I’m going to be real with you here.

Being real was not always something that I was able to do well. That’s why I am writing this post.

I heard somewhere that a startup acts like a mirror to the founder. A startup is run by people, who have strengths and weaknesses. Entrepreneurship is personal. As we run our startup, it creates exposure for us and everyone around us. The startup that founders run is a mirror that reflects the good, bad, and the ugly of that founder.

By nature, I tend to be optimistic. If I’m being totally honest about the way I handled my startup, I was dangerously optimistic. That is, I had a level of blind optimism that transcended the practical reality of what I was facing.

The litmus test from this was when my in-law’s would ask how my company was going. (That’s always a true litmus test, isn’t it?). I would respond, “It’s going great,” and share some good things that were happening.

My wife, who is more of a realist by nature, and I would talk later. She would say, “Why did you say that things were going well? You just told me yesterday that you’re frustrated about such and such, or you’re discouraged about this and that?”

But it wasn’t just with my in-laws. I also was overly optimistic about the business and its future to my advisors and investors.

My optimism was a compulsion.

But treacherously, my optimism was not based in the reality of my situation.

On August 18th, 2018, I wrote in a reflection,

“I think this tendency is a personality trait or something. I tend to be more of an optimist in things in general. I tend to see the glass half full often, and in thinking about this, this is reflected in our monthly updates.”

Now, I have learned and have developed a much healthier sense of optimism and realism since my founder days. I’ll pick back up with my founder story in a minute, but for a few minutes, let’s fast-forward to my role as an investor on how this optimism is perceived from my side of the table.

Leaning Optimistic

Most founders I talk to are optimistic about the future. It wouldn’t be high growth startups if optimism didn’t exist.

Yet, with founders, there should be a continual tension of optimism vs. realism. In addition to optimism, every founder must possess a strong sense of realism and be able to activate it at a moment’s notice.

✅ The hidden secret is that investors can often tell when a founder is highly optimistic and is avoiding being real about the situation. ✅

When a founder comes off highly optimistic about a situation, two things may happen:

1. Investors read between the lines, or,

2. Investors draw incorrect conclusions about how things are going

I once was talking to an investor about update that I had received from a startup. A different investor received the same update, and we happened to chat about it. This investor told me, “If I am reading through the lines correctly, it sounds like they are bleeding cash.”

I had separate interactions that the company was struggling. Yet this company founder, who I had seen over time to be more optimistic-leaning, did not come out and directly state the challenges the company was having. Instead, they hinted at some challenges they were facing but dressed it all up in a veneer of optimism about the future.

Now, if the situation was that dire, why didn’t the startup founder come out directly state it?

In a completely separate company example, I once was discussing some thoughts on a given startup with an investor. This particular investor had not heard anything from the company for a while, and seemed to be irritated about it. This investor told me,

“I think Jack is a little loose with money. The future is always bright in his world, with no thought of what the cost is. That is my take at least.”

This investor’s imagination had been running wild, and the investor was drawing radical conclusions about the founder and business, ungrounded in reality.

But, do you blame this investor?

The founder didn’t take control of their own narrative of their own business, leaving investor assumptions about their business up to chance.

✅ If founders don’t filter the optimism and realism well, then investors’ imagination will control your narrative. Of your company. Of your future. Because you didn’t own up about how it’s actually going in your company. ✅

Only a founder should possess that control over the narrative.

✅ Once those investor assumptions are misplaced, it’s very hard for a founder to take the reigns of the company narrative again. ✅

Why Don’t Founders Just Come Out and Say It?

I think there are two reasons why founders do not own up to the reality of their situation:

1) The founder might not accurately see the situation for what it is.

Occasionally, I see my former founder-self in certain founders that I talk to. The founder lays out the state of the business. In some cases, I can see the landmines in front of the founder that they will step on in a matter of weeks or months. Yet, the founder is completely optimistic about the future!

The founder may not be able to get objective enough to see the information that they need to see. This was my situation as a founder.

Depending on my relationship with the founder, I tell them, “There is no reason to be optimistic here. You need to make this change, now.”

The founder needs to have objective voices - advisors, investors, etc. asking very hard questions and getting the founder to see the situation for what it is.

2) There is a level of exposing failure that is uncomfortable.

“I screwed up and I don’t have all the answers” is one of the hardest things to say to anyone, let alone investors who have committed their capital and emotional aspirations to the founder and their startup journey.

So, founders might mask the company struggles in a veneer of optimism “We’ll continue to push on.”

