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The Dance of Expectations: Understanding Founder Pressures in VC
Many moons ago, I penned a post that garnered great interest: "Communicating with Founders is like Handling Cats.” It drew a comparison between working with founders to handling cats—granting them freedom to explore, ensuring their comfort, yet preventing them from leaping out of reach.
Consider this a sequel, exploring the fine art of discerning when to push and when to ease the pressure.
It goes without saying that the role of a founder is exceptionally challenging. They face demanding customers who seek more for less, employees desiring higher wages for lesser effort, customers wanting everything and pay for nothing, and investors clamoring for accelerated and lucrative growth. Undoubtedly, it's a thankless job that attracts the most masochistic of personalities.
When things deviate from the plan—assuming there was a meticulously crafted plan or budget approved by investors—founders become painfully aware. Failing to meet projected figures becomes their worst nightmare. They scramble to furnish reasons, seeking solace by reconciling their team's performance with the initial model they devised pre-funding.
Investors become exasperated by companies falling short of their targets, as the agreed-upon valuation relies heavily on achieving those numbers. They are then compelled to report back to their own investor base on the performance of their portfolio companies.
Promptly recognizing that a company will fail to meet its budget becomes imperative in order to proceed to productive discussions regarding the state of the business. Investors bear the responsibility of determining which issues warrant close scrutiny and what changes they are prepared to embrace in the coming quarters. It's safe to say, venturing into the world of venture capital is no easy feat.
As an investor that used to bang the board room table and shame founders for not hitting numbers I have learned that it is not a great way to maintain trust. I want to know what is happening when things are really off the rails and if I’ve got founders afraid to give me information then by the time I hear about something it will likely be too late.You also do not want to be a wallflower or an enabler of bad behavior because that may even be a worse look. It is a balance.
I believe the most effective investors are those who engage in open and honest discussions with founders, and then make informed decisions on the best way to proceed. This requires delving into the details, comprehending the intricacies of each situation, and taking decisive action. It is the reason why certain venture capitalists achieve long-term success while others may seem to rely solely on luck.
One communication strategy that has greatly resonated with me is outlined in Kim Scott's book "Radical Candor," which emphasizes the importance of caring personally while being direct and honest. It is an excellent resource for anyone seeking to achieve a harmonious balance in their communication approach.