Reading the book on the Cuban missile crisis, ‘Thirteen Days’ for the negotiations course taught me the importance of having a devil’s advocate. The book emphasizes how having one averted the disaster of a full blown nuclear war. Could a Curt Schilling have avoided failure by having someone take an opposing point of view?
Ideally, a negative response to fund raising is considered a good signal for entrepreneurs to look back. In the Dinr example, potential investors were able to tell the founder that his excitement does not show in his numbers. However, in a bull market like the one we are in today, where raising angel and seed financing has gotten much easier, this may not be the case. We saw the example of Blue Apron raising money a valuation of over a billion dollars. Does this mean it is a success? It faces many of the same issues as what Dinr faced. It may well be that the fund raising market has failed to deliver the signal it should have and may have extended the runway for failure. We saw such late failures in companies like Fab.com and Livingsocial.
The other candidate for a devil’s advocate is the Board. They should be able to objectively tell you their views. However, in many instances, the Board consists of either people who are too close to the entrepreneur or have vested interests because they are investors. So, their opinions need to be weighed appropriately.
The third alternative is the management team. Debating with the management team which comprises of people with different risk profiles could be helpful to the founder. It is of course eventually the founder’s decision but they could add some data points to the founder. We saw the Yabbly founder call in some trusted employees to ask them about the acquisition offer. Their answers seemed to have contributed to his decision.
The last alternative which founders can consider is family. While they are emotionally invested in the company as well, family can be an effective risk reducer for entrepreneurs. Unlike all the other available options, they are in the same boat as the entrepreneur. They face the same financial and social risk and may point the entrepreneur to factors beyond just business.
From the cases, it was unclear if Wessman and Tim (Savage Beast, Pandora) who came back remarkably from a trough had such a devil’s advocate who pushed their thinking and helped them stay in it for longer. Who would you pick as your devil’s advocate?