Monday, September 14, 2009

There Is No Right Answer--And Smart VCs Know It

A hearty congratulations to Rob Hayes and the First Round team, Jeff Clavier, and Mark Goines--three friends, three great investors, who got a great result from their investment in Mint (acquired today by Intuit for $170 million).

Lost in the hoopla around the announcement was this very telling quote from Rob about the Mint team, which I want to highlight:

Hayes said CEO Aaron Patzer spent a year researching the company before approaching investors and thoroughly understood the space. Hayes also liked the fact that Patzer wasn’t afraid to say “I don’t know” when he didn’t have an answer. “He would say, ‘there are five ways that this could play out,’” Hayes said.

I can't emphasize this enough. I often work with inexperienced entrepreneurs who seem to believe that there's a right answer, and that they've figured it all out.

When these entrepreneurs encounter a skeptic, be it a VC or a business partner, their reaction is to dig in their heels and prove that they're right and the skeptic is wrong.

This is a terrible strategy. It's unlikely you'll change their mind, and they'll simply write you off as a rookie. (This is not to say that you don't correct investors when they are clearly wrong; you need to stand up for yourself. But acknowledge that in life, unlike problem sets, the answers are debatable)

The proper reaction is that of Mint CEO Aaron Patzer. When you say, "I don't know" and "Here are a couple of ways this could play out," you're establishing three important things:

1) You are aware of the limitations of your knowledge
2) But because you know your stuff, you have already thought through the possibilities
3) And you are confident enough in your judgment to expose your thinking to the investor

This is the kind of entrepreneur I want to invest in--knowledgeable, thorough, transparent.

2 comments:

Shefaly said...

4. And you have an open mind which means you are as competent to recognise opportunities arising as you are to identify (and deal with) possible threats.

You say "inexperienced entrepreneur". It could be read two ways - someone with limited experience of entrepreneurship, or someone with limited experience per se. In my experience, the former is a bigger problem than the latter because in the latter case at least one will experience and learn in life. The former especially troublesome when it comes coupled with experience in established/ BigCo environment. These folks are not entrepreneurs because of an itch but because they see the enterprise as a big ticket Swan Song. The closed minds one sees in such situations trumps all closed minds (if there were such a race, of course).

Chris said...

Shefaly,

Good point. I'd rather work with an entrepreneur who knows that she doesn't know, than a big-name executive who thinks he does (but doesn't).