Posts Tagged ‘DIY’


Entrepreneurs are an interesting bunch. While nearly all of them have an “I can do it myself” attitude, which is crucial to get the ball moving, that same attitude usually ends up preventing the company from scaling. The truth is there are some situations where you simply can’t be the most effective person for the task. Now if you have to lean on others (something you should get comfortable with if you ever want to scale a business where you don’t work 22 hours a day), you should think about the cost/benefit relationship of doing it yourself or having someone else do it for you.

Think about it. Can you be a reference for yourself? How is an investor to trust an entrepreneur who has conducted his or her own due diligence? These are a few examples where you simply CAN’T do it yourself. In fact if you even try, it starts to have an inverse effect. Try telling an investor that you’ve done a background check on yourself and that it came back clean (and please film their response and send it to us if you can…).

Also, when you are looking at which aspects of the capital raising process you need to offload, be realistic about the time factor here. Sending an email to X number of Angel groups or VCs takes about 30 minutes each (to find the site, read about them, then apply), take that number and multiply it by X applications and we’re looking at X hours. At what point does it make sense to pay someone to do this work for you?

240 Investors X 30 minutes = 120 hours. Okay, if you do this yourself that means that you could spend 8 hours a day every working day for three straight weeks, sending (not responding to) emails. Is this a good use of your time?

For investors it’s the same problem. Reading 40 business plans a month for 30 minutes each = 20 hours of reading. Before an investor has even picked up the phone, or a golf club for that matter, they’ve already spent 4 hours a day reading highly subjective business plans.

Most Angel groups perform their own due diligence, which for most groups means handing off the task to a “casual” investor member who then has to take on the responsibility for the entire group and conduct some free form analysis of the venture. Don’t be surprised to hear that most investors arms retract approximately 4 inches into their shoulder sockets when someone is asking for a volunteer to perform due diligence. For the Angels, It’s hard to get enough to do it yourself, not to mention the threat of having to corral your investment buddies in order to perform a thorough analysis of the company, that is, assuming you can get any volunteers to help you at all. For the entrepreneur, due diligence is a distracting, time consuming effort that ultimately takes away from their focus of growing and improving their business. Outsourcing this work may be a way for both parties to get back to doing what it is they want to be doing. A standardized set of criteria for this process would also provide complete transparency, allowing both investors and entrepreneurs to be on the same page when it comes to evaluating the strengths and weaknesses of a business.

Many investors admittedly invest in the management team rather than in the idea, essentially betting on the jockey, not the horse. This makes sense, since the most other parts of a business can be easily changed. But it’s unrealistic to expect even the best management team to bring a genetically flawed plan to market with any kind of success (remember Kwame Brown?). Investors need to be clear on the whole picture; without such insight it becomes betting rather than investing. In fact, a study done by Willamette University’s Rob Wiltbank shows that Angel investing is actually riskier than people think. The study found that 61% of the Angels surveyed had returns greater than the amount they invested, which means that 39% didn’t! That’s not a surprising statistic; investors simply are not taking the necessary steps to provide themselves with all the information available to them.

act_satLooking at the world of college admissions we see a highly standardized method for measuring prospective students in the SAT and ACT tests. These tests show how you can have a straight A student from a small high school who may not score nearly as high as a B student from a top ranked private school. While the standardization of analysis would be powerful, what really matters is if the investors value the standard.

There are no analytics that tell the entrepreneur who is reading their plan, how it has been distributed, and what parts they are spending the most time on (or how much time they are spending reading it in general). This data is simple to capture and may give an entrepreneur some valuable feedback as to whether or not their plan is getting into the hands of people who can help them grow, and how they are receiving it.

Look for opportunities to transform investment review into something that is more attractive. That is to say, as an investor you have the ability to greatly influence the plan and direction of a company. Some simple suggestions or compromises may make the investment much more feasible for you and also help out the team in the long run.

The following excerpt is taken from Breaking Through The Broken: The Transparent Guide To Overcoming The Inefficiencies In Early Stage Venture Capital.


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