Monday, January 30, 2006

The Top Ten Lies of Entrepreneurs

Ten days ago I blogged about “The Top Ten Lies of Venture Capitalists,” as written by Silicon Valley VC guru Guy Kawasaki. So it seems only fair to direct you to his follow-up piece, “The Top Ten Lies of Entrepreneurs.”

Kawasaki says he gets pitched for funds dozens of times a year – and every pitch contains at least three or four of these lies. In fact, he says the hardest part was narrowing down the list to 10!

Below is my condensed version of his list – or you can read the original here.

1. “Our projections are conservative.” I have never seen an entrepreneur achieve even her most conservative projections. As a rule of thumb, when I see a projection, I add one year to delivery time and multiply by 0.1.

2. “(Big-name research firm) says our market will be $50 billion in 2010.” VCs don't believe these forecasts because it's the fifth one of this magnitude they've heard that day.

3. “(Big-name company) is going to sign our purchase order next week.” The funny thing is that next week the purchase order still isn't signed. Nor the week after. The decision maker gets laid off, the CEO gets fired, there's a natural disaster, whatever. No investor whose money you'd want will fall for this one.

4. “Key employees are set to join us as soon as we get funded." If it's true that key employees are ready to rock, have them call the VC after the meeting and testify to this effect.

5. “No one is doing what we're doing.” As a rule of thumb, if you have a good idea, five companies are going the same thing. If you have a great idea, 15 companies are doing it.

6. “No one can do what we're doing.” Entrepreneurs are kidding themselves if they think they have any monopoly on knowledge.

7. “Hurry, because several other venture capital firms are interested.” There are maybe 100 entrepreneurs in the world who can make this claim. The bad news: The fact that you are reading this blog means you're not one of them. Re-read the previous blog about the lies of VCs to learn how entrepreneurs hear “maybe” when VCs are saying “no.”

8. “Oracle/Microsoft/etc. is too big/dumb/slow to be a threat.” You think it's bravado, but VCs think it's stupidity.

9. “We have a proven management team.” If the entrepreneur were that proven, then he (a) probably wouldn't have to ask for money; (b) wouldn't be claiming that he's proven. A better strategy is to state that (a) you have relevant industry experience; (b) you are going to do whatever it takes to succeed; (c) you are going to surround yourself with directors and advisors who are proven; and (d) you'll step aside whenever it becomes necessary.

10. “Patents make our product defensible.” Patents are for impressing your parents. You won't have the time or money to sue anyone with a pocket deep enough to be worth suing.

Rick again: Of course, not all of these are lies. They are the optimism and enthusiasm that entrepreneurs need in order to get up every morning and run full-speed into the wall of indifference - again and again.
And thank goodness they do.

1 comment:

Anonymous said...

I particularly like post number 5. I can't count how many aspiring entrepreneurs I know (including myself!) who have been caught by this one.

The best part though, is that stage of denial when 8 months later, they finally spot those competitors, then try to rationalize them away.