Guy Kawasaki’s Top Ten Lies of Entrepreneurs isn’t just a blog post, it’s part of the curriculum he uses when teaching and training wannabe entrepreneurs. Several years ago I had the chance to attend an entrepreneur boot camp put on by Garage Technology Ventures, the venture capital firm of which Guy is the managing director. Garage also happens to be one of MWI‘s clients.
Just because we designed the Garage website doesn’t mean I’m chummy with Guy or anything. I’ve only met him once, and that was before he became a client. But the one time I heard him speak I enjoyed his frankness and the content he delivered. What he says is not only entertaining but it makes sense, at least to me based on my own experiences. Here are Guy’s top ten lies of entrepreneurs with my own commentary.
1. “Our projections are conservative.” – I can’t believe I’ve actually said this to people, but I have. VC’s already know you’re pulling the numbers out of nowhere. This is a classic “Don’t tell us, show us” moment that most entrepreneurs fail at because they can’t really show that the numbers make any sort of sense.
2. “(Big name research firm) says our market will be $50 billion in 2010.” – Back when I was in college starting my business and writing business plans for a business model that would never attract VC money I used to tell investors that our market was worth $500M in Utah alone. After seven years in business I’ve succeeded in capturing 0.1 percent of that market. Yee ha.
3. “(Big name company) is going to sign our purchase order next week.” – We actually have had big name clients, but they’ve never turned out to pay as big as one might think. Still, it’s better to have the client already paying you than to have them saying they’re interested in looking at you. Who cares? If they’re going to sign next week then get the deal signed and then go talk to the VC and get a better valuation.
4. “Key employees are set to join us as soon as we get funded.” – And they’re not willing to come to the meeting where you’re presenting your plan?
5. “No one is doing what we’re doing.” – Just like Guy says, if nobody is doing it maybe that’s a sign that it’s not such a great idea. We get clients coming to MWI all the time telling us this. “I want to start a really big bookstore online” or “I’m starting an online auction system, I’ve only got $5,000, can you build it for me?” I’m totally serious, one such request came in just a week or two ago. A better response is “A lot of people are doing this and making money, but here is how we’re going to do it better and maintain the advantage.”
6. “No one can do what we’re doing.” – I’ve said this about the quality of work MWI does. Well, I haven’t said nobody can do it, but I’ve said that most firms can’t or don’t produce the quality of work we do. Trouble is, a lot of our potential clients don’t care about the quality. That is, they don’t see a difference between what we do and what a 12-year old can do with FrontPage.
7. “Hurry because several other venture capital firms are interested.” – This is similar to when clients tell us we’ve got a bunch of competition for a job, and if we lower our price maybe we’ll get it, because they’d really like to go with us. Well, if you’d really like to go with us then maybe you’d like to pay a premium for the added value you see in going with us? Maybe if you as an entrepreneur are so interested in getting a certain firm’s money then you wouldn’t be telling them to hurry up, but rather you would be jumping through whatever hoops you have to in order to get their money?
8. “Oracle is too big/dumb/slow to be a threat.” – I’ve said the same thing about larger agencies. Trouble is, they’ve got a reputation, and reputation trumps speed, quality, service, and price just about every time.
9. “We have a proven management team.” – I’m not sure I was stupid enough to ever say this. After all, our management team consisted of three guys under 25 who were still in college and had never run a real business before. I think we focused more on being young scrappers who were willing to do whatever it took.
10. “Patents make our product defensible.” – In service industries patents rarely come up. You can’t patent legal services, design services, etc. You can, however, patent how they are provided. I believe LogoWorks had made some steps in that direction. By the way, LogoWorks is a former client of ours from years back (kind of ironic since they are now a competitor in a sense), and man, that’s one of the best ideas I’ve ever seen. I should have jumped on board when they only had two employees and were having us do design work for them.
11. “All we have to do is get 1% of the market.” – I’m pretty sure I said this before too. I think I still say it about some of my ideas. It’s tempting to say to yourself “I want to get 75% of the market, but if I only get 5% I’ll still be doing well!” It reminds me of the feeling I used to get looking through toy catalogs when I was five. It’s fun to imagine things, but this lie is like the projection lie, you’re really pulling it out of nowhere and VCs know it doesn’t mean anything. Either you’ll do it or you won’t. The question is whether you can convince the VCs you have a fighting chance at getting a big enough chunk to give them a profitable exit.