We had our annual Limited Partner meeting last week (Limited Partners, or LPs, is the legal name for investors in venture capital funds). It was a terrific meeting. We had a bunch of exciting new news to talk about – 2012 has been pretty good to us. And as always, we spent a good deal of time talking about our challenges and failures.
As I reflect now on the feedback we got after the meeting, the theme I am most proud of is exemplified by this comment from an LP, “You guys are always straight with us. There’s always some bad news, and you don’t try to bury it. Instead, you talk about what you’ve learned from it.”
Indeed, in the venture industry, where we build portfolios of very risky bets, there is always bad news. As I structured the story for our meeting last week, I made sure we were (a) direct and honest about that news and (b) put it up front (I’ve always been a “gimme the bad news first” kind of guy).
This is, unfortunately, a very different approach than what I see from most entrepreneurs. In the hyper-competitive, high flying environment that has characterized the past couple years in StartupLand, it seems like everyone feels compelled to tell a story about their uninterrupted run of dramatic success. Entrepreneurs bend over backwards to tell revisionist tales of their history, burying the challenges and dead end strategies burn time and resources in nearly every startup.
I’m here to tell you that if you come to me spinning a tale of uninterrupted progress and positive developments, then I can be certain that you are doing one of two equally unappealing things:
- You’re in denial about your own reality, and aren’t focused as a CEO on understanding your failings and learning from them, or
- You know where you’ve made missteps, but you’re not the sort of person who believes that the best course in such conversations is to be direct and authentic in what you represent to potential partners.
The former is certainly a killer. If you are that blind to reality, you’ll never raise a dime from me, no matter how strong your successes have been. But the latter is equally bad – I just won’t enter relationships with people I can’t be open and honest with.
When VCs invest in startups, we are investing in the formation of a partnership between entrepreneur and investor. When from the get-go that partnership is characterized by the entrepreneur putting the best possible spin on every situation, things are doomed to get irretrievably challenged when times get tough.
What too many entrepreneurs fail to see is what a positive thing authenticity can be. Hiding these lessons learned (or worse, not reflecting on your failings enough to even see the lessons!) denies you the opportunity to trumpet something almost all investors appreciate – your lessons learned from hard knocks taken. The startup ecosystem is built on an understanding and even celebration of failure. So please, let us hear it.
When pitching your business, you can trust that I will listen to you the way my LPs listened to me. We both know that you’ve done a bunch of things wrong along the way. So let’s be honest about that and focus on what you’ve learned and how that is shaping your strategy moving ahead. Think of the difference in customer response between Steve Jobs’ handling of ‘Antennagate’ and Jawbone CEO Hosain Rahman’s handling of the failure of his UP product. How would you rather be perceived?
All the best CEOs I’ve worked with manage to delicately balance two seemingly conflicting things – an overwhelming confidence that often borders on arrogance, and a willingness to acknowledge mistakes, reflect on them, and move on having learned. Most of the bad ones have the former in spades. It’s how the latter gets carefully integrated into that confidence that becomes a real differentiator.
I try to embody that reflectiveness in how we manage our firm and our funds. I think it works, I think people respect us for it, and I think it gets people disproportionately on our side. And that’s a good thing, for we need all the help we can get.
As an entrepreneur, if you stick your neck out too far and cross the line into excessive confidence, rather than winning fans and creating empathy, you end up with a target on your neck. Then, when times get tough, people will take the first chance they get to swing an axe at you.
Unfortunately, Steve Jobs provides an example that seems to empower entrepreneurial arrogance. But there really, truly was only one Jobs. Do we need any more counter examples than Zuckerberg, Mason, and Pincus have provided us in the past year? Yes, they’ve built big businesses. But they’ve done so with a stubborn arrogance and failure to acknowledge failings that has made haters out of legions of otherwise satisfied customers. Their stock performances now reflect the reality of those armies of eager axe-swingers.
So as 2012 draws towards a close, with the financing environment’s chilling paralleling the seasonal turn here in the northeast, I’ll make a plea for humility and authenticity. We’re going to need it, as public and press sentiment starts to turn strongly against startup arrogance (see this powerful, but I think largely appropriate post from Dan Lyons this week).
When thinking about how you carry yourself as an entrepreneur, try taking a page out of Buddy Media CEO Mike Lazerow’s book. Mike carried himself thoughtfully and authentically through every phase of building his company. He earned the respect and admiration of nearly everyone he came in contact with (present company wholeheartedly included, through our work together as investors in Savored), and when he sold Buddy spectacularly this year to Salesforce.com, he was unanimously applauded. And to top it all off, at the peak of his success and influence, he took the opportunity to share this with the world.
That’s the kind of guys we aspire to be, and the sort of entrepreneur we hope to back. Here’s hoping a slightly chillier environment on 2013 inspires a bit of a return to humility.