Trust: The Priceless Commodity – Are You Fundable #5

Trust: The Priceless Commodity

Are You Fundable #5

Shaking handsAs an entrepreneur seeking funding, I wonder whether you’ve spent much time thinking about trust. I’m not really talking about trust based on competency – in other words, whether an investor feels you can run your business well. I’m talking about the kind of trust that is about entrusting something for safekeeping by the entrepreneur, namely the investor's money, but also his or her time and reputation. I mean the kind of trust that, when it’s not present, has investors wondering if you’ll protect their money (and what it buys) as if it were your own; whether you will tell the truth about how things are going; whether you are hiding something right now?

Trust is a fragile thing. You can work a long time to earn it from someone, such as an investor. Yet it can be damaged or broken completely very quickly. One thing is sure, you need to gain an investor’s trust before he or she writes you a check, or they’ll simply never write one to you. I like what the famous sales guru, Zig Ziglar, says about this kind of trust, “If people like you, they'll listen to you, but if they trust you, they'll do business with you.”

In the next few weeks, I want to explore this crucial issue of trust in depth. Because if you don’t understand how to develop it with investors, you’ll keep striking out and wondering why. So let’s begin with the context that investors bring to the table when they meet with you. For the seasoned investor there are three facts stored in their memory banks that you need to be prepared to overcome:

  1. They’ve been approached by dozens of entrepreneurs, each with supposedly a fantastic idea, a winning team, a valid plan and a competitive advantage.
  2. Yet most of the investments they’ve made have never panned out. Most have amounted to nothing, a few may have returned some invested capital and maybe one in ten have made a solid profit for the investor.
  3. In many cases, there was a great deal of actual and deliberate misleading of the investor, both before and after the investment.

Also, it’s very important to remember that investors don’t just give you money, they give you time, they put their reputation on the line by investing with you and they may even risk not being able to do further investing if they don’t produce results – for example, if they manage a family fund or an outside fund that needs to raise ongoing funds from new investors.

So you can see that there is a whole host of concerns in the minds of investors when they consider your business opportunity.

As an aside... If you’re a woman leading a company, you may be wondering whether there is a built-in bias among the mostly male investor class against investing in a company run by a woman. I think you’ll find that this is not the case. First, consider that men are inherently competitive and ego-driven. They’ve been competing with one another for money, power, jobs and women since high school. That kind of competitiveness can drive achievement, but it’s not particularly good for developing trusted relationships. Meanwhile, most women are more naturally attuned to relationship-building and as we’ll see, THAT is the key component to generating the kind of trust with investors that lands the check you need to launch or grow your company.

Guys take note: your female competitors for investor money have a built-in advantage in relationship-building and that’s one important reason why male-female (vision-master and execution master) teams can be so strong.

Let’s take the investor’s point of view again for a moment. . .

There’s not much you can do to overcome the fact that most early-stage businesses fail and they certainly know that – after all, it’s been their experience, too. The only way I know to overcome this fact is to demonstrate, early and often, that you, your team, your product/service/idea and your plan are less likely to fail than most of the other entrepreneurs, teams, products and plans the investor is also contemplating.

That’s where trust comes in.

Linus Torvalds, the developer of Linux, expresses the power of gaining trust beautifully in saying that “the fact that people trust you gives you a lot of power over people. Having another person's trust is more powerful than all other management techniques put together.” I think the same is true for investors because if they trust you and give you some of their money, they’re giving you a part of themselves, a part of their power, money they could deploy elsewhere.

That’s power. And that’s what trust can breed.

Learn to push the “trust” button before you push the “greed button.”

Establish trust first, then entice the investor with your amazing technology, your dazzling team, your market advantage and your cogent business plan.

So how can you create that kind of trust in an investor?

Don’t make the mistake of thinking that it’s technology, team and market advantage that actually engender trust. They don’t. They illustrate competency, they don’t build trust. After all, some of the most competent people in history were merely brilliant crooks that devised great plans, built good teams and used all that talent to bilk people out of their money.

So please – do NOT confuse trust with competency. Competency is a factor in building trust, but competency alone won’t get investors to trust you.

Trust lives within a relationship. It is the product of interactions between you, your team and the investors. No relationship, no trust.

This is where both men and women have to let down their armor. Women, though finding this more natural once begun, may also have to overcome the belief that they have to act more like men, not less, and so feel they have to show up as commanding and forceful. Completely a mistake for most investors as it can be interpreted as arrogant, un-coachable, rigid.

Here are four sure-fire ways to build a trusted relationship with investors before you hit the “greed button” – the mutual desire between you and your investor to profit from the business relationship.

  1. If possible, get a warm introduction from someone the investor knows personally, preferably from a CEO of a company he or she has successfully invested in (of course, that’s going to likely require that you’ve developed trust with that person!)
  2. Be revealing. Relationship involves being a revealing, revealing some aspects of yourself that you generally don't want others to see, and this is very difficult for highly competitive people to do.
  3. Don’t hide your flaws. Investors interpret your showing flaws (mistakes made, missing skills, unproductive patterns), as a sign of strength of character, IF you also present how you compensate for them.
  4. Don’t confuse vulnerability with emotional issues. It is generally not appropriate to outwardly express negative emotions such as fear, grief, sadness and anger when initially creating relationship with an investor.

Here is a three-part way to reveal flaws, let your armor down and be vulnerable, without being an emotional sad-sack that will repel investors:

  1. Reveal the flaw unemotionally, as a matter-of-fact
  2. Describe how you compensate for that flaw
  3. Hold the context that because of your ability to compensate for your flaws, you may be the best candidate they can imagine.

I trust (pun intended) that you’ll take these tips to heart and really make it a priority to “get real” and “get related” to investors as people with hopes and dreams and fears and disappointments, just like you. Take the time to really develop a relationship with the people you would like to invest money into your business.

In the coming weeks, I’ll share many more specific tips, many from my own personal experience as both an entrepreneur seeking funding and an investor being courted.

Key Takeaway: Trust is much more important than competency when it comes to investors. Competency is a part of trust, but it’s not the essence of trust and won’t engender trust in and of itself. Investors have been lied to, disappointed and left without their money more times than they’ve made a significant profit, so they will have a built-in proclivity towards skepticism. To stand out, you’ve got to overcome that by building trust. You build trust in a relationship with your investor, by being “real” and revealing your flaws and missing pieces in a matter-of-fact way, along with your thoughts on how you’ll compensate for them.

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