It’s important for both sides to retain perspective in a tug of war of interests. Continue reading for five tips on how to be a better entrepreneur.
When an entrepreneur and an investor first collaborate, it’s almost like falling in love for the first time. Nothing may stand in the way of the relationship but failure, when each side sees mutual goals and a vision of success. Unfortunately, just as true love is an illusion, finding the perfect partner is difficult. Many observers are unaware that, depending on the stakes, this relationship dynamic can make or break an organization. Power, wealth, and popularity combine to create an intoxicant that brings people together while also driving them apart. The views of both parties shift as a startup’s life cycle progresses.
Surprisingly, it is “unmet needs” that motivate an entrepreneur to embark on a new adventure, fuelled by hunger, vision, and passion. You want to sprint and fly, but you’re running out of gas. So begins the saga of wooing investors. With trepidation, a founder meets an investor. You want the money to help your business expand, but you don’t want to give up your equity or ownership rights. Investors invest in a startup in order to increase their return on investment (ROI). However, they are concerned about the dilution of their equity, which has an effect on their ROI. A typical technology startup will go through multiple rounds of funding. The longer your deadlines are, the less patient your investors will be. Furthermore, several rounds of funding often result in conflicting board interests. The competence with which an entrepreneur navigates the political environment is just as important to a startup’s success as its actual financial results.
“You are no longer employed!” These are the last words you want to hear in your own company as a member. This is, however, a real scenario that often occurs in start-ups. As the flaws mount, the enchantment between the founder and the investors begins to disappear. The situation is then seen through the eyes of each side. This suggestion of a leadership shift pierces you to the heart as a founder who founded the company. I didn’t get a look into the mind of 30-year-old Steve Jobs when he was fired from Apple, but I’m sure he’d agree that this hurts. With the romantic veil raised, you, like Hamlet, are faced with a difficult decision: “Should I be or should I not be?” As a former entrepreneur and current angel investor, I understand all perspectives. Founders must understand that when investors pursue a change in management or leadership, they are looking for the best way to recoup their investment, preferably in multiples. It’s not personal in most cases; it’s all business as usual.
Let’s take a look at certain strategies for surviving and overcoming such a difficult situation.
Anticipation as a Skill
The wise person foresees and anticipates future events, while the fool responds to events as they occur. Founders should be aware that if they bring in outside resources, they lose complete control over strategic decisions. Take care of the strings you do have to stop being driftwood when the winds pick up. Are you a trailblazer? Then, invest in your field knowledge so that you are seen as a repository of elite knowledge. In your sector, are you a strategic genius? Then devise a strategy for staying ahead of the business competition and managing deadlines. Keep in mind the importance of allies. It is insufficient for you to evolve with the company’s life stage while your colleagues lag behind. Your first workers are almost certainly your closest allies; after all, you chose them for a reason, right? Protect, train, and prepare your early workers so that they can develop with the business and be promoted to positions of influence. Employ seasoned business veterans to lend you their expertise if your budget allows. In the event of a power struggle with your investors down the road, you’ll need top executives on your side.
The Enchantment of Managing
Have you ever admired a juggler’s dexterity as he tosses several objects in the air while executing the action in perfect harmony? As an entrepreneur, however, you must master the art of balancing. You must control several powers while ensuring that they are in sync. To begin, the product or service must adapt to evolving market forces in order to remain ahead of the competition. Imbibe the art of pivoting because the concept you began with can no longer be valid. Then you’ll have to deal with a growing squad, so keep an eye out for impending systemic changes. Finally, building on your people skills will help you remain on top of board politics. When there is only one source of money, there is a power imbalance. The majority of the time, using a variety of funding sources works in your favor. Even so, by the time you have to juggle the various investor classes, I hope you will have mastered the art of juggling and amassed some board allies. Whenever you find yourself in a tough investor situation, note that they are here because you asked them to help you in your time of need. This acknowledgment will lead to a more in-depth examination of the situation at hand.
The Benefits of Vigilance
Seeking and obtaining investors without conducting rigorous due diligence is doomed to result in a potential partnership that is unstable. Your early investor team is just as important to your organization’s strategic path forward as your early team picks are to your start-success. up’s Make sure you’re targeting experienced and reputable investment outlets; this is critical if you plan to bring in larger funding sources down the line, such as venture capital and private equity. Rushing into negotiations with random buyers early on locks you into no-out-of-pocket deals and reduces your negotiating power later. Be mindful of group dynamics as you begin to develop your investor Rolodex. Not all investors have the same views or beliefs. An unresolved rivalry between two warring groups of investors may often be what it takes to bring a startup down.
Honesty’s Influence
The virtue of integrity has no greater influence on this planet. Deception will get you a long way, but a shaky base can never help a tall building. When you’re signing a contract with your investors, be honest. You’ve always heard the phrase “promise less, offer more.” Inform them of the uncertainties associated with your company’s timetable, as well as the start-non-negotiable up’s issues and principles. When you refuse to compromise the facts, honest entrepreneurs know that business isn’t always free. Things start to go wrong, tolerance wears thin, and pressure to achieve results mounts. Investors, on the other hand, admire entrepreneurs who keep their promise, so use reality and evidence as your power tools to manage perceptions and confrontations.
The benefit of walking away
Letting go of your love is one of the most difficult things you will do in life. To a creator, a start-up is a seed that was planted and nurtured as it grew into a plant. You’ve done such a good job so far that it may come as a surprise that you’ll need to enlist the aid of higher forces to ensure your beloved tree thrives and bears fruit. And that could mean entrusting the job to someone else who is better at it than you are. Rather than behaving like a kid who has had his or her favorite toy taken away, founders should see the big picture. Walking away gracefully is sometimes the best thing you can do to ensure that your startup thrives while maintaining your dignity and relationships. Keep in mind that the success of the start-up is your win.
To make a start-up effective, several important factors must come together, one of which is the founder-investor relationship. It always begins on a high note before becoming more difficult as time goes on. To level the playing field, entrepreneurs should understand how to design and organize the power game. The above advice and observations should provide you with a fighting chance against mounting investor pressures.
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