Venture Capitalist TX Zhuo Reveals Why He’s Not Looking For ‘Perfect Business Unicorns’

Contrary to popular belief, I’m not looking for founders who are perfect business unicorns ... In fact, a founder who paints a perfect picture can be a major...


There are plenty of reasons to doubt the old axiom “honesty is always the best policy.” Life experience teaches us that being honest can hurt people’s feelings, get us in trouble, or cause us to lose out on big opportunities.

Unfortunately, these experiences can condition entrepreneurs to sugarcoat common business problems when talking to stakeholders about their businesses and their shortcomings as a leader. They think that people will condemn them if they’re forthcoming about their struggles, so they put on a brave face and try to convince the world that they have everything under control.

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Contrary to popular belief, I’m not looking for founders who are perfect business unicorns and have everything figured out. In fact, a founder who paints a perfect picture can be a major red flag.

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As a venture capitalist, I’ve met with hundreds of aspiring entrepreneurs — all of whom have their own strengths, weaknesses, and challenges. Contrary to popular belief, I’m not looking for founders who are perfect business unicorns and have everything figured out.

In fact, a founder who paints a perfect picture can be a major red flag.

 

VCs Don’t Expect Perfection

It may not feel this way, but no one expects you to be a flawless leader. In fact, VCs and other stakeholders know you’re not, yet too many entrepreneurs try to hide their shortcomings.

I recall meeting one entrepreneur for the first time and hitting it off right away. But as we started talking about his business, he described a faultless company where there were no problems. He claimed all he needed was a small amount of money for his business to blossom into a multibillion-dollar company. This immediately set off alarm bells in my mind, and I started to question his authenticity.

When I took a gamble and asked him about it, he sheepishly admitted he was worried I’d walk away if he told me about some of the challenges he was facing, and he was surprised when I said his candor gave me even more confidence in him and his company.

This illustrates a common misconception that many entrepreneurs cling to: that leaders are rewarded because they represent the “perfect package.”

The truth is, one of the greatest leadership qualities is self-awareness. Leaders who know their strengths and — perhaps more importantly — their weaknesses allow investors and partners to catch potential problems before they become debilitating.

Another founder I worked with was a talented interior designer who knew very little about running a tech business. Instead of trying to hide her shortcomings, she said, “I know design, but I don’t know much about running a startup. A couple of months ago, I didn’t even know what an MVP was. If you’re going to invest, you need to help me along the way, but I promise you that I am going to try my very best to succeed.”

I was floored by her honesty and knew immediately that I wanted to invest. As I’ve helped her build her business, other investors have been equally impressed by her transparency and determination.

 

The Beauty of Transparency

Stakeholders don’t just want to hear both the good and the bad; they need to. If you’re not forthright about the state of your company and your own abilities, how can you expect anyone to help? When things blow up a few months down the road, these stakeholders won’t be in a position to help you fix the problem.

This is especially important during the startup stage.

Given the limited amount of resources most early-stage companies have, the margin for error is very slim. Honest leaders stop their businesses from wasting precious time and resources and help steer them away from disaster.

Not everyone needs to know the ups and downs of your business, but your VC, partners, board members, and employees do. Transparency not only helps these stakeholders proactively solve problems, but it also builds trust.

Instead of putting on a good face for VCs, think of them as thought partners. Have honest conversations early and often. The phrase “I don’t know” can be a difficult one to spit out, but by practicing it with those who are invested in your success, you’ll see how quickly it becomes “I don’t know, but we have a plan for figuring it out.”

 

TX Zhuo is a Managing Partner at Karlin Ventures, an L.A. based venture capital firm that focuses on early-stage enterprise software, e-commerce, and marketplaces. Follow @karlinventures on Twitter.

 

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