I basically couldn´t help laughing when reading “Wise Guy”´s hilarious Top Ten Lies of Entrepreneurs when raising money.

I could picture myself fundraising for an e-Commerce marketplace in Israel that has unfortunately since a couple weeks gone bust. 4 out of the 11 (not exactly 10, that´s a good, funny, very Kawasaki habit) lies Guy Kawasaki, a former Apple Corp. Evangelist and now an early-stage VC, describes apply to our team. So fun)); Guy, where did you put that f***ing video camera in our Tel Aviv office?

Lie #1 according to Kawasaki is:

“1. “Our projections are conservative.” An entrepreneur’s projections are never conservative. If they were, they would be $0. I have never seen an entrepreneur achieve even her most conservative projections. Generally, an entrepreneur has no idea what sales will be, so she guesses: “Too little will make my deal uninteresting; too big, and I’ll look hallucinogenic.” The result is that everyone’s projections are $50 million in year four. As a rule of thumb, when I see a projection, I add one year to delivery time and multiply by .1.”

Ahah, that´s exactly what we used to say to business angels and VCs! Look at the picture above (a slide extracted from the Business Plan I had written for the road show):

This is not over. Lie number 5 is as follows:

5. “No one is doing what we’re doing.” This is a bummer of a lie because there are only two logical conclusions. First, no one else is doing this because there is no market for it. Second, the entrepreneur is so clueless that he can’t even use Google to figure out he has competition. Suffice it to say that the lack of a market and cluelessness is not conducive to securing an investment. As a rule of thumb, if you have a good idea, five companies are going the same thing. If you have a great idea, fifteen companies are doing the same thing.

The thing is that some had actually tried, but none of the marketplace players had managed to become a landmark in the C-to-C Israeli Internet industry (there were very strong players in B-to-C such as Walla, but no sound leader otherwise – and eBay hasn´t yet been translated to Hebrew).

We also fell in the “we have a proven management team” trap. Look at that (lie #9):

“We have a proven management team.” Says who? Because the founder worked at Morgan Stanley for a summer? Or McKinsey for two years? Or he made sure that John Sculley’s Macintosh could power on? Truly “proven” in a venture capitalist’s eyes is founder of a company that returned billions to its investors. But if the entrepreneur were that proven, that he (a) probably wouldn’t have to ask for money; (b) wouldn’t be claiming that he’s proven. (Do you think Wayne Gretzky went around saying, “I am a good hockey player”?) A better strategy is for the entrepreneur to state that (a) she has relevant industry experience; (b) she is going to do whatever it takes to succeed; (c) she is going to surround herself with directors and advisors who are proven; and (d) she’ll step aside whenever it becomes necessary. This is good enough for a venture capitalist that believes in what the entrepreneur is doing.

Actually, the founder (30) had a strong background in politics, although he had recently acquired some online advertising skills. I was 22 and a trainee, with only internships & non-for-profit-management experience at the time, working as the Project Manager & soon to be replaced as my 5 months training period was ending by a 29 year old guy, freshly graduated from an Australian MBA program. I had convinced a great and talented friend from France to join the adventure to become the CTO: he was 23 at that time and was just a trainee, like me. The company had also hired to replace him a bright software engineer (27), who had just completed his undergraduate degree too (Israelis tend to enter the job market pretty late because all of them, boys and girls, spend between 2 (girls) and 4 (officers) years at Israel Defence Forces) but who had no prior professional programming experience. Our graphic designer was 25, still a Digital Fine Arts student at Betzalel Institute in Jerusalem. However I have to say that, although young, the software development team did a fantastic job and I´m not certain it would´ve been much faster and better with more experienced folks (we had several external advisors to give us a hand when needed: a reliable and sharp-minded chartered accountant; an online advertising company named WebSense; a free-lance 40 something pretty expensive software developer; a 32 software developer again; a telecom billing company, Unicell, who helped us implement a bid-from-your-cellphone feature, 2 lawyers – one of them an investor in the project; an online secured monetizing system, NetPay; a transactions 3rd party, SafeCharge). Our sales manager was 25, a part-time business management student with some team management background. Our CFO was 29, and had Finance Ministry background, online advertising and economics teaching experience.

We definitely had a good, not to say great team. But we were all virgin cowboys. We had a beautiful, user-friendly and full of good products website, and lacked the most important. We were missing the kind of top-gun sort of guy, who “had been there” already. A 40+ year old manager with e-Commerce experience, industry credit, VC-backing, and on and all. We thought investment banking & consulting summer internships were making of us crème-de-la-crème managers. How naïve…We were all beginners presenting ourselves like GE-trained managers & Microsoft-style software developers. At least the atmosphere was fantastic, and I´m pretty sure we were compensating with a bullish enthusiasm and hell a lot of hard work.

Last, but not least, Guy Kawasaki wrote:

11. “All we have to do is get 1% of the market.” (Here’s a bonus since I still have battery power.) This lie is the flip side of “the market will be $50 billion.” There are two problems with this lie. First, no venture capitalist is interested in a company that is looking to get 1% or so of a market. Frankly, we want our companies to face the wrath of the anti-trust division of the Department of Justice. Second, it’s also not that easy to get 1% of any market, so you look silly pretending that it is. Generally, it’s much better for entrepreneurs to show a realistic appreciation of the difficulty of building a successful company.

Look on the table right here:

The line e-Commerce market refers to the size of the Israeli market according to a consultancy (another lie, #2). Right below is our market penetration target, related to our marketing cash-burn rate. And Kawasaki pointed it right: we had to grab a single percent of the market to break even in the second year!

Guy Kawasaki´s really good. His tone is sarcastic, his advice usually relevant and true, his examples sound and genuine. I haven´t yet read his last book, The Art of the Start, but I´m planning to do so very soon. My New York-stationed buddy and fellow blogger Dave Notik wrote a review about it. I might soon post something about Dave´s really amazing project (Dave is an entrepreneur), I´m just waiting for the Beta release of his platform.

By the way, I´m making fun of myself here. But VCs are, according to my experience, probably worse. Guy Kawasaki also wrote a “Top 10 Lies of VCs” sort of post, and I can swear I heard most of these back in Israel. Here´s a sample: “I like you company buy my partner doesn´t”; “If you get a lead, we will follow”; “Show us some traction, and we´ll invest”; “We love to co-invest with other venture capitalists”; “we like early-stage investing”. I heard 5 VC lies out of 9, and lied on 4.5 points out of 11. VCs are slightly worse));

I´m in the process of business planning again in my current training position, & this time I´m abiding by Kawasaki´s pitching advice – namely the 10/20/30 rule you may find on this post on his blog. 10 for 10 slides, 20 for 20 minutes maximum, 30 for 30 points minimum for the font size being used.

Like

Unlike