A question nearly every investor asks that you, the entrepreneur, can almost never answer

February 17, 2013 by Joshua
in Blog, Entrepreneurship, Tips

Investors describe themselves as helping entrepreneurs and often they do, but somehow every entrepreneur I’ve asked about the challenges of working with investors could still tell me stories about how investors made their lives and business difficult.

However much investors want businesses they’ve invested in to grow, their interests never perfectly align with those of management, especially before they invest in the firm in question. I wouldn’t call that difference good or bad. You just have to realize the different interests as inherent to the system. Realizing the difference in interests isn’t personal helps keep things calm.

Investors expect entrepreneurs to handle their interests in stride, but I find they often don’t themselves recognize how their pursuing their interests impedes optimal growth. Of course they have to look after their interests, but they don’t help anyone if they don’t recognize their personal protection may come at the expense of the team’s.

One major question nearly every investor asks in some form or other can’t be answered until after the investment:

Will the market buy the product or service?

The question comes in many forms. Sometimes they ask for evidence of early sales, or they question if early small orders will translate into later big orders. Or they’ll wonder if they’ll cross the chasm.

In most cases, you need investment because you don’t know if customers will buy like management hopes and expects. If management had early orders already or had enough evidence to get a loan, they wouldn’t look for investment.

This necessity doesn’t stop investors from asking management to assuage their concerns over and over, to seek comfort and reassurance on a question that only investing and everyone on the team, including the investors, doing their best, can answer.

Like anyone in sales, and the entrepreneur is trying to sell shares here, customers who can’t decide can take too much attention or concern. You want them to decide one way or the other. You can’t fault them for wanting to protect their money, but you hope they don’t think they’re helping a company that has answered all their other questions to their satisfaction.

Entrepreneurs start their ventures because they believe in the product and latent demand. Investors and entrepreneurs both will help themselves most by understanding the entrepreneur’s enthusiasm is never entirely rationally based and therefore can’t be conveyed.

If you are an investor or entrepreneur, I hope this post helps you see this discrepancy as a fundamental part of the system, not to take it personally, and not to waste time or energy on things you have to move forward with to answer.

This situation occurs most before investment, when potential investors are not yet investors, though they might think they are, and their interests diverge most from management’s.

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