Monday, November 26, 2007

Determined or deluded? Either way, you lose!

Baci, Looking Very Determined

Just been reading yet another article on how someone, somewhere, was absolutely convinced that their business idea would work out, and so after sinking their life savings into it/mortgaging the house/borrowing to the max from friends-and-family (plus slogging away for 5 years, 18 hours a day for precious little money) it all comes good. Heart warming stuff, and I wish them every success. But for each stirring tale of overcoming seemingly unbeatable odds, how many stories are there, that never get told, where people lose their shirts/home/self-respect because it doesn't pan out? 10:1? 100:1?

As an aside, if you have ever watched Gordon Ramsey striving to get failing restaurant businesses back on course then you'd probably conclude it's more like 1,000:1 against in the catering trade. Never have I seen such a collection of businesses where the owners have so little idea about how to fix what's so obviously broken (or so many chefs who have an unrealistically high opinion of their own abilities without any justification whatsoever). Somehow, they seem to combine determination with delusion, a recipe for financial disaster if ever there was one.

In the VC business, great store is placed on entrepreneurs who have that "do or die" attitude, and rightly so. After all, if the founder doesn't believe in their business, who else will? But it's worth remembering that VCs get to make the call on where the dividing line sits between a determined founder who will get there in the end and one who they feel has become deluded about either their own strengths or weaknesses or the viability of their original vision. Either way, the VCs come out ahead. If the business succeeds, everyone wins; if they have to replace the founder, recap and bring in new management, they now have a much larger share of something that's (theoretically) had new life breathed into it.

All this really does is to reinforce the notion that it's better to be managing the money than it is to be running the business, founder or not. It's not very fair, perhaps, but it is how the game is played. Somehow though, this is never made clear at the beginning of the courtship process when an entrepreneur is looking for funds ..... wonder why?

If you think the 100:1 odds look bad, try also factoring in there the following: for those entrepreneurs who do succeed, if they took VC money along the way then many of those rewards will, in fact, pass them straight by. And if you think otherwise then you may have already stepped over that line into the delusional camp!

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