Entrepreneurs’ passion for their companies is legendary. Passion is what enables entrepreneurs to be relentless sales leaders, unparalleled motivators, and indefatigable fundraisers. Whether an entrepreneur founded their business or whether it is a family asset passed down through generations, the company can be just as important to him or her as family traditions, faith and family lore.
Passion can also backfire.
In some companies, the owner pours every part of him- or herself into the business. The owner and the company become one. How the company is run, how well it performs, its potential – all of that becomes intertwined with the personality and ego of the CEO.
Now ask yourself: How well does this entrepreneur -- who lives and breathes for the company – handle the inevitable negative feedback?
Often, not so well. And this has big implications for fundraising, and, in fact, any type of dealmaking. Private equity funds, and indeed, all institutional investors, seek out self-aware entrepreneurs who know what they do well and where they need help.
When a private equity fund invests, they assume a board role and begin asking a lot of questions. In the best- case scenario, the entrepreneur appreciates the ideas and constructive criticism, makes changes, and everyone comes out ahead. In the worst-case scenario, the CEO and management are placed at odds, churning management and resulting in a suboptimal outcome. Successful private equity funds have the right touch: By coaching and offering ideas, they have the ability to help management without becoming management.
I coach entrepreneurs that a little separation between themselves and their companies is a good thing. An entrepreneur should think of his or her company as an asset -- something that could be bought, sold or traded. Something that can be improved. Entrepreneurs need to learn to think this way before they attempt to raise money. Otherwise, the chances are very good that their efforts will be wasted. Separating from the company, even a little bit, to become more aware of the business’s strengths and weaknesses can be incredibly difficult, but also rewarding.
The other option – which most entrepreneurs do not like – is for investors to force the separation by bringing in someone new. That person will have no pre-existing ties to the company, no social contracts, no emotional attachment and no self-identity with the existing firm. Investors may opt for a clear-eyed look from a new leader instead of the experience and relationships of past management.
All this is not to diminish the conviction entrepreneurs feel for their businesses. It’s to encourage them to listen to feedback. It’s like the difference between the kid who wrote his college application essay and was so excited that they sent it right in, and the kid who asked someone else to review the essay first. Being open to feedback requires separation.
Entrepreneurs often tell me that as hard as they try to get financing or land a big new customer, they can’t quite get there. I ask what I consider the most important question: why didn’t it happen? I press entrepreneurs to ask for feedback from the potential lender or the prospect who didn’t buy — to at least find out why they need to consider that issue in the future.
Sometimes the feedback is too tough for the other party to give. Maybe there were doubts about the company’s ability to meet its plan or a lack of confidence in the entrepreneur as a manager. In some cases, feedback can show that the other party doesn’t understand your company that well, giving you an opportunity to clarify your pitch. If you’re tied too closely to your business, getting turned down will hurt and make it impossible to hear what might help.
So, before you seek financing or aim for that next big client, consider stepping outside of your business, either on your own or through the eyes of another. What are its strengths? Its weaknesses? Emphasize the good. Fix the bad. (And don’t say you’re too busy!) Really consider the feedback and channel the passion and enthusiasm you already have. You just may be pleasantly surprised.