When Leaders Get it Wrong

As a business advisor, I’m always amazed by leaders who don’t act in the best interest of their own company.  It’s something that happens more frequently that one would expect, and examples of this non-productive behavior include:

  • Ignoring obvious problems
  • Hiring people who don’t have the skills and ability to do the job
  • Needing to be the “smartest person in the room”
  • Not being receptive to advice that could help them to be more successful

And the list goes on.  From my perspective, the most bizarre of these are the last two on the list.  Both tend to be related to ego and insecurity issues that end up taking precedence over the company at hand.  People who exhibit these behaviors miss the opportunity to build a better company, which, in turn, would reflect well on the leader.  A complete disconnect!

Consider the following alternatives, both of which lead to better outcomes:

  • Surrounding yourself with the smartest, most competent people is one of the best things that a leader can do.  Not only does this significantly raise the likelihood that a company will perform better (to the benefit of all involved), but it also provides a powerful opportunity for a transfer of knowledge.  A collaborative learning environment strengthens the senior team, as well as the leader.  In my own experience, the smartest leaders I have known have never been afraid to say “I don’t understand it”, while taking steps to do so.  Why is this important?  Because even the smartest, most accomplished people know that there is always more to learn, and they are never diminished by saying so (in fact, it makes them better leaders).
  • Experienced advisors bring a wealth of knowledge that can improve almost any situation.  Why would a leader not be receptive to such a powerful opportunity?  Not recognizing a good idea when they see it?  Ego?  Insecurity?  Thinking that the issue has already been resolved (when it hasn’t)?  Poor judgement?!  Whatever the reason, this lack of receptiveness will eventually catch up with the company, often at the worst of times.  Investors and financial partners screen for this tendency, and those who aren’t receptive to advice often don’t end up on the financing list.

I’ve long since had a theory that there are lots of business leaders who will opt out of what is in their own best interest, as well as in the best interest of their company.  Ironically, these people are the ones who tend to need the most help, not the least, and they might just have to learn this lesson the hard way.

EVENTS: Winnipeg Franchise Expo

Join me at the Winnipeg Franchise Expo on Saturday, March 25th for Don’t Forget the Numbers: What Non-Financial Leaders Need to Know

Many companies are led by people with strong technical or service backgrounds and limited finance knowledge; this can diminish the results that leaders work so hard to generate, such as financing, growth, and profitability.  There are many financial literacy resources available on a personal level; however, the focus on business is really just emerging.  Unlike traditional accounting education that is too complex or difficult to implement, this seminar brings a plain language approach to accounting and financial management.  Focusing on the key areas that leaders need to understand, topics include how accounting “works”, financial statements, improving results, budgeting, forecasting, cash flow, and accounting roles and qualifications.  Session participants will learn:

  • How the accounting function “works”, in simple terms, as well as practical approaches that can be used to improve financial performance
  • Tips for identifying the right team members, by understanding the various roles and qualifications in an accounting department
  • Tips for avoiding the costly mistakes that leaders make, when it comes to seeking financing and capital, due to a lack of financial knowledge.

Details and registration are located here

Getting Started: Preparing for the world of entrepreneurial adventure (Finale)

Published by CPA Canada in CareerVision

Over the course of this series, we’ve considered a number of skill areas that are helpful to companies in the startup stage of development.  Whether they realize it or not (and many will not), startup companies need much more than technical skills and enthusiasm to build a business that will grow and prosper over the long term.  Some of the skill areas that we’ve identified include opportunity-based thinking, risk management, and the ability to handle and overcome rejection.

For those who are keen to find a young venture and start contributing, it often takes much more than skills and enthusiasm (sound familiar?) in order to find the right fit.  Startup companies can flash and burn like a shooting star in the night sky, and it can be difficult to identify which way a situation is trending until you’re on the way down.  Perspective is critical, and in order to ensure that you’re investing your valuable skills into the right situation, it’s important to understand some of the cold realities about start up companies.

