Why Investors Can’t Fix Your Company – Dalton Caldwell and Michael Seibel

TL;DR

Investors can’t fix your company because their advice reflects their own experience and incentives, which may not match the problems of a pre-product-market-fit startup. Finance-focused investors may prescribe more spending, big-company executives may recommend premature hiring, and junior investors may encourage fundraising that improves their track record. Founders must identify what is actually broken and judge when advice fits their stage. Read on to recognize the most common mismatches.

Transcript

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Key Insights

• Investors without startup experience may give misguided advice and underestimate the challenges of building a company.
• Investors with a pure finance background may focus solely on money solutions, missing the importance of product and growth.
• Big company executives may struggle to understand the unique challenges faced by early-stage startups.
• Successful entrepreneurs from non-tech industries may apply principles that are not suitable for tech startups.
• Junior investors may be overly optimistic about fundraising and push for unnecessary capital raises.
• Influencers often overestimate the impact of their promotion, leading to unmet expectations.
• Other founders may give advice based solely on their personal experiences, which may not align with every situation.
• Young investors may lack experience and rely solely on trends and advice from others.
• 💡 Key advice from investors:
• Founders should take personal accountability and believe in themselves rather than relying on investors to solve their problems.
• Founders should be cautious about blindly following advice and consider the unique needs and challenges of their own company.
• The best investor advice often points out problems or challenges rather than providing direct solutions.
• Constructive criticism and honest feedback from investors can be more valuable than false praise.
• Investors who are not financially incentivized may provide more honest and unbiased advice.
• Founders should carefully consider whether the advice aligns with their own values, experiences, and goals.
• It is important for founders to synthesize information and focus on what is working rather than being overwhelmed by too many ideas.
• Founders should be open to change and willing to make adjustments to improve their company's performance.

Questions & Answers

Q: Why can’t investors fix your company?

Investors often lack enough context or direct experience to solve a startup’s specific product and growth problems. Even top investors cannot necessarily explain why nobody wants a product or redesign it so growth takes off, so founders must take responsibility for diagnosing what is wrong.

Q: Why can finance-focused investor advice hurt a pre-product-market-fit startup?

Investors with pure finance backgrounds tend to propose solutions involving money, such as raising more, spending more, or creating five-year financial projections. Before product-market fit, that focus can distract founders from improving the product and may produce heavy advertising spending with worsening or nonexistent payback periods.

Q: Why can big-company executives give unsuitable advice to early-stage founders?

Executives from companies with 1,000 or more employees may be skilled at refining successful products and scaling established processes. Those skills differ from the work of employee number five, when the immediate challenge may be acquiring the first 100 users or avoiding the outcome of zero real customers.

Q: Should startups hire executives before product-market fit?

The speakers warn that big-company investors often recommend hiring executives before product-market fit, such as a marketing executive or VP of engineering. At that stage, the underlying problem may instead be an engineer nobody wants to work with or a failure to measure marketing results, rather than the absence of a department leader.

Q: Why can successful non-tech entrepreneurs be difficult startup investors?

Entrepreneurs who earned money through real estate, strip malls, or franchises may apply those industries’ investment principles to a tech startup. They can seek more control, demand terms suited to a franchise, or treat the founder like a store manager because software companies operate differently from many other businesses.

Q: Why might junior investors push founders to raise more money?

Junior investors need early successes to establish their careers, and a later fundraising round at a better valuation can make an initial investment look good. This incentive may lead them to say that everything is working, that the company has product-market fit, and that it should fundraise or scale faster even when serious problems remain.

Q: When is advice about spending money or hiring more people appropriate?

The speakers do not argue that these strategies are always wrong. Throwing money at growth and hiring more people can become valuable after product-market fit, when a company is already scaling; the danger is applying the same advice automatically during the zero-to-one stage.

Summary & Key Takeaways

• Many investors, including those with finance backgrounds and experience scaling big companies, offer advice to startups based on their personal experiences, which may not necessarily be relevant to every situation.

• Some investors who made their money in non-tech industries may expect terms and behavior similar to their previous investments, which may not align with the needs of a tech startup.

• Junior investors, influencers, and other founders may offer advice based on their own career goals and experiences, which may not always be applicable in a startup context.

• It is important for founders to critically assess investor advice and determine what truly aligns with their own startup's goals and circumstances.