For months we’ve been saying it at Under30CEO. “Why don’t these startups ever get asked the tough questions?…Why doesn’t anyone have the heart to tell them their business is setup to fail?”
We’re Guilty Too
We’re the biggest cheerleaders out there. Yay, Gen-Y entrepreneurship we say. But in all seriousness, we run Under30CEO to help young entrepreneurs and if we just hold hands and talk about how great we all are, we’re doing our generation a great disservice. The truth is, we need to start asking each other the tough questions and not be afraid to hurt each other’s feelings. Too many professors, peers, investors and mothers are giving entrepreneurs the thumbs up or a pat on the back, when really, they need to be grilling the entrepreneur down to every last detail.
Personally, I struggle with this. I’m a nice guy and I want to be liked. Shooting down people’s ideas is something that I had to work at. Who wants to see the deflated look on a exuberant entrepreneurs’ face when you crush their dreams? I constantly have to tell myself that I’m in business to make money, not to make friends. It’d be way worse to watch an entrepreneur blow through someone else’s money and waste years of their life on an business that had obvious holes in it.
We Don’t Need Cheerleaders; We Need Linebackers
The two most painful conversations I’ve ever had were also two of the most beneficial. David Goldsmith, a management consultant and NYU professor who flies in just to teach class once told me, “Matt, if you aren’t making $10k a month you might as well pack it in and go skiing.” I almost cried. I was doing what I loved… but it wasn’t making me any money. David asked me the tough questions; the ones that nobody else would ask me. You know, like the ones about our business model…He might have been blunt, but extremely constructive.
Another painful conversation kept me up for two days straight. Brian Cohen of the New York Angels picked me apart but good. So good in fact, that I wrote him a thank you note for smacking some sense into me. “Matt,” he said, “you are one of the many New York City startups who is among the walking dead.” While these conversations may seem brutal, they pointed out oversights in our business model and made us answer their toughest questions, proving to them we wouldn’t fail.
The Bubble Will Burst
Many people are predicting the tech bubble will burst, as investment in seed stage companies continues to go through the roof. This bubble will indeed burst in my prediction, but only around the companies who aren’t cashflow positive. More entrepreneurs will fail than will succeed and people will watch their dreams and their money go down the drain. These are the companies who were never asked the tough questions, who’s accredited investors didn’t have a clue. Just because someone has a $250k net worth doesn’t mean they can help your startup.
As far as an economic bubble goes, the companies who actually learned from the first dot com bubble and created companies that make money will survive. It’s these high-growth tech companies that will help our economy fully recover, creating jobs and bringing new industry to the United States. Sure, lots of angel investors will lose money, but to be accredited means you could afford the loss. And yes, many companies that VC’s invest in will fail too, but venture firms are looking for exits in the $100M+ range. Just a few homeruns will create far more jobs and return on investment to pump into new startups, than all the money wasted on the failures combined. They aren’t too concerned if ten of their million dollar investments never see a return. The more tough questions we ask, the more chance we have at success.
Be a Jerk
Okay, don’t be a jerk, but from now on, everyone in the entrepreneurial ecosystem needs to get better at asking the tough questions. Investors and entrepreneurs obviously need to learn this, but developers shouldn’t be working on projects that won’t ever turn into anything. There simply aren’t enough of them to have them waste their time. If you are going to join a startup as an employee, don’t just drink the Kool-Aid so they will hire you; ask them the tough questions. And please, if you are the press, I know it’s cool to write about startups right now, but educate yourself on the questions an investor would ask and make sure these startups are for real. If we don’t, we are only perpetuating the amount of overhyped companies that think they have a chance because they are in USA Today, when we could be helping bring to market new products and services that are truly great.
We’re Making It Our Mantra
If people asked us the tough questions from the start, we’d be way farther ahead than we are now, so we’re going to start passing the favor on to you. We promise to beef up our interviews with tougher questions, even though we are interviewing some of the most successful entrepreneurs in the world. (They’ve already proven themselves). We’re also going to start throwing entrepreneurs into the Shark Tank and will be announcing some really hardcore demo events in New York and a conference all based on our new mantra. Stay tuned, and until then, surround yourself with smart people who ask tough questions.