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Tuesday, April 01, 2008

Sage words on not trying to know everything

A friend shared this with me...sage words indeed
I don't know.
Why is it so hard for people (including both entrepreneurs and VCs) to say these three words?This past week I had two distinctly different meetings with entrepreneurs. They both were successful serial entrepreneurs. Both were exceptionally smart. Both had good ideas.The first entrepreneur, however, thought that they were expected to know the answer to every question. There wasn't a question I asked that he didn't have a definitive answer to. He knew what their pricing model would be. He knew why Google would never compete with them. He knew what their consumer churn would be three years out (despite the fact that they hadn't launched yet). Whenever I tried to discuss the different risks in the business, he told me why they didn't exist. The second entrepreneur, had a different approach. He definitively stated answers when he had them, but when he didn't know he said so. When asked about his pricing model, he said "well, we're considering a few different options depending on the outcome of some tests we're running..." When asked about cost of customer acquisition, he said "well we don't know what our numbers will be...but here's our model based on other comparable companies." When asked about risks, he identified several -- and then we discussed how to reduce/eliminate them.I've come to believe that a key investment criteria is founder credibility. And, I think the second entrepreneur was far more credible. No one expects a pre-launch company to have all the answers. (In fact, we get scared if you think you have them). As I've previously discussed, rather than have an entrepreneur sell me on why they are 100% correct, I'd much rather understand how they are attacking the different risks facing the business.And, by the way, the same applies for venture capitalists. I often feel that during company pitches -- and board of directors meetings -- we're expected to have an immediate opinion. Should we double our marketing budget? Should I hire this person? Will this strategy work? While it's OK to offer opinions and thoughts, I think it is also appropriate to acknowledge uncertainty. Why do people feel pressure to have an answer for every answer?I don't know...
written by Josh Kopelman, Managing Director of First Round Capital

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