We routinely under-estimate the courage of an entrepreneur’s conviction and over-estimate the courage of a large corporate manager’s conviction.
Courage is the impact and rational ability to deal with the consequences both positive and negative of the problems that need solving, the decisions that need taking, the plans that need creating and the innovation that needs pursuing in an organisation.
It is not be conflated with the size and access to the “means” and resources at their disposal. The personal “hit” for Martin Sullivan (AIG), Bob Nardelli (Home Depot) or Dick Fuld (Lehman) is not in the same league as a $700,000 potential “hit” to the personal savings of a middle-income fortysomething ex partner, who is now a failed entrepreneur with a fintech startup on life support while funding his kids education and the mortgage.
The former elicits a brief media explosion, the inconvenience of stepping away in Fuld’s case briefly from the gilded squash and golf clubs, and the pivot to managing friends and the family’s wealth. The latter, a highly probable demand from the spouse to “get a job” fast, and quizzical looks nightly across the dinner table, as the family’s downward social mobility becomes a stark reality (private school, holidays, nights out).
I hear a number of clients talking about the twists and turns of forming collaborations with large financial institutions and insurance companies. How they entered via a warm referral from a trading partner to an upper- middle level manager. How they “loved” their product or service. How they spent months going through the organisation’s assessment and development process, responding to the manager’s need to being seen to have run a robust due diligence process. How they received neither a definitive “yes” or “no” but further offers to join a pilot or “innovation sprint”, which really was an exercise for the manager to impress his or her direct reports.
All along they have yet to, or have fleetingly met their “economic partner”, the individual(s) inside the larger organisation, who control the P&L, can approve the alliance without anyone else’s authority and will claim credit for the success. They have yet to have a “value-orientated conversation” with them (personal and business objectives, agreed metrics, impact on the business). Rather they insist on preparing a pitch document, sending detailed explanations of costs and fighting every objection thrown at them.
Here is the fast-track: don’t engage with non-economic partners other than with the express intention to be introduced and meet your economic partner(s).
Don’t be surprised that those with the subsidiary CEO or MD title and in the midst of restructurings, reveal themselves NOT to be your economic partner alone, and/or there are other economic partners to meet.
They have policies, and so should you.
If you are delegated for due diligence purposes to subordinates, NEVER lose control or contact with your economic partner. Point out ahead of time that they will very often receive feedback (perceived, actual and catastrophic risks), which will be presented to protect the self-interests of those undertaking the due diligence work , not the economic partner. Why? The rewards and recognition system is formulated to produce that behaviour. Agree a time to triage those issues, into a common sense, and easy to manage evaluation.
Collaboration discussions are fundamentally about the economic partner(s) seeing it is obviously in his or her self-interest to work with you now. Nothing more.
To get there requires maintaining careful and prudent control of the conversation. Not fearing offending subordinates, not wasting time, and not being too flexible. For even highly experienced former executives or advisory board members brought in to lend credibility and coach enthusiastic entrepreneurs, to use their contacts and to work their magic, routinely veer off course. Their attitude and behaviour shaped by their past beliefs, and often an amiable disposition seeking to avoid confrontation with former colleagues and to be admired.
There are times when an investor has made a reasoned bet on an entrepreneur and their business but their confidence level is now at a point that they’ve concluded an investment of £X,XXX,XXX will not in all likelihood return £Y,YYY,YYY, in their desired timeframe. This is a rational determination but you, as the entrepreneur are now dealing with the emotional and psychological issues of the person managing his or her portfolio of investments.
They have private and maybe institutional investors, partners in a fund, employees, spouses, children’s school fees, private bankers and mortgage companies, philanthropic foundations and the gardener’s welfare, who depend on their judgement. The richer the investor is, the more they are a prisoner of their own wealth, and the “welfare system” that rides on their success. Downward social mobility, or the whiff of it, has a chilling impact on investor sentiment in times like these.
There are both “internal factors” (within the entrepreneur’s control and influence e.g. distribution, marketing, production) and “external factors” (outside the entrepreneur’s control and influence e.g. competition, interest rates, inflation etc.), at play.
Right now, EVERY entrepreneur in a growth business dependent on growth capital, needs Investor Plans A, B and C (investor names, structures, combinations of cash, debt and equity, and compelling propositions). What are yours? Don’t have them, you are living on very thin ice. Why take the risk?
At what point, do we shelter children from playing sports in the rain, heading off on mountain adventure trips or facing the rigour of examinations? We all unconditionally love them but in a competitive world they will only develop and grow by learning to thrive in adversity.
I am approached by probably 4 first-time fund managers a quarter seeking help attracting limited partners, often wealthy individuals or family offices. They are characterised by a hard-wired belief that their past success and distinct investment thesis will generate superior returns and impact for their investors. Yet in 95% of occasions, they don’t act like a success when asking for help. “I’ll pay you when I have the capital or we are a larger fund”.
What they really mean is they want you to bankroll their fund with your time, money and energy. Yet they’d not invest in a business or investment where the sponsors didn’t commit a substantial share of their wealth upfront. Run!
A conversation with an experienced CEO negotiating with a large corporate investor reminded me recently that we far too easily cede control over internal matters (pricing, terms and conditions), and waste endless energy over external matters not under our control (world events, inflationary economy, cost of living squeeze). Where do you sit on that spectrum and how do you plan to behave differently tomorrow and the day after?
