Make Investors Stand Up and Notice #6 - How to Take Effective Action When You are Under the Gun
In my last post, I discussed the importance of being coachable and focused on a key aspect of coachability -- listening. I made the point that being coachable generates trust and therefore a great way to generate initial investor trust is by being a great listener. Today, we'll deliver into the other key aspect of being coachable -- taking effective action. Not just any kind of action, but how to take effective action when you are under the gun talking to investors.
Expanding on the ideas of the last post, the bulk of what follows was written by my colleague Ed Rholl:
So, what is effective action anyway?
To answer that let's go back to what we discussed over the past few weeks. Remember that until they really get to know you well, investors are generally biased toward thinking you're a dreamer or a fraud. Even if they do get to know you well, they still imagine you may be incompetent in the face of the inevitable twists and turns on the icy road that is your business. These are the prejudices, subject to correction by you, that investors often feel but don't reveal to you.
So . . . it stands to reason that demonstrating competence in the face of a breakdown would constitute effective action.
Ahh, but Rob, you're saying, right now we aren't experiencing any big breakdowns; things are going smoothly.
Isn't the lack of the funding you need to grow the business a pretty big problem you're currently facing, or perhaps soon will? Take the case that in the eyes of investors when you're out raising money it means you're short on money and represent a huge risk of failure. That's magnified, by the way, when a particular investor has some, but not all, of the money you need to succeed. Should that investor back you? He or she is going way out on a limb in the hope that you'll secure the rest of the money required. If you don't succeed the investor probably will lose most or all of their money -- and take a hit to their reputation and feel like they've wasted their time.
Now you know why the old saying "the hardest money to raise is the first money in" is so true. It takes a high level of investor trust to be the first one in. So, this is a primary place where being coachable is absolutely required. And it's why that coachability has to go beyond good listening and extend to effective action-taking.
I'm reminded of the story of Brigadier General John Buford, Commander of the 1st Corps of the U.S. Cavalry at the Battle of Gettysburg in July of 1863. The Union Army of the Potomac was spread out over about 100 miles from Northern Virginia to Southern Pennsylvania on the eve of the Battle of Gettysburg. Buford's Cavalry was at the northern edge, scouting the land near Gettysburg and trying to determine where Robert E. Lee's Army of Northern Virginia (the Confederate Army) might be. At that time Buford had about 2,500 men under his command. Nearby, General Harry Heth, one of Lee's commanders had heard a rumor that there was a shoe factory in Gettysburg. Since many of his men were barefoot, Heth decided to send a raiding party into town to procure shoes, this despite a general order from Lee not to engage the enemy until the entire army was in position. Early on the morning of July 1st, 1863 Buford's scouts reported Confederate troops marching up the narrow road to Gettysburg. The force was estimated to be about 5,000 men. With no other elements of the Union Army yet at Gettysburg, Buford found himself alone and about to be engaged with a Confederate force twice his size.
Buford immediately did two things. First, he sought coaching from his own commander, General John Reynolds, Commander of the 11th Corps of the Army of the Potomac, by sending a rider to report the situation and seek counsel on what he should do. Second, he took action, ordering a third of his men to dismount and hold positions atop a small hill near the road and placing all his artillery pieces in support. The other two-thirds of his men were placed on horseback in support behind the main line. Soon Buford received orders back from General Reynolds: Hold your position as long as possible, guard against a general engagement. We will be on the field within a few hours. Buford's next move may have saved the Union Army. He positioned his reserve units so as to prevent the Confederates from spreading out beyond the road into the adjacent fields and flanking his smaller force. If effective, it could prevent the Confederates from seizing the high ground Buford now held and during the battle that was to come this proved the difference. Mentoring pays off.
Buford's troops held on long enough until other elements of the Union Army arrived and fought their way to a stalemate. More importantly, they held the high ground. Heth, unlike Buford, had made two mistakes. First, he did not seek coaching from his Commanding General before moving his troops into peril. Second, he did not properly understand just who was in front of him -- he relied on erroneous reports that it was just a few local militia, not an entire Union cavalry corps. So he committed his force piecemeal and Buford held them off piecemeal until reinforcements arrived.
Do you see the lesson in this history that applies to you, the visionary entrepreneur seeking funding?
Buford was coachable. Heth was not. Buford was cautious (something great entrepreneurs also demonstrate!). Buford got coaching and followed it to take effective action when confronted with a superior force about to attack him. Heth did not seek coaching and did not take effective action in the face of an inferior force that, properly understood, he could have easily overrun. He was impetuous. For Heth and the Confederates, the result was catastrophic. They lost the battle and never again waged offensive warfare against the Union Army in the northern territory.
So the first element of effective action in the face of a breakdown is to be coachable -- to ask for help, to listen. The second element is to take action based on the coaching you get -- from someone in a superior position to understand what you're dealing with and how to get through it.
Put yourself in the place of the first investor you want to come into your deal. He or she realizes you're outnumbered and facing a number of forces that could destroy you, not the least of which is the lack of enough capital to survive, even if he or she does back you. Suppose you're out to raise $5 million dollars and your first potential investor can do $2.5 million. . .
Do you take the money? (Assuming it's offered) If you do, what do you do with it? How do you make it last until your "reinforcements" show up with the other $2.5 million you need? What is your plan for getting the remaining $2.5 million?
If I were your potential investor (and I've been in this "first in" position many times before) I'd want to help you get the rest of the money. That's the best way of protecting my own investment and if I'm offering up my own money it's because I want you to win! In fact, I'd expect you to ask me to help you find it. I'd expect you to ask my advice on where to look, whom to approach and what to offer. I'd be ready to give you my best advice and offer up my valued contacts to help complete the funding.
In fact, if you didn't ask all that of me I simply wouldn't write the check.
I'd fear that you're another Harry Heth. For all I know General Heth was a capable soldier. But at one of the most crucial moments in the short life of his broken country, he failed because he took ineffective action before he got the coaching he needed. Heth's ineffective action caused Robert E. Lee to try and deploy an army of 75,000 men piecemeal, coming up along one narrow road and to fight before they were ready before they were properly deployed and before they had found advantageous ground. Of course, there were many other reasons the Confederate forces lost the Battle of Gettysburg and the Civil War, but this is one of them. I wonder, in their rebellious ways, how often Confederate officers failed to make full use of the chain of command and ask for coaching and advice from superiors, not just orders.
Investors are going to think you're a Harry Heth if you expect to take their money and then not receive their coaching. They'll fear that you'll take unwise, ineffective and impetuous actions that could lose their money, their time and their reputation. Instead, be like John Buford. Be a hero to your investor, your management team, your family, your future employees, and customers. At the start, you'll be outnumbered and under the gun to perform. GET HELP by being humble, coachable, trustworthy and take effective action based on what your coaches advice.
Now, I want to acknowledge something. Coaches aren't always right. Being coachable won't magically take all the risk out of your business in the eyes of an investor. But it WILL mitigate that risk in their eyes. That's all they can hope for when they deploy capital. And it's what they expect you to do at every turn. Get help and act effectively. You may not always win every battle. But investors know from experience that coachable CEO's and teams take effective action more consistently and win more wars than these lose.
Key takeaway: You're under the gun and investors know it. When you ask for their money, even if they love the upside potential, they'll be very concerned about the downside risk. Being coachable can mitigate that risk to one degree or another. Being coachable involves good listening, but it also requires effective action. Effective action, over time, generally comes from being fully advised and informed before you act. Your investor is and should be thought of as a key advisor. Once they commit, they want you to win as much as you do. Treat them as such if you expect to get a check.