How to avoid lying as an Entrepreneur
Originally published: 13/02/2020 13:11
Last version published: 13/02/2020 14:33
Publication number: ELQ-55803-2
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How to avoid lying as an Entrepreneur

Discover the Top Ten Lies told by entrepreneurs and how to avoid them.

Introduction

One of the most essential and endearing characteristics of entrepreneurs is their unquenchable optimism. This is the foundation for the rabid enthusiasm that enables entrepreneurs to believe, in the face of all odds, that they can change the world. This is a critical asset for entrepreneurs, but it is also a potentially fatal flaw.

One of the drawbacks of unrestrained enthusiasm is a tendency to overestimate the likelihood of success, and underestimate the likelihood of setbacks, in each of the many dimensions of execution required to build a successful company – delivering product on-time and on-budget, getting customers to buy that product, and generating a profit, for example.

Investors have seen this all too many times. So, when an entrepreneur stands before them pitching his or her vision and telling them that this new company will change the world and be bigger than Facebook, with only $2.5 million of funding, you can understand why some investors might be skeptical. What the entrepreneur might characterize as bold optimism, investors might consider naivete. Or worse, having heard the same old exaggerations so many times before, some investors might just decide the entrepreneur is lying.

This is a list of the most common, seemingly harmless “lies” that may wind up in your pitch, limiting your career options if they destroy your credibility with investors.

The origin of this list dates back to a conference we attended many years ago. While standing with some veteran VCs at the back of the room listening to an entrepreneur pitch onstage, one VC was overheard asking another VC,

“How can you tell when an entrepreneur is lying?”

The other VC shrugged.

“His lips are moving.”

There is a fine line between passionate enthusiasm and fraudulent misrepresentation. Investors love enthusiastic entrepreneurs, but they are tired of hearing the same old reality distortions that often wind up in pitches.

And so, in the spirit of wanting to be helpful to entrepreneurs and to those who coach them, as well as to those who listen to them, we have compiled a list of the Top Ten Lies told by Entrepreneurs.

  • Step n°1 |

    “Our projections are conservative.”

    Of course they aren’t. Most entrepreneurs project that their company will be more successful than the most successful companies in history. Find some comparable successful companies to model yourselves after. We don’t expect you to be conservative, but investors don’t like entrepreneurs to be delusional either. We do expect that you have a reasonable understanding of the realities of business and the economics of growing a company.

    How to avoid lying as an Entrepreneur image
  • Step n°2 |

    “Our target market is $56 billion.”

    You haven’t done your homework. You need to segment your market opportunity more carefully. Most startups are, in reality, targeting $0 billion markets – markets that are just emerging, or niches within markets that are not well addressed. If a big market research firm has done a detailed study of your target market, you are probably too late. Don’t talk about how big your TAM is; talk about who your target customers are, how many there are, and how you are going to get them.

    How to avoid lying as an Entrepreneur image
  • Step n°3 |

    “We have a world-class team.”

    We appreciate your enthusiasm for and loyalty to your founding partners – your university mate and his cousin – but if they are merely extremely talented and capable, that’s okay. Virtually every great team needs to be built over time, and yours will be no different. What is much more important than the global ranking of your founding team is your ability to do well what you have to do today and your ability to attract world-class talent over time. If it happens that you don’t have the best VP of Engineering for your future business, how are you going to attract that person? That’s what investors are more concerned about.

    How to avoid lying as an Entrepreneur image
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