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10 Lies Entrepreneurs Tell To Investors

10 Lies Entrepreneurs Tell To Investors


Scott Maxwell
scott maxwellScott is the Senior Managing Director at OpenView Venture Partners.

In business, reality is rarely as great or as bad as you think it is — and that’s OK. But when founders try to manipulate the truth with metrics, things can get ugly.

At OpenView, we spend a lot of time with our portfolio companies trying to identify and track meaningful metrics that, when managed well over long periods of time, will assist in the building of a great company. In fact, our firm recently published a report on SaaS operating metrics that surveyed more than 160 senior executives in order to create a peer review specifically geared toward benchmarking the growth and profitability metrics that are most relevant to SaaS companies at the expansion stage. Simply put, our team (and VCs in general) love metrics.

Unless, of course, they’re fluffed up, fabricated, or manipulated versions of reality.

As I meet with founders and hear their presentations, I find that many entrepreneurs would rather present “feel good” metrics, rather than metrics that provide an accurate, detailed picture of the state of their company. But as an investor, I would much rather see all of the positive and negative trends, because more often than not the bad things are fixable. More importantly, it’s critical to understand the positive and negative trends that are actually tied to the key drivers of their business so that we can work together to accelerate (or eliminate) those trends.

Are You Lying to Your Investors?

If your pitch is stuffed with “feel good” metrics, or if you’re guilty of one or more of the manipulative tactics below, chances are an investor is going to pick up on it and call you out. Not only do these tactics waste their time, they’re also a waste of your own — and they could very well lead to a bad reputation in the investor community.

10 Manipulative Metric Tactics to Avoid

Only presenting metrics that paint a rosy picture

If you gather enough data, you will always have metrics that show positive trends. One way that’s especially annoying is to hone in on negative statistics and then look for the bright side. For example, if you lose a few great employees, focus on your costs being below budget. Another common way is to downplay disappointing results in your company’s past by pointing to more recent positive results and overemphasizing how you are a “learning organization.”

Collecting only the metrics that are really easy to manage

For example, metrics that evaluate “leads” or traffic. These metrics can be important indicators of growth, but they’re also easy to manipulate and they rarely paint the full picture. Metrics like lead quality, cost of leads, or ROI are much more difficult to manage, but guess what: Those are exactly the types of metrics a seasoned investor is going to ask you to drill down into.

Presenting as many metrics as possible

You could refer to this as the “shock & awe” approach. Presenting more than is necessary is often a sign that you don’t really have anything meaningful to report. And you’re more likely to confuse your audience than impress them with it.

Using extremely precise numbers

For example: “We’re growing at 102.4%,” rather than simply saying “growing roughly 100%”. Precision alone doesn’t mean you really know your stuff.

Speeding through your metrics

entrepreneur

The more quickly you go through your metrics, the less time your audience has to consider the validity of your metrics and ask you to dive deeper. Generally, this is a sign that the founder is trying to hide something.

Giving excuses for not having metrics that don’t make you look good

When you tell investors that you don’t break out those numbers, or that your systems don’t allow you to get that data, we generally call BS. Oh, then there’s this classic: “Umm, well, I’ll have to get back to you with that information…” Right.

Hiring a graphic designer to make lackluster numbers look pretty

When you need someone to turn your metrics into really good looking charts and graphics, it’s typically a sign that the metrics aren’t compelling enough on their own and that you’ve spent more time on the quality of their slides than the data you’re actually presenting.

Sharing metrics “off the cuff”

You might think this approach will impress investors (because it gives the impression that you really know your stuff), but if it’s worth reporting, then put it in the presentation and spend some time explaining it to us.

Involving other team members

While each of your functional heads will inevitably have some insight and input into the more detailed data, you should be able to explain the validity and relevancy of those metrics without their help. When entrepreneurs loop in a functional head to explain the “feel good” metrics they’re presenting, the hope is often that their “authority” will make fluffy data more believable.

Keeping it vague and over-explaining

Very simply, the devil is in the details. So, when founders don’t have particularly good or compelling metrics to report to investors, they skew toward being vague. That’s a bad move, because it gives us the sense that you’re afraid to pull back the curtain.

Manipulating Metrics Gets You Nowhere

Here’s the key point to remember: The simpler and clearer you are, the easier investors will grasp and remember how to think about your business.

entrepreneur-lies

Source: Flickr

The quicker you identify for them the small number of key drivers for your business, the quicker everyone involved can get on the same page and steer the conversation to the heart of the matter: Determining how a VC can help your business grow. If you’re not honest or you try to manipulate the truth, that will never happen.

If you’re not a believer that honesty and transparency is the best policy with investors, then I highly recommend the classic book, “How to Lie with Statistics,” which should give you plenty of unscrupulous ideas for how to obfuscate the truth!

Excuse the sarcasm. I don’t mean for this to come across as a scathing commentary on founder honesty. The truth is that the vast majority of the founders I meet with are honest, forthright, and fully transparent. They recognize that in order for us to help them, we need to fully understand their situation. And when relationships start that way, they’re more likely to lead to very fruitful results.

Note: The views and opinions expressed are solely those of the author and does not necessarily reflect the views held by Inc42, its creators or employees. Inc42 is not responsible for the accuracy of any of the information supplied by guest bloggers.

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