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That Credibility Thing

March 18, 2010

vcmike

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.

7 Comments

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  1. March 18, 2010

    Great post Mike. It works the other way as well. It takes two to tango. Boards and investors need to be credibile and I’m not talking about what degree they have or what school that they have. I’m talking value add. When that is in place as you said “trust” it’s great. It’s a relationship.

    Value add works both ways and I like your angle on informing and collaborating.. that is the model and from that comes “action” and “results”.

    Value add is key and yes it’s a two way street.

  2. April 13, 2010

    Mike, I’ve gone into ten venture-backed companies in the last decade as interim CEO (when the board fired the CEO) or as interim COO (when the board wants to save the CEO), and in most cases the CEO had been doing the “pitching” that you describe. A big mistake.

    As CEO, one must be straight with their board. One thing I find important is to not wait for a board meeting to give the board any bad news. Tell them as soon as it happens (because maybe the board can help you turn the situation around.)

    Board meetings should be boring; all the “news” should be given as soon as it happens. Then board meetings can focus on planning, strategy, ideas, etc.

    I discuss when a startup can use an interim CEO in this post: http://bit.ly/4qwCL1

  3. January 10, 2012

    I am a little unclear, so are you saying that entrepreneurs should wait to fill in all the detail before presenting or pitching their plan?

  4. September 30, 2014

    There’s definately a great deal to know about this topic.
    I really like all of the points you have made.

Trackbacks & Pingbacks

  1. Give It to Them Straight: Avoid “Pitching” to Your Board | HERTZ RENTAL
  2. Give It to Them Straight: Avoid “Pitching” to Your Board | Tech News Ninja
  3. Give It to Them Straight: Avoid "Pitching" to Your Board | Yooxe

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