Doug Wilwerding –
Over the past ten years I have met with hundreds of founders and entrepreneurs. I’ve listened to their passionate pitches about their fledgling businesses, reviewed their plans, and peppered them with questions on how they are going to build their businesses. In most cases they stare at me as if the answer is obvious…the product or service is so good that the challenge will be keeping up with demand, not creating it. This early euphoria and hubris always gives way to sobering reality and ideally some hard earned humility. Building a business from scratch is damn hard.
Of those hundreds of opportunities reviewed, we have invested in eight companies. In hindsight I should have put more than half of them in the ‘maybe later, probably never’ column. Investment challenges and failures are inherent in venture capital. Picking the right businesses and founders to back is the blending of the Gordian knot and Occam’s Razor.
Of the companies we have backed, and a few we didn’t but have kept track of, a consistent theme plays out; the founder is frequently not the right person to grow and run the business. My venture capital compatriots tend to agree. My unscientific observation is that this is true for a few reasons ~
- The blindness of infatuation. Founders and creators are infatuated with their progeny and the original vision of what their seed of an idea may become. This infatuation often overrides their ability to see the facts as they are accumulating on the financial statements and in the performance metrics. While the market and the bank statement are telling them the plan isn’t working, their emotional commitment is in overdrive telling them to stick to the original yet obviously failing plan. The market and the data never lie. Successful new businesses need to be managed by objectivity and commitment to nimble responsiveness, not by blind commitment to a static dream. Most founders react to slowly to the overwhelming data because they are blinded by paternal/maternal infatuation. I accept that vision, passion, and some suspension of reality are essential to the entrepreneurial narrative, but more often than not commercial success is driven by the ability to adapt to reality quickly and decisively.
- The ‘idea’ was the easy part; the ‘business’ part is hard. The founders we have worked with tend to over emphasize the value of their idea and underemphasize the difficulty of building out the business. Management, team development, financial discipline, and process discipline are viewed as ubiquitous skills whereas idea generation is viewed as singularly entrepreneurial. The truth is that good ideas are a dime a dozen. The differentiator between good ideas that make it to market success and those that die in ignominy is exclusively the ability to build and run a business. Founders need to get really clear about what they are good at and have the humility and wisdom to surround themselves with experts in the other disciplines. As a venture investor I can assure you the next (and first) entrepreneur who walks in my door and admits he needs help running his business will move to the head of the capital line.
- I cannot hear! Beethoven’s Fifth Symphony was written as an argument with his ever-increasing deafness. He recognized that he was losing his hearing and hence inevitably losing his ability to compose. When times get tough – and they will – founders tend to become deaf, but unlike Beethoven, they deny their deafness. While it is logical that founders would reach outside the walls of the company and ask for help and listen, most don’t. As the pressure mounts they tend to become even more hard of hearing and more insular. The emotional reasons for this reaction are obvious. Founders tend to be great self-promoters. They tell anyone who will listen about the inevitable upward trajectory of their new business partially out of infatuation, partially out of much needed affirmation. When the blush of early days fades into the reality of failing execution, a comparison between the current state of affairs and the founder’s previous braggadocious claims is daunting. Founders need to reign in the fear of hearing the truth, get the right people around them, seek their advice, listen to it, and act on it. I have seen too many instances where founder deafness led to loss of fortunes of capital and the demise of good business opportunities. It’s sad, stupid, and unnecessary.
There are unicorns, founders who are both gifted at idea generation and running the business with pragmatism, collaboration, and humility, but they are the exception. In the majority of success cases we see the wise founder hands off the idea to seasoned business teams, listens to advisors, adapts and adjusts, and allows the business professionals to grow the business. In the long-term this strategy will benefit the founder, the investors, the employees, and the clients.
In business it is always better to grow and be profitable than it is to be proven right.