When I was involved in the venture capital world helping to fund a number of technology startups, one thing that struck me as significant but never voiced by anyone was the disconnect of objectives between the two parties in the transaction.
Entrepreneurs start their companies because of a passion to a vision. Rarely is that vision just about “how can I make a boatful of money”. It is almost always about how can I help, how can I solve this problem or overcome that challenge. And it is always about serving a marketplace to provide a better solution to the needs of their intended customers.
At some point there is a need for additional resources, which in turn requires access to additional capital. And so the relationship with the financial community begins. Whether it is through friends, family, banks, or investors, the entrepreneur enters the world of financing.
The financing community, however, is oriented towards one key objective: a return on their investment (ROI). Of course for them to get a return on their investment they need to have something to invest in. Enter the entrepreneur.
For the financing community the entrepreneur is a means to their end – ROI. For the entrepreneur the financing is a means to their end - to serve the marketplace.
So who is the means and who is the end? When “the system” works, the two are positively aligned and both ends are achieved simultaneously. When the entrepreneur achieves success in the marketplace and is able to be of service to their end consumer, then the financing entity achieves their end, achieving a strong ROI.
This scenario is what the financing community would have you believe is the norm. But often the two entities are in conflict.
If we kept the perspective that positive financial performance is the byproduct of successfully serving the marketplace then everything would work appropriately and the right balance would be achieved. But we have elevated financial results to be the top priority. “He who has the gold rules” has become the mantra of our society. The entrepreneur’s passion to be in service to his intended customers becomes nothing more than a means to the end for the financial community to make money.
I have witnessed how this orientation has destroyed more than one entrepreneur as he was forced to “sell out” to the investors. I have watched investors destroy good companies - literally putting hundreds of people out of work - not because the company wasn’t succeeding, but simply because it better served their financial objectives to do so. We have all seen how Wall Street’s demand for quarterly profits have hindered countless companies from making the investments they know they need in order to grow their companies.
In the aftermath of our economic collapse, it is time to get our priorities straight again. It is time to swing the pendulum back to center, where the investor and the entrepreneur are truly partners. When the ultimate focus and guiding force for decision making is to better serve and provide more value to the customers, everyone wins. It’s really that simple. It is time for entrepreneurs, CEOs and Boards to stand up to the financial community and take their rightful place, not as supplicants, but as partners unified in their mission to bettering our marketplace and those we serve.