Although we’ve just started meeting entrepreneurs for Year One Labs some clear patterns are emerging. As I listen to entrepreneurs pitch their startups I think about all the pitches and meetings I’ve done with investors, customers, partners, etc. It’s not easy.
One of the toughest things for entrepreneurs to do is take feedback. But investors love giving it. Some like to hear themselves talk. Others have genuine insight, especially if they have expertise in your startup’s domain. And occasionally, it’s a test to get a feeling for how well entrepreneurs can take feedback, synthesize it quickly, and respond.
Taking feedback is tough because entrepreneurs tend to fall in love with their ideas. Really, really, really in love. That’s a very dangerous place to be. If you’re so completely in love with your idea that you can’t take feedback or criticism, and you can’t or you’re unwilling to change your thinking and adjust quickly, you’re going to be in trouble. For investors, falling totally in love with your idea and being unwilling to accept that there are alternative opportunities, is a warning sign. But passion is also so important. Investors want (and need!) entrepreneurs that are insanely passionate – passionate to the point that when all else fails, and things look disastrous, the entrepreneur’s passion will be the driving force to keep them going.
And finally, one more confusing argument around taking feedback — if you’re too easily swayed, and agree with everything an investor says, they will question your resolve, your thinking and your effort to-date. If after the first question or point of criticism, you tell the investor s/he is totally right, and you’re going to change everything because of what s/he just said, you’re in trouble. Investors do like to test an entrepreneur’s resolve. They’ll ask questions or make suggestions that might sound ludicrous, just to see if you can provide a coherent argument against them.
So, entrepreneurs have to be insanely passionate but not blindly in love with their idea. And they have to be willing to take feedback, but not bend over the minute an investor questions them.
It’s a very, very difficult place to be.
The best way to balance between these things is rooted in Customer Development. And it starts at the very beginning with writing good hypotheses.
The hypotheses you write (and it is important to actually write them down) should cover all the major aspects of your startup: Customer (and their problem), Product, Channel & pricing, Demand creation, Market type, Competition.
The more solid your hypotheses (even if they’re wrong!) the more weight your opinions will hold with investors. They can argue the hypotheses, and that’s fine, but at least you’ve explicitly defined them and most importantly, how you’ll test them.
If you don’t have hypotheses for the elements I’ve described above it becomes too easy for an investor (or anyone else for that matter) to punch holes in your startup. The hypotheses are the building blocks of your startup, and they’re there as support mechanisms when passion and love alone aren’t enough. They also help ensure that you don’t fall too madly in love with your idea, because you can go back to the hypotheses, test them and adjust according to the results (assuming you stay vigilant to the process of customer development.)
Ash Maurya has a fantastic post on how he documents his business model hypotheses.
Now when an investor starts providing feedback, you can use the hypotheses as a reference point. For example, it becomes much easier to say, “That’s interesting. We could incorporate that into our Product hypothesis and test it by doing…” That’s a much better answer than, “You’re wrong.” Or, “You’re right.” I guarantee you that investors will be impressed by your ability to focus logically on issues, adjust your thinking on the fly while maintaining an optimism and enthusiasm (the passion part!) for your startup.