January 13, 2017

171: Founders Dilemma: How to Make Decisions When All Options Suck

In this episode, Steli and Hiten share a story of an anonymous founder who was in a sticky situation with his investors. Landing investors can be very encouraging for a startup; however, it is knowing the RIGHT deal for your company that makes the all the difference. Steli and Hiten remind us of the red flags we need to consider before saying “yes” to that investment and the importance of separating emotion with sound judgment when it comes down to decision time.

Time Stamped Show Notes:

00:49 – Today’s episode is based on a story of a founder who asked Steli for advice

01:00 – The first set of questions are NOT the real problem

01:13 – The founder raised $1M

01:15 – $600K was spent to get a VP of sales who hired a team to do outbound sales that didn’t work

01:25 – The founder basically wasted 60% of his raised capital

01:30 – The founder wanted to learn how outbound/inbound sales work to grow his business fast

01:49 – Steli assessed the situation with the founder and was wondering why there was such urgency

02:15 – The founder told Steli they weren’t running out of money

02:37 – Steli asked why they needed the outbound sales to work while inbound sales were doing just fine

02:58 – Steli found out that the founder needs to hit revenue milestones set by the investors who gave the $1M

03:19 – Missing milestones will convert to HIGHER interest on the investors’ money

03:31 – The problem is hitting the revenue milestones in a short period of time

03:43 – 15% of the founder’s equity will be lost to the investors

04:07 – The timeline presented was 4 months, but it took them 1-2 years to hit $20K MRR

04:23 – The founder needed to hit $60K MRR in the next 4 months

04:41 – The founder started presenting wild ideas he could do to reach his $60K target

05:17 – Steli learned that by the end of 2017, the founder would need to raise capital again

06:20 – The model the founder was building was likely to crumble

07:10 – Hiten asked the founder, “What if you just shut it down?”

07:30 – He asked because the business may not work in the end

08:42 – Founders are sometimes TOO optimistic, to a fault

09:36 – Ask your investors for some sort of compromise

10:40 – The founder didn’t want to consider other options

11:23 – Look back on Episode 17 – The Art of Quitting

12:37 – Look for evidence for why the business should continue

13:09 – Should the business continue?

14:22 – It’s rare for an investor to set revenue goals

15:56 – It’s common for investors to implement a structure for businesses with aggressive projections

16:53 – “Split the logic and split the emotion”

17:38 – Have the conviction to push through

18:37 – What is your emotional state of being?

19:41 – The founder felt he could not accept the reality yet

19:57 – Paying a small cost vs risking the whole business

21:26 – Steli thinks the founder just doesn’t want to own up to his mistakes

22:30 – Take a stop on your emotions and look at your realistic options

23:42 – Think long-term

24:20 – That’s it for today’s episode!

3 Key Points:

Don’t put yourself into a deal that can compromise your whole business, even if the amount offered is a generous investment.

KNOW when you need to stop. Ask yourself: does your business still make sense or will it be more beneficial to exit/liquidate your business at this point?

Own your mistakes—it’s only then that you can move past it.

Resources Mentioned:

Episode 17 – The Art of Quitting

[0:00:01]

Steli Efti: Hey, everyone. This is Steli Efti.

[0:00:03]

Hiten Shah: And this is Hiten Shah. Today, as we do sometimes with our podcast and this recording,

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By Steli Efti & Hiten Shah: Serial Entrepreneurs, Sales & Marketing Experts, Startup Investors & Advisors, CEOs running multi million dollar SaaS Startups

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