  • Most will fail: Bottom line, the vast majority of startup companies won’t survive, ranging from quick failure to becoming stagnant and fading away over time.  Don’t be fooled by those who achieve quick notoriety or attention, as many a startup who graced the pages of magazines or TV screens went on to subsequently fail.
  • They consume without apology: Like a young child that relies on adults to feed, clothe, and keep them out of harm’s way, startup companies are all about consumption.  They can require (or ineffectively use) an abundance of resources, including human, financial, and time.  If you’re not careful, a startup company can consume your time and energy around the clock.
  • They often don’t know what they need: Many entrepreneurs are new to both their venture and running a business and are typically not in a good position to understand what they need in order to move forward. This is why so many advisors are able to earn a living (for those who seek help) and also why so many startup companies fail (for those who don’t).  The category that the startup  you join falls into can impact your future in a big way.
  • The work isn’t glamorous: Building anything is a “hands on”, trial and error, messy business.  Whatever the roles in a particular startup company might be, far more is required in order to keep moving forward.  Recognize that joining a young company means performing lots of less than glamorous tasks, and if you’re not willing to get your hands dirty (literally), you will likely be happier doing something else.
  • Things can change really, really quickly: Young, emerging companies require agility, in order to chase opportunities, stay ahead of market trends, and make modifications in order to get closer to customers.  What the focus is one week can quickly change, requiring the team to quickly adjust, adapt, and move forward.  Surviving in this type of environment requires comfort with constant change, as well as the ability to work within it.
  • It happens in real time: For all the planning that needs to be done in order to develop and move a venture forward, managing the business is live, not a dress rehearsal.  Teams are often small and they rely on individuals to have the ability to determine what is required and take action; there are no layers of checks and balances here.  Although this might sound exhilarating to some, the reality is that startup companies face and endure risk every single day.

If this doesn’t sound like an environment for the faint of heart, that’s because it isn’t.   Having said that, the rewards are many for those who are up for the task.  Like the childhood fairy tale, you will likely have to kiss a lot of frogs until you find a prince (or princess!); that right startup opportunity.  If you recognize that this is what’s required in order to get started, the focus can be on the journey to find “the one”, as opposed to being on the setbacks that emerge along the way.

Getting Started: Preparing for the world of entrepreneurial adventure (Say Yes!)

Ice splashing in cup of water

Published by CPA Canada in CareerVision

It’s been said that some people see the glass as half empty, while others see it as half full.  Some people don’t even see the glass, much less believe that it actually exists!  Related to this idea are people in the business world who assume the role of naysayer; nothing is good enough, no idea will work, the road ahead is a minefield of challenges and despair.  This is perspective that the last thing that a startup business (or any company, for that matter) needs.

People who hold this “no glass” perspective are focused more on why things won’t work instead of why they will.  While it’s true that startup companies, rich with new ideas and ways of doing things, might face more challenges than the average business, it doesn’t mean that that success can’t happen.  It can, does, and there are startup companies out there who find success every single day.  The key is bringing the right perspective to “get to yes”, and in doing so, make the world your oyster.  Sounds a lot more interesting than doom and gloom, right?

Why it Matters

Since there is no shortage of people who can tell you why things won’t work, those who see otherwise are of real value.  What’s more, people who can find practical ways to advance an initiative or resolve a problem are extremely valuable.  Any seasoned executive, who’s been there and done that, recognizes just how true this “getting to yes” skill set is.

Think about the last time you were in a situation where good, or at least, interesting ideas were put on the table, only to be quickly shut down by others.  What could have been the outcome if even one of those ideas had been further investigated to find a workable solution?  Even more compelling is a situation where you see a competitor move forward with an idea that you had considered, but didn’t invest the time to make something of it.  Your competitor ended up with money in the bank, while all you were left with was a missed opportunity.

