I recently heard Dr. Robert Wiltbank from Willamette University use this analogy and loved it so much I had to share it with others. Entrepreneurs are, by nature, very optimistic. It’s one of their core survival skills. But this often makes it hard for them to recognize signals of negative feedback. This applies to things like the success of their product and progress towards the business plan targets. But it also relates it to investor feedback while pursuing fundraising, customer feedback while pursuing a sale or vendor feedback while trying to secure a partnership.
Experienced sales professionals are trained to listen for negative feedback and use various techniques to assess the real viability of the opportunity. But most co-founders aren’t experienced sales professionals and the techniques I’m referring to aren’t easily learned from a blog post or a book. I’ll explain further.
One way for a founder to compensate for their optimistic bias is to consider every response short of a “yes” to be a hard “no”. Here are some examples related to trying to close deals or business partnerships:
- “Maybe” = no
- “Let me bring it up with my boss” = no
- “Not now but perhaps in the near future” = no
- “I love the idea but we’re just slammed right now” = no
- “Let’s have a follow-up meeting to get into more details” = no
You get the idea. How about the same exercise for pitching investors?
- “Let me think about it for a little bit” = no
- “Send me your financial model” = no
- “Send me a copy of your business plan” = no
- “Let me know once you’ve raised $___” = no
- “I’ll talk to my other investment partners” = no
Treating these responses as a “no” doesn’t mean you should completely give up on the opportunity or desired outcome. The point is to realize that you’re not getting a real “yes” and therefore should not assume you have the necessary validation to change your spending patterns, hiring plans or product direction. Instead, continue to work to get a legitimate “yes” and then take any corresponding action that makes sense. Just realize that a single “yes” might only be the first step of a needed multiple of “yes” responses.
Also understand that getting a “yes” from an executive at Google related to a strategic partnership is one thing. But if it’s a “yes” from the first reseller interested in selling your product, you probably want to get the same response from other resellers before concluding that you’ve got a channel-ready product on your hands.
Getting to Yes
If you keep getting new excuses or homework assignments in your pursuit for a real “yes”, you’ll need to try various approaches for determining what the true concern is. My favorite open-ended question in this regard to use with investors is “What would need to see for this to be an exciting investment opportunity?” It’s hard for an investor prospect to wiggle around answering that question. With a little luck, they will be honest with you and you’ll know more specifically what is concerning them or what’s missing.
The same concept should be valid for different settings, but just with a slightly different ending to the question.
A Quick “No” is Often the Second Best Outcome with Investors
Wasting your time with an investor that doesn’t really want to invest but won’t tell you that is a huge distraction. Multiply that by dozens of investors and your fundraising campaign will be in big trouble. Ideally, an uninterested investor will just tell you that so you can cross them off the list and move on. But sometimes you have to help them do that.
Some founders are fortunate enough to have the option to stop fundraising and put their head down to execute until they decide to raise it up again in the future to raise more funding. Such founders might decide to impose a deadline for investor decisions – especially forcing specific feedback from investors that have been dragging out their decision. Send them an email that includes something like this at the end: “This means we are seeking investor commitments by the end of next week to be included in this round and this valuation. If there is anything else you need from us to formalize your commitment, please let us know.”
If the investor is interested and wants to lock in your current valuation, they’ll respond. If they aren’t interested, they’ll respond either with a specific concern, or saying they aren’t interested, or can’t make a decision that quickly, or can’t come up with the needed free cash flow that quickly. Regardless, you have the information you need.