Why those who manage to convince you of the greatness of their business, might not be the best to run it to success
I alternate my blogs on different topics, sometimes focusing on leadership and good company management, sometimes on the world of start-ups and investing, the common element and leitmotif being mostly psychology and behavioural analysis.
Today I will focus on the psychology of investing in startups founded and run by "good-sellers", on its consequences, and on what to change in investors behaviours and assumptions in order to improve the outcome.
If you are a start-up investor, especially if a private business angel but in some cases also VC fund, much likely you want to be convinced by the founders of the greatness of their business, under the motto "if you do not believe in it, why should I". This approach might sound a very intuitive one, and hard to disagree with. Per definition, the founders and financing-seekers in a startup are supposed to be the ones that understand better about their business, and if they are truly enthusiastic about it and are able to communicate the message, if they can sell you their belief in a compelling way, it means they know how to bring their business forward and are convinced of its potential, and so should you...really?
Well, you might want to think again, since those two skills, the good selling, and the good understanding of the business and of how to lead it to success, might not be easy to be found together.
Who doesn't like extroverted, self confident, convincing sellers of their own idea and product? We are all biased in favour of "optimists", let's call them like that. We like what shines.
And here comes the, in many cases lethal, pitfall.
The problem lies in the fact that most "good selling founders" actually lack the capacity to see things from a different angle, to consider that a different perspective might actually be possible, that their so convincing "success story" might need a deeper analysis to be able to take the necessary actions that leads it to real success.
They lack critical thinking.
But the truth is, if you are unable to see and correctly assess your own flaws, and to admit them, you will also be unable to address the upcoming issues and, above all, to solve them.
But how do we recognize "competent" people, and what does "competent" exactely mean?
We always tend to get the conviction that those who show energy, drive, capability to convince, positivity, are the people who can do the job, the competent ones.
On the other side, the opposite bias is the one seeing "objective and maybe a bit too cautious" founders and leaders as self-doubting, non convincing, and therefore suspicious, not only because we think that they are "per se" unfit to run a company and be financed, but also because a too objective and careful approach might be "contagious": it shadows the image of Success, and the next investor might also get infected by the doubt, and actually think it is better to stay a bit distant from the business...and you know, no investors, no business...no success.
But have you heard of the "Dunning-Kruger Effect"?: people with low competence and capacities are more confident in their knowledge and skills than people with high competence and capacities. Because they do not see the problem. Because they lack critical thinking.
And exactely here is their Strenght: since they cannot see and analyze the eventual drawbacks, not only they do not doubt of themselves and of their business idea, but also they appear extremely convincing because there are no "shadows" in their selling.
What we fail to see is that in fact, if real "critical thinking" founders would manage to get financed more, overcoming the bias of "uncoolness", if more critical thinking leaders would be chosen, the rate of success of start-up companies, run by them, would be much higher.
Because they can see the problems, anticipate them, and solve them before they happen.
So, those who actually understand better the business, its strenghts as well as its weaknesses, and have the higher chance therefore to make it succeed by anticipating all the problems, obvious and non-obvious ones, are those who most unlikely get financed.
And here is why we should dig further into behavioral science, psychology and anthropology.
The good news is, we shall not have to chose "either-or", just be a bit more attentive on the people and skills you really need: not only good sellers, make sure there is some "contrarian" voice in the team, someone who sees the flaws and, above all, is not afraid to state them clearly. Do not run away from people communicating possible problems: only by acknowledging and understanding problems clearly, you can solve them, after they happen, but even better before...
Yes, we need outgoing community builders, shiny "frontmen", succesful sellers, but this is not all, we also need critical thinking, humble and sharp analysts, critical (self-critical) thinkers...
I can't avoid referring to the Theranos case and to Elisabeth Holmes, as I started to discuss about in one of my last posts https://www.smartdrug.ch/post/what-can-we-learn-from-the-theranos-case-cosa-possiamo-imparare-dal-caso-theranos-part-1, and to what people were telling of her: "she was just an incredible seller...". Yes, indeed, she was.
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