Get Started

Startup companies need people who can apply creativity, ingenuity, and a positive attitude to make things happen.  Seeing the glass as excitingly half full takes practice, something that can change your mindset over time.  Getting started is as easy as adding these approaches to your to do list:

  • Let every new idea have a life: Make it an unspoken rule that any idea that can be clearly articulated has a life; even 10 minutes of time will do.  Talk about it, consider who could utilize the outcome, what success would look like.  Keep track of the concept, so that you can rank it in priority in rational terms, as compared to other things that could be pursued.  If you can’t make this change in your current workplace, try doing so on a personal level.
  • Practice seeing the other side: Every good debater knows that there is more than one side to any situation, and solely focusing on the position of personal choice won’t advance the argument.  Have an opinion, but take the time to thoroughly understand alternative viewpoints, as this can be valuable to finding solutions to move forward.
  • Take on a project: In situations where others dump an idea, consider exploring it a bit further on your own.  You might be surprised what you find, resulting in the opportunity to take a more fully developed concept forward at a later date.  Don’t be surprised if others are impressed by what you’ve been able to achieve.
  • Learn how others get it done: Successful entrepreneurs and executives are skilled in finding ways to get things done, as they understand how valuable it is to be able to do so. Work closely with them to learn what they know; it will be some of the best experience you ever receive.

In a world that so many see as stacked against them, you can set yourself apart by shedding light where they see nothing but grey.  Even better, once you have some examples of initiatives that have been successfully advanced, despite the odds, others will begin to take notice.  “Yes” is the word, indeed.

Getting Started: Preparing for the world of entrepreneurial adventure (Opportunity-Based Thinking)

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Published by CPA Canada in CareerVision

One of the fundamental ways that a startup company can find success is by focusing on opportunities.  This could include new ways of doing things, a better solution, or markets where demand exceeds supply, to name a few.  Being successful in this regard requires a special perspective, one that understands customer needs and wants today, and also in the future.  It requires the ability to look beyond the company at hand and pay greater attention to the marketplace, outside your window.

Corporate jobs are often more about focusing on what’s in front of you, ranging from tasks that relate to the past (think audits and tax returns) or immediate future.  Although you might look forward from time to time, as in the case of budgeting, forecasting, or planning initiatives, sitting back and considering what the future might look like and the opportunities that could be created isn’t typically in the mix.  This is a much different range of view and represents a successful entrepreneur’s golden time.

Why it Matters

You might have been asked at some point in your life to “read between the lines” or observe “the negative space”.  Both of these concepts require a person to see what isn’t obvious at first blush, and some people find it quite difficult.  It requires looking past what’s in front of you and connecting the dots to arrive at what could be a very different answer or idea.  Apply this concept to a startup company (or any business looking to expand its horizons, for that matter), and you will begin to understand what opportunity-based thinking is all about.

Businesses need people who can bring this important perspective, in order to be successful over the long term, as many simply do not have this ability.  Missing opportunities in the marketplace has led to the failure of many companies, as well as career setbacks for a host of business leaders, entrepreneurs, and senior team members.  Prepare in advance by learning how to make the marketplace your new BFF, providing access to the powerful opportunities that await!

Get Started

In a world of glancing in the rear view mirror, you can begin to practice the key skill of looking forward in advance of when it’s actually needed; here’s how:

  • Take on forward looking projects: Bring a new approach to organizing your workload, by separating tasks or projects that require a past or present perspective, as compared to those that look forward.  You will likely find that you have far more work that involves looking backwards or at what’s in front of you, so seek out projects that look ahead to balance the scale.  Projects that involve budgeting, forecasting, and planning can be a good place to start.
  • Trend is your friend: Taking on tasks that involve research or an external focus will help you to understand what drives markets, key trends, and where the opportunities are.  Once you spend some time doing this type of work, it will become obvious just how different the perspective is.
  • Look outside of your own organization: Challenge yourself to spend a portion of every day thinking about what goes on outside of the four walls of your organization, such as with customers, competitors, and industry/market developments.  Start with 20% of your time and progress upwards from there to develop a meaningful external perspective (and, no, 50% is not too high!).
  • Check in on a regular basis: It might be relatively easy to make some changes in routine for a short period of time, but seeing opportunities that will propel a company forward only starts to happen after you’ve developed the necessary skills to do so. Whatever you call it; a mind shift, a fresh perspective, or creative visioning, it won’t happen unless you “check in” with yourself periodically to ensure that you haven’t fallen back into a focus characterized by short term, internal matters.  Change your perspective for good.

