It is your baby, your passion, and it is closely tied to your sense of self whether you recognize it or not. While intimacy, passion, and a deep sense of ownership have a lot of value for a startup, they could also be the root of something far less helpful, founder’s delusion.
Most everyone believes that their newborns are beautiful and their toddlers brilliant. But, I’ve seen plenty of FLKs (funny looking kids) in my life whose parents are blind to the “unique” characteristics of said child.
It’s hard to separate what you want to see in the reflection in the mirror from what is actually reflected. When we do find a blemish or flaw, we often explain it away, treating it as a temporary anomaly rather than recognizing it as a potential symptom of a deeper problem.
The founders of startups frequently struggle with their ability to look at and measure their business from a dispassionate perspective. They’re too close, it’s tethered to their sense of self and their unbending will to survive and thrive. That, my friends, is really dangerous. In fact, I’d argue it is an existential threat to the business’ long-term viability.
So, how do you avoid this trap? What can be done to ensure that you too don’t suffer from founder’s delusion? I’d suggest borrowing some glasses. Slip on a pair pinched from an investor and look at your business through those lenses.
I encourage every young brand to prepare to raise capital whether, at that moment, they need to or not. It will make you a stronger business and here is why. When you are preparing to raise funds, there are questions that must be asked and answered, numbers that will need to be developed and reviewed, and data to analyze.
You need to quantify and, more importantly, truly understand your go-to-market economics for each channel in which you are currently or planing to do business. This includes COGS, the margin expectations of distributors and retailers. It also includes the trade promotions, in-store support, consumer marketing. You can’t forget slotting or free fill, broker expenses, and even miscellaneous deductions. Don’t overlook e-commerce and ACOS. Additionally, you must clearly define your path to monetization, detailing how many stores or outlets by when and at what velocity.
Preparing for investor meetings requires the quantification of the addressable market and an understanding of the problem being solved or the unmet need being filled. Further, an effective pitch demands that you are able to tell a story about your brand that is compelling. One that demonstrates why it is both scalable and investment-ready.
Not only do you need to prepare to convince investors, you also need to think through what you want to ask from them and how you plan to use those funds to drive growth. That is an important exercise for any brand. What would your business look like if it had all the capital it required? How would you deploy it and what results would it bring?
Although nowhere near an exhaustive list, I will leave you with one last reason that preparing to raise capital makes your business better. It forces you to think what support you need beyond capital, helping you to see potential blind spots and knowledge gaps.
Don’t fall prey to founder’s delusion. Start preparing to raise capital and I assure you that you’ll learn things about your business that you did not know or could not see. It will make your business stronger and help you become a better founder and leader.