Investors Can Handle the Truth

Here is the good news for founder - there is no need to be overly optimistic because investors can handle the truth. Whether or not we are investors in that company or not, we can handle the truth.

If investors have been in the game long enough, they know that founders have incredible strengths but also weaknesses. That is the case for each founder, no exceptions no matter how great the company is.

Furthermore, the majority of LPs or angel investors are business owners. They know how to run a successful business. They didn’t arrive to their professional success by accident. This means that they have had their fair share of balancing the tension of optimism and realness.

They get it. They get you that are not perfect. By avoiding optimism and getting real when the going is tough, you do not have anything to lose but rather have everything to gain.

Confronting the Brutal Facts

One of my top 10 books is Good to Great. One of my favorite chapters from that book is called “Confronting the Brutal Facts.” In the book, the author Jim Collins does a robust analysis of a number of companies and the qualities that made the super performers, perform, and the competitive firms falter. He notes that confronting the brutal facts about a situation is one of those key differences between the two sets of companies. He writes,

“You absolutely cannot make a series of good decisions without first confronting the brutal facts. The good-to-great companies operated in accordance with this principle, and the comparison companies generally did not.”

Confronting the brutal facts acknowledges the depth of the truth of what you are facing. No sugar coating. No optimism. Just realness.

“Yes, leadership creates vision. But leadership is ultimately about creating a climate where the truth is heard and the brutal facts confronted.”

He says, “Both sets of companies had access to good information. The key, then, lies not in better information, but in turning information into information that cannot be ignored.”

Collins then references an interview that he did with Admiral Jim Stockdale. Stockdale says, "This is a very important lesson. You must never confuse faith that you will prevail in the end - which you can never afford to lose - with the discipline to confront the most brutal facts of your current reality, whatever they might be."

“To Be Completely Transparent With You…”

“To be completely transparent with you…” is one of the phrases that I have grown to love hearing from founders.

It shows that metaphorically speaking, the founder’s mask is coming off and the founder is getting real with me. They then typically share something private about how they think or feel about a certain aspect of their business, fundraise, or even a fellow co-founder. Typically, it’s tied to an insecure belief about their fundraise or part of their business.

I as an investor want any founder to be completely transparent with me. It also shows a level of trust and security that that person has in their relationship with me to share that key piece of information.

Now, I weed out if this transparency is just a one-time move or a pattern of this person’s life. Yet, it likely won’t be the first time that I hear this phrase or something similar if I continue in future conversations with the founder.

The moment that a founder is transparent with investors is the moment that you have gained an ally or allies to help you in the trenches.

My Journal Entry

Back to my journal entry as a founder that day:

August 18th, 2018 was the day that I got real with the brutal facts of the situation in my startup. Here is another part of my journal entry from that day:

“I read a bit in Good to Great today, and the chapter especially on confronting the brutal facts.   And in the last week or two, I’ve been feeling that we need to get real. We need to acknowledge the situation we are in and instead of letting inertia carry us into the wild blue yonder and letting the weeks pass. 

I am sick of this not working out. I’m sick of hearing that this problem needs to be solved and other people’s belief in us and we aren’t able to convert anyone. I’m sick of chatter. I’m sick of talk. I want to go out and freaking blow this thing like the opportunity we and everyone else are convinced it is.”

However, the story takes a nasty spin.

Months later, I discovered that it was too late.

By the time I confronted the brutal facts in my startup and made changes, it was too late.

We didn’t have enough cash in the bank to correct the long stretch of poor execution.

Poor execution, completely grounded in optimism that was not based in the reality of my situation.

See, my FinTech startup failed for a number of reasons which I will unfold over time in this newsletter. But one reason in particular which I am acutely aware of is that I did not execute with the realism necessary. I did not confront the brutal facts of many, many things in the business - how customers were not biting and perhaps we needed to make a dramatic pivot, that my co-founder wasn’t pulling his weight, that perhaps I didn’t possess the market expertise needed to pull this off, and on and on.

Closing Thoughts

I’ve grown dramatically in this area since then, largely because of seeing the dangers of this pattern of pervasive optimism regardless of the true reality.

There may be founders out there that resonate with this story. That realize that they may not be seeing their situation as accurately as they ought to.

As I didn’t confront the brutal facts until it was too late, my hope is that you have an opportunity. That you can get real with your company, those around you, your investors, and confront the brutal facts about the situation. As you do, you’ll find allies that can help you in the trenches.

But don’t wait too long. Like it or not, you are on the clock.

So… take the shot. Make the move.

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