The ability to look forward in advance of when it’s needed spells opportunity, no matter how you slice it.  What’s more, it can lead to opportunities for you to play a key role in the startup companies that need this perspective more than either of you know.

Blue Chip Tip: Just Show Up

After observing some of the worst service providers I have ever seen over the past year or so, either directly or hearing about the experiences of my clients, I’m reminded of what should be a simple rule for anyone in business: Just Show Up!  It’s amazing to see the number of businesses that can’t seem to perform the most basic of tasks: return a phone call or email, demonstrate interest in a customer’s needs, or deliver on what they said they would do.  What on earth do these companies think they are in business to do?

Smart business leaders can use these awful examples as a reminder of what’s important to do every single day: Just Show Up.  Here are five tips to live by:

  • Every customer is important, so don’t treat the “small jobs” as anything less.  You don’t know who your client knows; their personal network could include business leaders, professionals, and those who need your services, and you will never get referrals if their experience with you is poor.  Speaking from experience, you can trust me on that!
  • Do what you said you would do, and don’t think that your customer won’t know the difference.  Map out deliverables in advance and deliver.  Don’t change the plan unless there is a compelling reason to do so, and only with sign off from your client.
  • Meet timelines, as your customers are depending on you to do so.  Too many businesses act like they’ve got nothing but time; newsflash: your customers don’t have time to waste.
  • Get it in writing, in advance of starting the work, so everyone is on the same page from the beginning.  Treat every customer engagement in a professional manner, otherwise your efforts will look like more of a hobby than a business.
  • Be accountable, especially if something doesn’t go as planned.  Customers will be more understanding if you take responsibility for getting the job done, as opposed to making excuses, deflecting concerns, and pulling other distractions.

Think that this list is too basic to be of use?  Experience says otherwise.  By showing up and doing the job right, you’ve already left over half your competition in the dust.  Now, just think what you could do if you really put your mind to it!

Getting Started: Preparing for the world of entrepreneurial adventure (Attitude)

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Published by CPA Canada in CareerVision

Although you’ve completed years of education and gained some experience, there is still much to learn.  Whether this reality hits you as daunting, exciting, or somewhere in between, you probably don’t realize just how much your attitude matters when facing future learning.  Many of us were raised with reminders to “think positive”, but probably didn’t realize just how important this is when facing something new.  This concept is particularly relevant in the startup world.

Generating success isn’t just about getting something new to “work”; but rather, in the case of startup companies that require assistance and investment from others, it’s more about what comes along with the quest for capital.  Investors tend to have many choices where they can put their money, and there are often far more options than what can be financed.  For this reason, those with capital have the latitude to select the opportunities that represent the best “fit”, in terms of returns and the ease of getting there.  A big part of this has to do with attitude.

Why it Matters

One of the “screens” that early stage investors tend to use to evaluate investment opportunities is the attitude of a company’s leadership, particularly in terms of responsiveness to advice.  For all that is known, there is much more to learn, and investors typically bring a host of knowledge that is critical to moving a young company forward.  Although they might not understand all of the intricacies of a startup’s technology platform, investors understand enough to generate success, as well as many other things that entrepreneurs typically don’t have the depth of experience to appreciate.

What is powerful is when experience and emerging ideas come together to build something that is both competitively advantageous and soundly executed.  In order to do so, startups need to be receptive to good advice and demonstrate an ability to work well with those who have more experience than they do.  What many startups don’t realize is that investors have better things to do than fight with entrepreneurs who will never see the light, and, as a result, will bypass these situations for more productive opportunities.  Don’t let this happen to your business!

