The Top 10 Lies of Entrepreneurs

Original author: Guy Kawasaki

Translator: Lei Sheng Dayu Dian

Original link: The Top Ten Lies of Entrepreneurs

(My post last week, "The 10 Big Lies of Venture Capitalists," really annoyed the venture capitalists. This week, I might as well play the bad guy all the way and reveal the "Top Ten Lies of Entrepreneurs." The difficulty in writing this piece was narrowing down the entrepreneurs' lies to just ten.)

(Translator's note: Guy Kawasaki is a renowned venture capitalist in the Bay Area. His speeches, reviews, and articles on high-tech entrepreneurship are always filled with passion, wisdom, and humor. His "Top Ten Lies of Venture Capitalists" more accurately describes the top ten excuses VC's give when they refuse to invest. Personally, I believe the value for entrepreneurs in this article lies in not having overly high expectations when talking to VCs. As for this "Top Ten Lies of Entrepreneurs," almost every point feels like it's describing me. These so-called "lies" actually highlight key issues where entrepreneurs haven't thought things through thoroughly enough. If you have convincing answers to each of these questions, then success in entrepreneurship may not be far off. Therefore, I've chosen this piece to share with everyone. A word of caution: Kawasaki's writing style can be quite harsh. Don't take it personally if he hits close to home; it's actually quite amusing.)

Every year, dozens of entrepreneurs come to me seeking investment. Each one uses at least three or four of the following lies. I've listed them out, unsure whether it will make entrepreneurs more honest or inspire them to come up with new lies. Hey, at least new lies would show some creativity.

1. Our projections are conservative estimates. Entrepreneurs' estimates are never conservative. If they were, they'd be $0. I've never seen an entrepreneur reach their "conservative estimate." Usually, entrepreneurs don't even know what their sales will be. So they guess: "If I say too little, investors won't be interested; if I say too much, they'll think I'm crazy." The result? Everyone projects $50 million in sales by year four. So I always add a year to the entrepreneur's timeline and multiply their revenue projection by 0.1.

2. (Some famous market research firm) says our total addressable market will reach $50 billion by 2010. Whether they're developing bar mitzvah planning software or 802.11 chipsets, every entrepreneur's PowerPoint presentation claims their market will hit a billion dollars. Venture capitalists never believe these projections because they've already heard five similar ones that day. Entrepreneurs would do better to remove these projections from their PowerPoint presentations.

3. (A big company) is going to sign a purchase contract with us next week. Entrepreneurs hear somewhere that having existing sales is important, so they fabricate this one. Funny thing is, next week comes and goes, and the contract still hasn't been signed. Then come the excuses: the decision-maker got fired, the CEO was sacked, there was a natural disaster, etc. Investors aren't going to invest based on this lie unless the sale has actually happened.

4. Once we get funding, a heavyweight will join our company. Often, when VCs call this heavyweight VP from Microsoft, Oracle, or Sun Microsystems to confirm, they get the following response: "Who told you that? Yeah, I chatted with him briefly at Churchill Club (a famous non-profit organization related to entrepreneurship). But I absolutely didn't say I'd give up my $250k salary at Adobe to join his company." Heavyweights can join small companies, but please let them personally call the VC to confirm.

5. No one is trying to do what we're doing. This is the most ridiculous lie because the conclusion from this statement is usually one of two things: 1) There's no market, which is why no one else is doing it; 2) You're so out of touch that you can't even use Google to find competitors. Needless to say, neither conclusion helps you secure investment. Typically, if you have a good idea, you'll have five competitors. If you have a great idea, you'll have fifteen.

6. No one can do what we're doing. Blind arrogance, and worse than the previous point. Within 90 days of the first company starting something, 10 others pop up doing the same thing. Before Roger Bannister, no one could run a mile in under four minutes. Within a month of Roger Bannister setting the record, John Landy broke it. The world is vast, and talented people abound. It's self-deception for entrepreneurs to think they can achieve intellectual monopolies. Just like how confident I am about my beloved Macintosh (the author was once a senior executive at Apple and a staunch supporter of its products), I'm sure that when you tell a VC this, they've already heard about another company doing the same thing.

7. Hurry up, other VCs are also interested in us. Good news: Yes, many companies are pursued by multiple VCs simultaneously. Bad news: That company probably isn't you, since you have time to read my blog. Like my mom used to say, "Don't play Russian roulette with an Uzi." (What does Mrs. Kawasaki mean? Don't ask for trouble?) Yes, those truly amazing companies do create competition among investors, and entrepreneurs can use this to pressure VCs into making quick decisions. But for the vast majority of entrepreneurs, you're not a scarce resource, and this tactic doesn't work. Refer back to "The 10 Big Lies of Venture Capitalists" — understand that many times when a VC says they might invest, they actually won't.

8. Oracle is big, dumb, and slow, so it's not a threat. Larry Ellison (CEO of Oracle) has his own private jet, can get San Jose Airport to open at night for his plane, and his yacht is so big it almost can't pass under the Golden Gate Bridge. Meanwhile, our entrepreneurs? They fly the cheapest Southwest Airlines flights out of Oakland Airport and snatch free peanuts whenever possible. There's a reason for the gap between Larry Ellison and entrepreneurs, and it's not because Oracle is big, dumb, and slow. Competing with large companies like Oracle and Microsoft isn't easy. At best, such talk makes entrepreneurs appear naive. Maybe you think you're brave, but to a VC, that's foolishness.

9. Our management team has proven success. Who said you had "proven" success? Was the founder an intern at Morgan Stanley for a summer? Worked at McKinsey for two years? Told John Sculley (former CEO of PepsiCo and Apple, responsible for Apple's product failures and decline) how to turn a Macintosh on and off? In the eyes of a VC, true "proven" success means entrepreneurs who have successfully generated billions in returns for investors. But such entrepreneurs: a) probably don't have to worry about raising funds; b) don't need to claim they have proven experience. (Wayne Gretzky doesn't need to go around telling people he's a great hockey player.) Entrepreneurs should introduce themselves as follows: a) they have relevant industry experience; b) they will do whatever it takes to succeed; c) they will seek out advisors and board members with truly proven success; d) if necessary, they will step aside for someone better. For VCs interested in entrepreneurs, this is good enough.

10. Our product is protected by patents. When presenting your project to a VC, mention patents only once: "We have applied for patents." That's enough. The second time you mention patents, the VC will suspect you're overly reliant on them. The third time, the VC will start thinking you're a fool. Yes, you should apply for patents. But patents are more for making your parents proud. You probably won't have the time or money to sue large companies for infringing on your patents.

11. We only need 1% of the market to succeed. (This one is an extra bonus because my laptop still has battery life.) This is the flip side of "Our total addressable market is $500 billion." This lie has two problems: First, no VC is interested in a company that aims for just 1% market share. We prefer companies facing antitrust lawsuits from the Department of Justice. Second, capturing even 1% of the market isn't easy. Entrepreneurs should have a realistic and accurate understanding of the difficulty in building a successful company.

(yeeyan submitted translation)