To be a successful entrepreneur, it’s helpful to have a certain level of bravado. Demonstrative levels of confidence and optimism can help a leader maintain a steady course for investors and team members when there are bumps in the road. That said, an honest look at the other side of the coin can often enlighten the long-term view.
This is not to say entrepreneurs should be disingenuous — speaking optimism while thinking pessimism. It’s more about remaining attentive and realistic about the early warning signs that can spell real trouble for a startup.
Here’s three ways a small dose of pessimism can help:
Listen for the negative
Often, entrepreneurs focus their attention on the feedback that comes before the “but,” as in, “the customer says that our solution is uniquely powerful, but they just don’t have the budget to implement it now.” Or, “the venture capitalist told us they want to invest, but we’re just a bit early for them.”
It’s great the customer thinks your solution is powerful, but the more useful takeaway is you have not created the sense of urgency needed to close a sale. Similarly, “it’s a bit early” is a diplomatic way of saying you have more work to do to prove to this investor that your business model really works.
These subtle messages are often the key to discovering big issues while there is still time (and cash in the bank) to course correct.
Manage expectations, especially financial expectations
When it comes managing financial projections, I often tell founders to hope for the best and plan for the worst. That’s because there are almost always unforeseen issues that get between the revenue and expense model you plan versus the one you achieve.
To balance the grand with the realistic, concentrate on nailing short-term financial targets to demonstrate predictability and establish credibility with investors. Keep the long-term vision robust through strong customer feedback and repeat sales that show a strong foundation on which to scale.
Being too aggressive too soon can result in high spending rates that, coupled with sales shortfalls, will deplete cash and undermine investor confidence. Setting more modest projections and then crushing them has the exact opposite effect.
Have a solid Plan B ready at all times
There is no way to predict the potential pitfalls that lie ahead for a startup. Contingency planning will help you prepare for the unexpected, but only if you’re willing to consider the possibility that your Plan A will fail.
Try this: Imagine it’s two years from today and your business has failed. What are the possible reasons? Working backward from those worst-case scenarios can help you think through the contingency plans needed to respond effectively if things go awry. Entrepreneurship requires a fundamental level of confidence. But, mixing optimism with a dose of “but what if” can help you avoid the blind spots that can spell trouble for your business in the long run. ●
Jerry Frantz is managing partner, entrepreneurial services and investing at JumpStart Inc.