Get Started

Experienced investors know that smart entrepreneurs will do whatever they can to reduce the risk of rejection.  Since grace in times of what could be a hearty dose of reality isn’t a given, take the opportunity to get some practice; here’s how:

  • Learn how to focus on “breathing”: If you’re not in the routine of receiving constructive criticism, it’s time to get used to it.  When facing times of difficult questions or advice, learn how to respond.  Practicing how to reflect on the question, “count to 10”, or give all ideas a “positive life” for a period of time can help.
  • Reflect on what you don’t know: Step 1: Accept the fact that you don’t know everything.  Step 2:  Accept the fact that there are things that you will be wrong about.  Step 3:  Make an active effort to learn about what you don’t know.  Step 4:  Reconcile the first three steps and move forward with a positive attitude, not grudgingly or with resentment.
  • Refresh research skills: Although it might be easy to find information online and think that this alone addresses the question or combats the advice, this is only half the battle.  Investors know that understanding what to do with the information is what really matters.  Think about it.
  • Practice developing responses: Startups seeking capital will be asked a lot of questions and face a great deal of advice.  Make the most of these opportunities (yes, these are opportunities!) by learning how to address inquiries directly with responses that are thorough and relevant, yet concise, and then utilize “smart advice” for all it’s worth!

There are lots of entrepreneurs who take the position that pushing forward with reckless abandon is what matters; be difficult, be original, never surrender.  The reality is that when investment capital from others is needed, this type of approach just doesn’t cut it, and although some things might be worth fighting for, the list should be short.  Failing to do so can result in alienating the audience that startups have such a critical need to engage in order to move forward; one that’s counting on your positive attitude.

Getting Started: Preparing for the world of entrepreneurial adventure (Finance & Business Acumen)

Hand and aces

Published by CPA Canada in Careervision

You’ve spent a good portion of your career in the business world, working with those who manage, keep track of the numbers, and hopefully understand it well.  In addition to this practical experience, you’ve probably spent a number of years completing formal business and finance study.  It’s easy to take management and finance for granted, when it’s a big part of what you and those around you do on a daily basis.

Although entrepreneurs tend to end up in the leadership role in startup companies (often by default), most lack actual business experience; this is particularly true in terms of finance.  The bulk of the emphasis tends to be placed on the product, service, or technology (entrepreneurs are typically guilty of this!), resulting in the business and finance aspects that are so important to any company being overlooked.  This can also be a function of entrepreneurs simply preferring to spend their time on what they love, and it isn’t accounting.

Those who have formal education and experience in these areas have knowledge and skills to offer to startup companies, to a degree much more than they realize.  What’s important is to understand what the real needs are and why, so that the opportunity to prepare in advance isn’t missed.

Why it Matters

As already explored in this series, startup companies lack the stability of more established businesses, and one of the main areas of risk is cash flow, closely followed by the challenge of attracting investment capital to support growth.  Non-financial entrepreneurs typically don’t realize the degree to which their venture is at risk in financial terms, nor do they understand the needs of early stage investors, when it comes to raising capital.

As a result, startups often find themselves in double trouble: (i) short of cash and the skills to manage it; and (ii) an inability to provide the financial oversight and reporting that investors require.  The outcome, too often, is a predictable death spiral, where these two factors get caught in an endless loop, resulting in the business running out of cash and being unable to generate what’s required in order to stop the plunge.

Get Started

Chances are that you have underestimated just how much the business and finance skills that you have learned and practiced are of value to startup companies.  Put a lid on the typical excitement and hype associated with new technologies and opportunities and focus instead on accentuating the value of what you have to offer:

  • Become acquainted with the “hands on” finance role: Since startup companies are small, the “accounting person” often has to do it all: transaction entry, generating financial statements, and dealing with billing and banking matters.  Recognize that startup work is much more involved than a lofty oversight role and that the buck will truly stop with you.
  • Map out routine processes: Make the most of limited time by developing checklists to guide task completion, including on a weekly and monthly basis.  Most entrepreneurs don’t have the financial experience to do this and it will make everyone’s life easier, as well as provide the discipline that investors seek.
  • Revisit financial accounting, in reporting terms: Recognize that internal reporting and recordkeeping often differ from what external parties expect to see.  In order to keep investors and financial institutions happy, ensure that you’re able to produce monthly financial statements in the standard financial accounting format.
  • Master cash flow management: Being able to manage cash with confidence is critical, and may not be a skill that is practiced much while working in a larger company.  Cash flow management is not an area to be learned on Day One of working with a startup, so get lots of advance practice now.
  • Learn about what investors require: Early stage investors look for a qualified person in the Finance Chair, as it’s this individual who will take care of their investment.  Recognize this and seek to learn about their particular needs, in terms of reporting and ongoing operation of the finance function.

