What do founders say to impress us?
That’s easy. The truth.
In a presidential debate, that’s too much to ask.
But when we talk with a founder for the first time, we want to know everything about the company.
Not just the good, but also the bad and the ugly.
It’s a tough balancing act for founders. Most only want to talk about their startups’ strengths and accomplishments. Perfectly understandable.
That may work when they talk to journalists.
But having looked at thousands of startups and talked to hundreds of founders, my business partner Adam and I know that startups don’t have everything figured out in their early stages.
And part of our evaluation is to hear what the problems are and how these founders plan to solve them.
If founders don’t let us know that they understand they’re at the beginning of a long and arduous road and that they don’t have all the answers…?
It’s a red flag.
How does a founder impress us? Here are some specific examples from notes I dug up on recent conversations Adam and I have had with founders.
1. “Half the capital invested in the company comes from the founding team.” It’s one thing to bootstrap. But when a startup’s founding team puts in hundreds of thousands of dollars into their own company, it almost always indicates a high level of commitment, determination and resiliency.
2. “Our competitor has great partnerships that we haven’t yet developed.” Dissing the competition is easy (and common) for founders. But admitting that other companies do some things better is much harder and something we appreciate.
3. “We will only be as good as our employees.” It sounds highfalutin and corny, but it’s absolutely true. It’s up to the investor to decide if the founder really means it.
4. “Our idea made sense to us, so we surveyed 500 people. They were our potential customers. The response was overwhelmingly positive. So we then surveyed 100 companies. We found that most were interested in partnering with us.” It’s amazing how many founders skip this step. It’s the first piece of non-anecdotal evidence that a real need is being addressed. And it portrays a leadership team that is methodical and thoughtful in its approach to product development.
5. “We have a nice pipeline of orders but are weighing several approaches to sales, including licensing, SEM, third-party and content marketing.” This tells us they’re open to seeing what works and that they realize they haven’t figured everything out yet.
6. “My co-founder and I were high school buddies. I cover marketing. He’s in charge of ops and makes everything work.” I need to be sure founders can work together and have an appreciation of what the other brings to the table. All the better if they have a personal or professional history together.
7. “From Q2 to Q4, we doubled our revenue. But we understand this is not at scale. After our first two years, we expect an entirely different set of growth challenges.” Early growth is nice but can also give leadership a false sense of confidence. This founder seems to understand what lies ahead.
8. “We’re in an incredibly competitive sector. So let me tell you how we’ve separated ourselves from everybody else.” This hits directly on several key issues, including building a competitive edge, erecting a defensibility barrier and meeting a need.
9. “I’m nervous about getting backlog shipped from China. Once we do that, magic can happen.” Shipment delays erode both customer enthusiasm and investor confidence – a killer of a double whammy. Hundreds of startups are manufacturing their products in China, where issues of supply chain and quality control are complex and stubborn. This founder seems to know this.
10. “We’re seeing a nice flow of companies signing on to our network. Our biggest challenge remains the big companies. They’re interested but we still need to figure out how best to capture them.” Initial customer acquisition can be misleading. Are the customers your friends and colleagues? The low-hanging fruit? At what price? This founder acknowledges he’s still got work to do.
11. “Our next two hires are lined up. The first is a product engineer to help our CTO. Our second is customer support for when our certification comes through.” The founding team is thinking ahead and has identified weaknesses that have to be addressed.
12. “We need more sellers and better sellers.” More sellers is a common desire. A search for “better” sellers indicates the founder is looking for greater sales efficiency. We like that.
13. “We’ve made the install process as simple as possible.” This should be objective No. 1, 2 and 3 for all startups. The customer experience is paramount.
14. “We closely follow the data that tracks our customers’ buying patterns.” This is a key tool for e-commerce companies to compete against their larger and deeper-pocketed competitors.
15. “We’ve had trouble raising money from VCs, but it doesn’t bother us. We think our customers and investors from the crowd better understand us and can better support us more so than having a VC investor sit on our board would.” Why is a company crowdfunding? This founder believed it was an intriguing option with some positives. We appreciate honest answers. This one rang true to us.
Bottom line: We like it when founders are open and honest. When they admit there are challenges ahead.
When you ask them, “What keeps you up at night?” they should have a good answer.
What are your pet peeves or favorite phrases when talking to founders (or reading things they’ve said)? Let me know in the comments section!
Invest early and well,
Founder, Early Investing