Small Biz Watch: Fibs entrepreneurs tell
By James Pethokoukis
Posted 1/11/06
What fibs do entrepreneurs tell their potential venture-capital financiers? That's the topic of a recent blog post written by Guy Kawasaki, managing director of VC firm Garage Technology Ventures and former chief evangelist at Apple Computer. (Yesterday, I posted the fibs VC guys tell entrepreneurs.) Here are a few of the falsehoods he's observed:
- "Our projections are conservative." Entrepreneurs tend to be pretty optimistic. Kawasaki's rule of thumb when analyzing sales projections, "I add one year to delivery time and multiply by 0.1."
- "(Big-name research firm) says our market will be $50 billion in 2010." This statement always pops up in PowerPoint presentations, whether the product, Kawasaki says, "is bar mitzvah planning software or 802.11-chip sets." VC investors are pretty skeptical of this sort of thing. The flipside of this lie is the classic assertion, "All we have to do is get 1 percent of the market." But Kawasaki points out that this sort of statement tends to underestimate the difficulty of getting 1 percent of any market. Plus, "no venture capitalist is interested in a company that is looking to get 1 percent or so of a market. Frankly, we want our companies to face the wrath of the antitrust division of the Department of Justice."
- "No one can do what we're doing." Of course, this statement does not anticipate the future influx of copycats or competitors. Kawasaki provides the sports analogy of running the first four-minute mile. No one in history had done it before Roger Bannister. But someone else did it a month later. "The world is a big place," Kawasaki says. "There are lots of smart people in it. Entrepreneurs are kidding themselves if they think they have any kind of monopoly on knowledge."