Early stage investors recognize that the majority (if not the vast majority) of startup companies fail.  There are a variety of reasons for this, including products that aren’t competitive in the marketplace and an inability to attract enough customers.  What’s more typically the problem, however, is poor execution on the part of Management, in terms of not running the business well.  At the core is often a lack of financial acumen, resulting in the company running out of money before it even had a chance to get started.

Getting Started: Preparing for the world of entrepreneurial adventure (Discipline)

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Published by CPA Canada in CareerVision

The word “entrepreneurial” is often associated with a freewheeling, zig-zagging, devil-may-care, caution-into-the-wind type of attitude. Although it’s true that the ideas and new ways of doing things that are typically associated with startup companies require some creative thought, this is not all that’s needed.  In fact, one of the things that is surprising about young companies is just how much discipline they need in order to be successful.

Startups are focused on building: new companies, new products and services, new markets, new ways of doing things. Like any construction project, this is best done by building on solid ground, starting with the site, a good foundation, and using tactics that are tried and true.  Although this particular house might include some new features or ideas (think geothermal heating or windows that provide privacy with the flick of a switch!), most construction fundamentals still need to be in place.  Why is this the case?  Simply because it’s important to put evolution into practice within a stable environment, as combining too many new things at once can cause the structure to come tumbling down.

This type of balanced progress (or evolution under control) resonates well with early stage investors, as it raises the likelihood of overall success. It also serves as a means to manage and mitigate risk, which is something that we have already explored in this series.  Understanding that the sound business practices and discipline that are learned in the corporate world shouldn’t be abandoned; but, rather, leveraged and built upon, is a key area of opportunity for anyone entering a startup company.

Why it Matters

When something is young; be it a child, a puppy, or a company, it needs more structure, not less. Think about the last time you learned how to do something: in order to understand the task, your role, and the implications of doing it right (or wrong!), it was necessary to pay careful attention to the lesson, understand what needed to be done (and how), practice, and perhaps take corrective action (or refer back to the manual) in order to get it right.  Startup companies really aren’t much different than these examples.

What runs against the grain of what early stage investors know to be true is when young companies do the opposite (remember that devil-may-care attitude?), applying good business practices just about nowhere. If the intent to is make a new way of doing things work for the long term, it has to be supported by the fundamentals; business planning, financial management, implementation monitoring, and defined roles and responsibilities are just a few examples of the discipline that should be in place.  In many startup companies, an investor would be challenged to find any of these practices!

Get Started

Benefit from the established fundamental business practices that are typically present in large companies by learning how to incorporate them with discipline into a startup environment:

  • Dust off that textbook: Although it might have been a while since you’ve held the student viewpoint, recognize what is part of good, old fashioned fundamental business practices and undertake the discipline to learn how to put (and keep) them in place. Areas to think and learn about include planning, budgeting, assigning tasks, monitoring performance, documentation, and roles and responsibilities.
  • Practice recognizing where business fundamentals can be applied: Regardless of the environment, there is a place for good business practices. Learn how to transfer what you have observed and worked with in a corporate environment to that of a startup business. Resist the temptation to fall into the “it can’t be done” trap; experienced investors know that it can be done.
  • Learn more about what you don’t know: While in the relative stability of an established organization, take the time to learn more about areas with which you are less familiar. Research, courses, and new job responsibilities are all strategies for learning.
  • Test your ability to perform on a disciplined basis: What sounds simple “on paper” is typically much more of a challenge when it’s put into practice. Pursue opportunities to take learning to a practical level and be sure to take note of how performance could be improved.
  • Think in both the short and long term: Short term thinking tends to equate with getting things done, while a long term mindset is more about putting policies and procedures into place. Recognize that investors expect to see both: the track record of what has been achieved and established practices in a business to demonstrate discipline and ongoing value.

When you take the time to think about a startup company in the context of other things that are early in their developmental stage, it is blatantly obvious that much structure and attention are needed in order to shepherd a neophyte safely into the future. By separating the creative process of generating ideas from the disciplined approach of building, it’s possible to fully recognize the stark differences between the two.  This is what early stage investors see every time.

