The Dangers of Blind Optimism on Startup Credibility
Eeyore would never make it running a startup.
It takes an off-the-charts level of optimism to get up every morning and try to make something out of nothing. Having said that, appropriate optimism should never be confused with self-deception or deception of investors.
Minimize Self-deception with Market Validation and Informed Advice
Over the years, I’ve seen a lot of self-deception in startup CEOs. I’m afraid I’ve even been caught in it myself from time to time.
Although self-deception is certainly not limited to younger entrepreneurs, it is easier to minimize risks and assume all the cards will fall the right way for people who haven’t yet been beaten about the head and shoulders in life.
The educational content in the Rev1’s startup studio program is designed to help entrepreneurs recognize and deal with self-deception.
Entrepreneurs invest time, money, and their very souls in trying to make something happen. In our Customer Learning Lab, we help maximize a startup’s chance of success (and sometimes kill ideas that aren’t likely to succeed) by doing the up-front work to find out if there really is a market opportunity for the idea.
We train entrepreneurs to substitute market feedback on the perceived problem they want to address and the product they want to address it with, for their own (possibly over-optimistic) gut feelings about what John Q. Public needs or wants. It’s great to be enthusiastic about a product idea, but optimism and enthusiasm won’t make someone buy something they neither need nor want.
Another way we help corral self-deception is through Rev1’s mentorship programs. One of the best ways to temper self-deception is informed advice. We match less experienced entrepreneurs with seasoned mentors who can provide the benefit of the experiences gathered over a career of successes and failures. Optimism tempered with the shared wisdom of experience can be a great combination.
Seasoned mentors can teach entrepreneurs how to better estimate sales cycles and processes, realistically validate a sales pipeline, determine customer service requirements, and calculate the true cost of customer acquisition. The right mentor can help entrepreneurs test business model viability, more accurately estimate development times and costs, determine operating costs to get the business off the ground and then the cash flow needed to keep it going. Mentors’ real-world experience, advice, and direction are invaluable for these and countless other critical business measures.
Deluding Stakeholders Makes Things Worse
In the very early days of a startup, without much experience with sales cycles, operating expenses, costs of customer acquisition and the like, it’s really hard to know what the business will ultimately look like.
Everyone expects the startup CEO to be optimistic, and no one expects (or at least should expect) that everything will go exactly as planned. But over time, boundless optimism needs to give way to reality based on experience. If after two or three years into a startup, the team still can’t accurately forecast when a deal will close or what next quarter’s revenue will be, the entrepreneur will eventually lose credibility.
Nothing is more demoralizing to investors than hearing optimistic projection after optimistic projection, none of which comes to pass. At best, it means the entrepreneur doesn’t yet understand the business. Worse, it may mean the entrepreneur is unable to face reality, or that he or she is a person who will say anything to stakeholders to make things seem better than they are.
That behavior can cross the line from optimism to incompetence, or even deceit.
The more mature the business is, the less patience investors and other stakeholders will have for optimism that isn’t based on experience and objective reality.
The message to entrepreneurs: You don’t have to turn into Eeyore, but you don’t want your stakeholders to think you’re the “Flim-Flam Man” either.