Failing at Explaining Scaling – The Investor Fights Back
Founders are funny people.
The good founder will prepare elaborate excel charts, aggregate research reports and prepare polished decks and executive summaries to show that their venture exists in a niche space with a large target audience and they can become viral to the level of a unicorn. Great!
The better ones will go a step further in preparing diligently for answers that the peskiest of investors that delves deeper than any human has dived before in inferences in the presentation. The founder is prepared for any stress test on the intelligence behind the blueprint of the business. Awesome!
The best ones will conduct research on the investor, understand their investment style, read their blog posts and media mentions. They will answer questions with references from what the investor or a thought leader that that investors admires has said in the past. Superlative! Bravo!
Fortunately, it is my job to get down to the meat of business that looks beyond the song & dance that is well rehearsed and full of anecdotal evidence. I want to understand our fit with the business model and the founder’s fit into our portfolio. However, I have noticed that the founders will dig into their positions when challenged and the discussion about the business disintegrates quickly.
Therefore, when the founders upped their game it is imperative that so should I. Taking inspiration from an Aesop fable that the best way to get the coat off someone’s back is to make them warm.
I serendipitously ask founders to stop in the middle of their well-prepared presentation (which I have studied in advance) and ask them to describe how their company will function when they become viral to the point of bursting at the seams as mentioned in their presentation.
The bewilderment written on the faces of the founder is like that of a deer in the headlights. They scramble their brains to describe what they have not dreamed except as devised by the pulling the little plus sign from one cell on the right hand of the Excel to the left. Finally, in a feeble attempt, they come up with an unprepared rendition of a company that functions in the founder’s head but falls apart to the slightest push of inquisition.
With all their defences exposed, the founders come out in the open and I get the opportunity to see the business plans for what they truly are. Thankfully most of the founders will sigh and open their minds for some real discussion and I get the opportunity to assess the business and the founding team in their natural habitat to make an unbiased decision.