went wrong. In my experience, entrepreneurs feel relieved to have company in their problem set as opposed to feeling left all alone to deal with it.
A second reason why entrepreneurs should lose the habit of pitching their investors is that it will quickly lead to losing their credibility, which is toxic to a constructive entrepreneur/VC partnership. Early stage ventures are filled with ambiguity. Entrepreneurs and their investors need to make quick decisions based on information that is far from complete. This necessitates relying to a very substantial degree on the entrepreneurs’ interpretation of the situation and prospects. When an entrepreneur loses credibility and the board’s trust that he is interpreting and communicating things in a reasonably accurate light, the result will be constant questioning of his/her judgment. Which is not a happy place for either the entrepreneur or the investor.