7.5 startup errors. Mistake # 1 - Give a Million or Round Number Magic
Startup 7.5 errors is a series of publications about ambitious expectations and big disappointments of entrepreneurs, about fateful, and sometimes absolutely wrong decisions, about bad taste in business and tips that are better not to listen to.
Based on many years of experience working with start-up entrepreneurs and venture investors, creating and running acceleration programs for startups and business angels, Daniil Kozlov, GVA LaunchGurus Business Development Director, talks about the mistakes of startups on the path to developing their business.
In my work with start-ups, the scene in the Golden Calf regularly comes to my mind, where a beggar, sent by Ostap Bender, asking “Give a million, give a million, give a million” starts pestering the underground millionaire Koreiko on the street.
It seems that almost a hundred years have passed since the writing of the book, but the notorious million still tease and excite the minds of Russian entrepreneurs.
For some reason, it’s just a million dollars, and sometimes even rubles (less common options of 5 and 10 million rubles) that often pop up as the amount that our entrepreneurs require from investors to develop their startup.
At the same time, a fair question, why exactly 1 million, usually introduces a Russian startup into a stupor. “Well, how,” they shrug, “I calculated here in the table, it turns out a million.” The most common answer is “to finalize / develop a product”. And here, any conscious investor mentally says goodbye to the entrepreneur and then listens about his project only out of politeness.
More advanced startups cunningly say that investments are needed “for development, marketing and sales,” which, in fact, does not save them at all, since any round figure with 6 zeros, by itself, shows that the entrepreneur did not bother to count how much he really needs.
There are more complex variations, 100, 150, 200 and 500 thousand dollars. Calculations are more often behind them, but at the same time, the numbers still remain round. The magic of round numbers is mysterious and inexplicable. Is it really so hard to guess that a well-designed financial model with a probability higher than 99.9999% will not give you the round figure needed for investment?
And who do you think will make a greater impression on the investor: a person who asks for 150 thousand dollars or a person who asks for 139 thousand? First of all, every investor wants his or her investments to be treated carefully and thoughtfully. If you decide that throwing 11 thousand from above is quite normal, then you are mistaken. This is the first wake-up call regarding your attitude to investor money.
And the thing here, unfortunately, is far from specific figures, but a demonstration of maturity as a businessman and entrepreneur, a person who is ready to answer for his promises and the money that he plans to spend.
And in extreme cases, if you are really not sure how much you need, do not come to the investor with standard numbers, try to stand out from the crowd and ask for a non-circular amount. Better yet, first talk to the investor about how, in addition to money, he can help you, and then move on to investing. After all, perhaps non-financial assistance will be much more valuable.