Getting Started: Preparing for the world of entrepreneurial adventure (Early Stage Financing)

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Published by CPA Canada in CareerVision

One thing that most start up companies have in common is a lack of resources, including people, capital, and “stuff”. The root of this shortfall (or the thing that can resolve it) is money, something that can be hard to come by in the startup world.  Once entrepreneurs have exhausted their own funds, and often that of friends, family, and anyone else they can convince, the only remaining option is to find an investor.  This is a big step for many young companies, as it represents the first time that the money ask goes outside of “the circle”.

There’s another important reason why approaching an investor is such a significant step, and it is simply this: most entrepreneurs have no idea what investors need to know in order to make an investment decision. Put another way, investors, be they experienced angels or institutional funds (such as venture capitalists) have very specific expectations in terms of the information they require.  This includes content and format, as well as fitting within the investor’s particular mandate.  While it might sound simple, it’s anything but, and most of what investors receive doesn’t meet their needs at all.

Life in a corporate job usually doesn’t involve spending time in this area, especially in terms of just how critical it is to success. Financing matters are typically handled by others, and access to this type of external party is limited.  In this series, our focus is on understanding the significant differences between a startup environment and the corporate world so that you can place a greater amount of emphasis on developing some of the skills that will serve you well in advance of when they’re actually needed.   So far, areas we’ve considered include risk, rejection, and money.  Understanding the expectations of early stage investors couldn’t be more important!

Why it Matters

Entrepreneurs tend to show a lot of confidence when discussing the topic of investors. They’re excited about the product/service they’ve developed, and generally expect that others will be equally impressed.  Comments like “so-and-so wants to invest” or “is ready to cut a cheque” are often heard, but as the process moves forward, these seemingly slam-dunk situations tend to fade.  Impressed or not, entrepreneurs are often left to wonder where the money went.

A big part of the reason for this is that young companies lack the ability to package an investment opportunity in a manner that meets the needs of investors. Be it the business plan that lacks context, too much emphasis on the product, or a financial forecast with questionable assumptions (or none at all; startups can’t forecast!), investors aren’t buying.  Entrepreneurs tend to respond by offering up information that is used to run the business, or even worse, more technical information, in the hopes that the tide will turn.  No such luck.

Get Started

Not understanding the needs of early stage investors is a very common problem in the start up world. Rise above it by taking the time to understand what investors want to know, well in advance of when the bank account is empty:

  • Research the topic of early stage financing: Venture capital and angel investing are specialized areas that are not understood well, and reading about it in a text book isn’t sufficient. Tap into resources produced by investor networks, associations, and similar sources to understand how it works and the preparation that is required.
  • Recognize that investors have specific needs: Many entrepreneurs simply do not do this. They believe that all they have to do is provide “what they have” and the investor will adapt. In a world where deal opportunities vastly outnumber the supply of capital, this isn’t likely to happen anytime soon.
  • Learn how to write a business plan: Bypass the folklore that “investors don’t read business plans”; they do. In addition, they challenge entrepreneurs on their business model, target markets, and the financial outcome of implementing the plan. All of these areas are very difficult to address well in the absence of having developed an investor ready business plan.
  • Network with experienced advisors: Those who specialize in the area of early stage financing have a clear understanding what is needed to raise the likelihood of getting to yes. Although there are no guarantees in life, their expertise can be invaluable. Look for those with a demonstrated early stage financing background, such as a former venture capitalist.
  • Practice accepting rejection gracefully: As simple as it sounds, doing this well can be the difference between ultimately receiving capital and burning your bridges. Chances are, you won’t raise money on the first (or even on the tenth!) try, so learn how to make the most of these interactions by asking questions, seeking out network contacts, and leaving a professional impression. Too many entrepreneurs do the opposite.

Thinking that your product or service is so great that investors will line up to put money in is a path to failure. If there is a scenario out there where all of the stars will line up to secure easy capital, chances are, it won’t be your company.  These are rough lessons that are best learned before they happen, so take the time to understand the complex world of early stage investing and prepare for it.

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