When an entrepreneur presents to an investor, he is trying to convince him that he is a knowledgeable domain expert, who understands the market. He is trying to show off how much he has learned; what his insights are; and what makes him smarter than the other people in the space. While this is important, I’m much more impressed by an entrepreneur who tells me how much he doesn’t know, because I think that’s the mark of a true expert.
The student who has just started learning a subject thinks he has mastered everything. He typically has a lot of arrogance and hubris, and thinks he has all the answers. He starts believing he is smarter than everyone else because he understands the jargon and can speak the lingo.
When they finally find out how divorced they are from reality, it is often too late to undo the damage.
However, this is the time when you’re likely to make the most mistakes because you expect the world to conform to your pre-conceived notions. Most entrepreneurs are immature, and don’t understand the limits of their knowledge. They don’t stress test their assumptions, and are not willing to do a reality check until they run out of cash. This is when they finally wake up and they start reassessing their business models, but when they finally find out how divorced they are from reality, it is often too late to undo the damage.
This is why a smart founder also does a lot of research into all the failed startups in his domain. These can provide invaluable lessons, especially if he takes the time and trouble to connect with the founders of these companies – they can provide extremely useful tips as to what he should not be doing.
It can be hard to track the founders of these failed startups, but I am very impressed by any founder who has taken the time and trouble to do so – this shows he is thorough and thoughtful and is unlikely to make the same mistakes. Incidentally, these failed founders have tons of domain expertise, and clever founders will try to hire them – or recruit them as co-founders.
It is not easy to tell investors – “I don’t know what the answer is”.
A thoughtful expert is one who understands what his areas of ignorance are. He knows as much as everyone else in the field does, which is why his depth of knowledge allows him to understand what the boundaries of our understanding are. He is willing to ask questions which no one else has – and is smart enough to run inexpensive experiments to find the answers.
He is humble, and is willing to acknowledge that there’s tons of stuff he doesn’t understand – and neither does anyone else. Because he is curious, he will be able to figure out the answers to these smart questions. It’s by gaining these insights that he will be able to found a company which can grow and scale up.
It requires a lot of self-confidence to be able to do this. It’s not easy to tell investors – “I don’t know what the answer is” – you need to be authentic and vulnerable, both of which are rare traits, which is why they are valued so highly.
Mature investors are well-informed, and they understand their own limitations. They are much appreciative of a founder who is willing to be frank and forthright, and who has the courage to tell us what he doesn’t know, rather than someone who tries to bluff and pretend that he has all the answers.
Investors have good BS detectors, and are good at separating the wheat from the chaff.
While you may be able to bluff some of the time, you’re not going to be able to fool all the investors all the time, and this will then come back to haunt you. Being upfront and saying, “I don’t know, but I can find out,” or “This is what we need to do in order to answer that question,” signals to the investor that you have integrity, and this is something which funders appreciate and are happy to back.
Dr Aniruddha Malpani is a consultant IVF specialist, who runs one of India’s leading IVF clinics at www.drmalpani.com, along with his wife, Dr Anjali Malpani. They have founded HELP, the Health Education Library for People (www.healthlibrary.com), which is India’s first Patient Education Resource Center. He has authored many books, including: How to Get the Best Medical Care; Successful Medical Practise; Using Information Therapy to Put Patients First; and Patient Safety – Protect yourself from Medical Errors which are available for free at www.thebestmedicalcare.com. His passion is patient empowerment; he believes that using Information Technology to deliver Information Therapy to patients can heal a sick healthcare system. He is also an active angel investor (www.malpaniventures.com).
(It was first published on LinkedIn).
An IVF specialist who believes in Information Therapy. Founder and Director at Malpani Ventures.
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