Many aspiring entrepreneurs are in love with their business ideas and expect investors to fall in love with their ideas as well. When they receive a “no” from potential investors, they think the investors “just don’t get it.”
What don’t they get? The entrepreneurs think the investors don’t get how great the business idea is.
Unfortunately, most investors will pass on the opportunity to invest in what appears on the surface to be a terrific business idea led by a less-than-stellar team. On the other hand, seasoned investors will often invest in a “fairly good” idea led by a fantastic team.
Why should this be? The reason is that most startup businesses fail regardless of how terrific they seem at first glance. That is where a great team is essential.
A-Team Will Prosper
The A-Team will prosper for two reasons. The first reason is that they’ll see the signs of failure much earlier than the inexperienced team. The second reason is that they’ll pivot the company (perhaps even repositioning it with entirely different products or aiming it for entirely different markets) quickly toward new fertile ground.
B-Team Will Stagnate
Meanwhile, a B-Team is more likely to stay with the original business idea even when all signs indicate that it won’t work.
Is This Fair?
Is it fair to inexperienced teams that investors reject them? Well, it all depends on your perspective. From the perspective of an inexperienced team, it may seem unfair. From the perspective of the investor, it makes sense.
Does this mean you have to succeed before you can succeed? If investors prefer to invest in experienced teams, what do you do if you are either (a) a solo entrepreneur, or (b) a member of a totally inexperienced team?
If you lack experience:
- Team with others who have “been there before.” Perhaps the most difficult thing for a newbie to understand is that you are much better off with 10% of a $100M company than 100% of a $100K company. Just do the math!
- Compete for a spot in an accelerator like TechStars. Competition for entry is fierce, but you will learn a lot and some investors will consider your experience to be as good as having “been there.”
- Bootstrap. Plan to grow slowly with little or no investment money. Learn the tricks of The Lean Startup by Eric Ries, especially the creation of a series of minimally viable products.
- Put your idea on hold and join an experienced team pursuing their dream.
Although I talk about how I am in my fifth startup, “my” first startup wasn’t in any way “mine.” I joined a very experienced entrepreneur, in his venture. I gained relevant experience via association with him and his company.
And, in fact, “my” second startup wasn’t “mine” either. I joined other more experienced serial entrepreneurs as an investor and founding member of the board of directors.
From these two experiences, I gained the stripes (and scars and street cred and . . .) to then start leading teams in new ventures.
Don’t expect investors to write checks for you because you have a great business idea and no experience to demonstrate that you have the ability to make it succeed. There are many ways for you to gain the experience you need to become investor-worthy.
Al Davis is a serial entrepreneur currently in his fifth startup. He is also an angel investor and the author of six books.
Mr. T photo courtesy of Paul Townsend (Creative Commons).