Why do investors forget that they’re customers?

I’ve done a lot of fundraising in my time, and am currently engaged in raising another round. Maybe some of the investors I’m speaking with at the moment will read this. Oh well. Who ever said entrepreneurs had tact? (grin)

One of the angel groups we’ve contacted just sent me an “Open letter to entrepreneurs”, which contains “tips for presenting to angel investors”. Now, the sad fact is that most entrepreneurs pitch really badly and should read those tips 20 times over so that they sink in, and I do feel for investors who have to listen to some poor sap mumbling about algorithms for 20 minutes. I’m speaking for the rest of us at the moment, who have some pitching mileage under our belt (how’s that for a mixed metaphor?)

While many of the tips in the letter are inarguably universal (“keep it under 10 minutes”, “don’t show text-heavy slides”, etc.), others are reflections of the very personal, very unique tastes of the investor who wrote that letter (“Always open by giving some personal background”, “Always discuss the deal terms you’re looking for at the end of the presentation”, etc). The problem is, these tips are presented as “the basics”… universal elements that all investors look for and respond to.

I’m not sure why, but many investors (not all, but many), don’t fully realize that when they become investors, they become customers in a market. Anyone who’s been a marketer for a couple of years learns -usually the hard way- that what one customer considers to be “obviously” the best product or product messaging can be wildly different than what the next customer you speak to thinks. And yet, the first customer will claim that their view is the only one that any reasonable customer could hold, and that “most people” think the same way. As a result, competent marketers also learn to stop committing the cardinal sin of thinking that what they personally consider to be the elements that make up a “good product” or “good messaging” can be extrapolated onto anyone else.

You can see where I’m going with this… The question I’m asking is why generally experienced, competent business people with strong marketing backgrounds forget the most basic lessons of marketing when they become investors, and assume that what resonates with them is what resonates with “any reasonable investor”? Why do they frame their comments and critiques as being universally representative of everyone else in their market, when they can’t possibly be so naïve as to believe that that’s actually the case?

When they hear another investor giving “basic tips” that are very different than their own, do they just assume that other investor is incompetent, or out to lunch? Possibly… I often hear investors say that most other investors don’t know what they’re doing.

So I ask the question… why do so many investors revert to non-marketers when they’re the customer? One small step away from the kind of person who gets into flame wars in forums because they don’t understand that what they look for in a product can be radically than what resonates with someone else? The kind of person who believes that anyone who doesn’t share their view of what makes for a “good product” (or a good company, or a good pitch) is an idiot or an anomaly, and not just a different kind of customer?

Theories? (Though no investor-bashing please -that’s not my intent here.)

By Nick Desbarats

2 Responses to “Why do investors forget that they’re customers?”

  1. Scott Annan  on January 16th, 2009

    Great post Nick.

    In fact, I think there is way too much talk about pitching in general.

    As an entrepreneur, it IS important that you can succinctly tell investors why they should PARTNER with you. But its more important that you can put together a good team, a good product (or service), a reasonable roadmap, and sell customers.

    We focus on our business fundamentals, which includes leveraging cash and building strong partnerships…

  2. Nick Desbarats  on February 10th, 2009

    Hey Scott- Just noticed your comment…

    Your point re focusing on fundamentals is completely valid. There’s no point in talking to investors (or doing much else) if you’re not working on the underlying business.

    Re partner vs. customer, though, entrepreneurs pitch to investors (and not the other way around), who make the decision as to whether or not the relationship will proceed 95% of the time. This makes the investor the “customer” in every sense of the word. Even in a literal sense, the entrepreneur is trying to sell them a product (shares, warrants, debt or whatever). Unless the entrepreneur is a superstar with a high profile and miracle-worker track record, the relationship starts as vendor/customer, then evolves to partner/partner once the deal is done, imho. Failing to look at it that way will likely result a bad pitch that will not get any traction.