People make tons of assumptions every day, often without even knowing it.
We might get away with it for years too – when behaving in a certain way has always worked for us, we assume it’ll carry on working in all circumstances. But then one day something happens that makes us revisit what we know: A cultural custom that differs from your own frowns upon rushing into business discussions without a polite preamble. A major software revision leaves you clueless.
Big idea bomb
Of course we don’t question every assumption; business requires decisiveness. But when we test our assumptions from time to time, our decisions tend to be more rational. Here are some of the more common mistaken assumptions that have sunk entrepreneurs’ attempts to court investors, no matter how big their ideas.
- Investors and tech entrepreneurs come from hugely different worlds
Many technical people harbour ideas of themselves as ‘super-smart creative doers’ and of investors as ‘exploitative and money-centred’.
There are a number of wrong assumptions here – among others that, because you have complex technical knowledge, you’re the smartest in the room. At the same time, financial people sometimes dismiss tech people as geeks without savvy. Neither of these assumptions are very useful, nor are they generally true.
When starting their engagements, start-ups and VCs should leave these assumptions at the door.
- Once we have the money, everything else is irrelevant
One thing that a first-time (or second- or third-time) entrepreneur always needs help with is business support. Even more than a cash injection, you need:
- Input into strategy, financial controls and business planning
- A support network of peers
- Partners that can help build a successful business.
Without these, the entrepreneur will go from cash-flush to cash-starved in no time.
- Nobody needs to know
Instead of secrecy we need more success stories. People need to be shown that it’s worth taking the risk of investing in a start-up. Every successful entrepreneur builds another round of angel investors.
Along with the successes, we need to share the failures. It’s often been pointed out that Silicon Valley almost expects failures, and people share those failures, so that others may learn. To fail is not a disgrace – it’s a learning experience.
And when we succeed? As South Africans we’re less likely than our American peers to be self-congratulatory. But just as much benefit can come from making a noise, celebrating successes and talking about near-misses.
- Investors are looking for the next Big Idea
It’s very seldom that an entrepreneur pitches such an amazing idea that investors will reach for their chequebooks after seeing a couple of PowerPoint slides. Just as importantly, they’re interested in something real.
Entrepreneurs need to articulate their ideas very clearly and take potential investors on a journey that clearly demonstrates how it can be commercialised – as the bare minimum. Most often, investors will want to see a viable prototype – something that may not be fully developed, but works.
- Great technology will bring great investment
Wrong. A great company will bring great investment. A brilliant developer with great software but no taste for business and finance is best served by joining an open source project and contributing selflessly to something great.
If you’re courting investment, you must show that you can build a business. That means taking the time, trouble and possibly even spending money to get those business skills.
Amazing creativity is in over-supply in South Africa, and we have profoundly impressive technical skills. We also have an active investment community and the business and financial systems to bring them together.
By thinking more and assuming less, we can build the start-up entrepreneurial culture we all know is possible. But then we need to revisit certain of our prize misapprehensions.
Assume too much, lose too much
Right or wrong, assumptions lead to problems. When you base an important business decision on a bad assumption, the consequences can obviously be very serious. But even if it isn’t important, or your assumption turns out to be right, a habit of assuming too much can lead you to repeat your mistakes forever. And you won’t have the tools to correct them.