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How Much Should You Listen To Your Investors?
Investors love to give advice. Even more so if they are board members or major investors. It’s part of our “value add”.
Some investors have a, shall we say, over-estimation of how much they know. It’s easy to make suggestions from the cheap seats, and even great investors or operators are often wrong.
At the same time, the very reason that you allowed certain people to invest in your company is because you valued their perspective and opinions. Often, investors have more experience, or at least a very different vantage point than what you might have as a founder. But how much should you listen to your investors? And what’s the right mindset to have about their advice?
I’ve seen entrepreneurs stumble at both extremes. In one extreme, I’ve seen founders start orienting towards pleasing their investors, and are looking too much towards their investors for direction. As the founder and CEO of the company, it’s critical for you to be the ultimate decider. You are the best equipped to understand all the nuances at work in your business. The buck stops with you. If you start acting like you report to your investors or your board, you are screwed. You’ll make bad decisions, move too slowly, create the perception of weak leadership, etc.
On the flip side, I’ve also seen entrepreneurs develop tunnel vision, and ignore their investors entirely. Even if there is a chorus of feedback that is contrary to their opinion, some founders will just put their heads down and ignore. Communication starts to break down and so does trust. Disfunction ensues.
The CEO of one of my portfolio companies once shared his perspective with me and I’ve always appreciated it. He said “It’s your job for you to tell me what you think. And it’s my job to process your feedback and the feedback of others, and decide what to do.” I appreciated that – it’s led to a good working relationship with this founder where I feel like I can say what I want, that it will be carefully considered, but he’ll own the decision. He’s also very communicative and honest, so whatever thoughts I have (right or wrong) are at least informed and timely.
Another portfolio company founder relayed a conversation he had with two investors in a prior company. In the midst of a difficult decision, investor A was very aggressively pushing the founder to make a particular choice that the founder believed was a mistake. In the midst of this situation, investor B suggested to the founder “just tell investor A, if I make the choice you want, will you be accountable for the results?”. Of course not.
Ultimately, entrepreneurs are responsible for the results of their decisions. Investors try to provide help and governance, but the operators make the tough calls and are accountable for the results. Make too many wrong calls, and investors may need to make hard decisions of their own as fiduciaries to our investors and other shareholders. But investors really don’t want to do this, and we are all rooting for founders to lead effectively with conviction.