Optimism is a quality that is present in almost every successful entrepreneur. Without optimism, entrepreneurs would not take the huge risks they do to bring their dreams to life. Without optimism, entrepreneurs would find it impossible to raise funding from Angel Investors and Venture Capitalists. After all, what investor would want to back an entrepreneur who does not believe in their own venture?
There can, however, be a serious downside to ‘optimism’ that can fatally undermine an otherwise strong investor pitch. That downside occurs when optimism clouds an entrepreneur’s ability to see the reasons why their venture may fail. This characteristic sometimes develops as a consequence of the tunnel vision that’s present when striving to achieve a goal.
Human nature steps in and protects us from seeing the terrible things that may distract us or undermine our confidence. The result, as most investors will have experienced, is that many entrepreneurs either fail to identify or downplay the risk.
A failure on the part of an entrepreneur to identify and credibly deal with the issue of risk in their deck, business plan or pitch will be identified by investors as either naivety, stupidity or dishonesty and will kill any chance of a deal.
Investors have an uncanny ability to see a risk a mile away and expect entrepreneurs to show a high degree of awareness. The earlier in its development the startup, the greater the number and size of risks. If you can’t see the risks, you can’t mitigate them.
When pitching investors, it’s important to deal with the risks, however slight they may appear to you. As an attorney, I learned very quickly there were always at least two sides to any argument. I therefore developed the discipline of always trying to put myself in the shoes of the other side, the judge and jury and asking myself ‘what were the possible reasons they could disagree with my arguments?’.
Once I had identified the risks I would then refine my approach and arguments to make sure I fully addressed them. I used the same approach when pitching investors and Fortune 500 companies. Nowadays, when advising entrepreneurs how to pitch investors, I play Devil’s Advocate during Mock Pitch sessions and drill down on risk.
The benefits of properly dealing with risk are at least threefold. Firstly, analyzing risk is critical to your business succeeding. Secondly, your investors will have greater confidence in you. And thirdly, a true understand of the risks attached to your venture is empowering and will give you genuine rather than misplaced confidence. Failing to deal risk is simply a risk not worth taking