Why Startups Lurch From Crisis To Crisis

I’m an angel investor in quite a few startups, and often I feel like I am on an emotional roller coaster ride. When the founder presents an update at the Board meeting, you get the feeling that everything seems to be going extremely well. At the end of the review, everyone is on a high, and you pat yourself on the back because you were smart enough to invest in such a clever founder.

However, after a month, he calls to let you know that he’s running out of cash, and desperately needs another infusion of funds. This is why angels feel so lost and confused.

Moon-shot Ideas: Not Such A Good Idea

Part of the problem is that founders are very interested in moon-shot ideas – these are far more sexy and exciting! They want to hit fours and sixes, because they want to win as quickly as possible – getting rich in a hurry is much more fun that getting rich slowly. They feel they are competing with the other wildly successful founders who are featured in the press all the time, because they are raking in the millions.

They too want to be seen as being winners by the rest of the world, and they don’t want to keep on waiting and waiting until their company matures. They are young, and easy to understand why they’re in such a hurry.

Unfortunately, that’s not the way successful businesses are run. If you want to win a cricket match, what you really need to do is hit lots of singles safely and steadily, rather than take outsize risks and get bowled out while trying to hit a six. While the crowd will cheer for the flamboyant batsman who hits a lot of boundaries, this can be a risky way to play a match. Unfortunately, you only understand this after many years of experience, as you grow a little bit older and more mature. This difference in perception is one of the reasons for the conflict between founders and funders.

How To Go About It

The best way to be right is not to be wrong, and if you minimise your risk of failure by not trying to heroically swing for the fences every time you come to bat, you’ll automatically increase your chances of winning.

Unfortunately, this is not a very sexy way of doing things. It takes time to achieve results, and most founders are young men in a hurry who want to get to their goal quickly. There’s no glamour in the daily grind, and it can be very tempting to try to pull off a moon-shot. The problem is that a lot of these are doomed to fail – after all, there’s a reason they are called moon-shots!

The media exacerbates the problem by highlighting the outliers – the guys who achieved success very quickly by making millions within a few years – after all, these stories attract many more readers! What’s the point in writing about the typical founder who achieved overnight success after slogging for 15 years?

We don’t want to pour water on our founder’s dreams and it is okay to try and hit sixes, but it’s sensible to do this only when you have a huge lead. In real life, when you have enough money in your bank account, you can afford to take lots more risks, so that even if they fail, your company doesn’t go to pieces. However, it takes time to build up enough of a buffer, and you need patience to get to that stage.

In Conclusion

The problem is that a lot of founders feel that investors are old fashioned and stodgy – that they’re trying to clip their wings and drag them down. They feel they are acting as hurdles in their path to success, and this creates friction. The reality is that there is no shortcut to winning – and while hard work is not sufficient to succeed, it is necessary for most of us. Hope and luck are not useful strategies.

This is why investors will not get carried away by your brilliant ideas and rosy projections when you pitch to them. They understand that the key to success is your ability to get your hands dirty on a daily basis, and cope with the endless grind of running a startup.

It’s fine to build castles in the air, but you also need to build foundations under them. While being a tortoise maybe boring and old-fashioned, there’s a good reason why this fable has been taught to many generations!

[This post by Dr. Aniruddha Malpani first appeared on LinkedIn and has been reproduced with permission.]

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