Fellow venture blogger Fred Wilson and his colleagues at Union Square Ventures opined in recent posts about a correlation between an entrepreneur’s “openness” and that particular venture’s eventual success or failure. The discussion and reader comments that ensued spurred some dialogue internally here as well. Some months ago I posted about my (and virtually every other VC’s) discomfort with signing NDAs and my sometime annoyance with the entrepreneurs that insist upon them. My reasons were pretty well itemized in the relevant post, so there’s no purpose in rehashing them here.
While I have yet to unearth any solid evidence that supports the point, anecdotally I am fairly convinced that ‘openness’, in almost all its forms, has a direct and positive impact on a start-up’s long-term success. The openness I refer to is most obviously witnessed in the manner in which the founding team deals with investors and, to a lesser extent, with strategic partners and potential customers. But openness connotes quite a bit more than that. Openness is quite frankly a state of mind, an attitude, and a modus operandi for many highly successful entrepreneurs. Some of the most successful entrepreneurs I have come across in my career were irrepressible in their enthusiasm for what they were doing. As such, you sometimes could not shut them up about their companies and what it was they were seeking to do. Their excitement was infectious. Often times, that infectiousness is what drove some investors to set aside minor flaws or ambiguities in the business plan and move forward with the investment. This occurred often because the investors felt so drawn to the entrepreneur’s vision that the belief was quickly formed that the knits and knats of things would ultimately get sorted out. Yes, the devil is in the details — the thinking sometime goes – but without a compelling vision and a charismatic entrepreneur able to articulate that vision, getting caught up in the details is somewhat academic.
But there is something beyond simply being chatty with investors that has bearing upon a venture’s eventual success. In recent years it has become abundantly (and, for many investors who suffered through the 2001-03 tech bust, painfully) clear that ideas, in isolation, have little value. Execution and strategy is what is most important. The old “where the rubber hits the road” cliche comes to mind here. Secondly, ideas are typically dynamic. Like a block of wood being whittled into a fine instrument, the idea takes shape over time and with constant refinements made by outside forces. What make up those outside forces are the innumerable conversations an entrepreneur will have with venture investors, partners, colleagues, industry experts and others about his or her idea. This process of learning and refining is critical, we have found. Few successful companies launched with the original idea as its core business proposition. More often than not, the business that ultimately launched was quite different from the original concept pitched by the entrepreneurial team those many months before. In some cases, so many refinements were made due to the feedback and learning process inherent in all those conversations, that the eventual business was almost unrecognizable from the initial idea pitched to the early investors.
Some may regard these wholesale changes to a business concept as a bit of a failure, or as “mission creep.” In fact, I submit that these refinements to a business concept, when done in a methodical, rationale way, is what is healthy and, ultimately, what is rewarding. Moreover, I am nowadays more concerned when I see very little pre-launch modifications to a business because it indicates that there has not been sufficient data gathering and ongoing conversations up until this point with customers, partners and others that will ultimately determine the fate of the business.
Like anything else, there are exceptions to adopting a culture of openness. Clearly, one-on-one meetings with direct competitors about the core concept of the eventual business is typically ill-advised as would be speaking with the press or others when there are no clear rules on what is confidential and what is not. Setting those instances aside, my view is that the benefits of being open about your business and seeking input from others far outweigh the potential costs and risks of doing so. Being secretive has its place, but very few great companies were launched without a lot of input from outsiders and a LOT of discussions with customers and partners. Cutting yourself off by imposing restrictions on what is discussed or demanding NDAs from people who are genuinely interested in helping is a good way to cripple a promising company.