A New Perspective on Founders’ Relationships with Investors

A founder’s relationship with their investors should go beyond just financing. Investors bring valuable expertise from their prior careers as COOs, CFOs, or other operational roles, as well as insights from their involvement with other successful companies. This knowledge can help identify operational inefficiencies that may be overlooked, ultimately leading to faster growth for the company.

However, navigating conversations with investors in their areas of expertise can sometimes be challenging. It’s not always clear where a board member’s responsibilities should begin and end, and overlapping areas of expertise can complicate decision-making and strategy. Additionally, egos can get in the way, hindering open and honest communication between both parties. As a founder, it’s important to keep these principles in mind to avoid pitfalls and fully leverage investors’ operational knowledge and experience.

Putting Egos Aside for Better Feedback

One common issue I’ve observed is founders letting their egos get in the way of receiving constructive criticism from investors. Instead of focusing on how the feedback may reflect on their own performance, it’s essential to remember the larger goal of overall company success. Investors are able to identify flaws and gaps in the company’s operations, which is crucial for addressing scalability concerns as the business grows.

For example, at the early stages of Egnyte, my chief growth officer and I were the main sales leaders and believed we were doing a great job. We measured success based on quarterly revenue attainment and consistently reached our goals. However, one of our investors challenged us to dig deeper and analyze the percentage of sales reps hitting different levels of their quotas (50%, 80%, 100%).

Too often, I’ve seen founders let their egos prevent them from being able to receive investors’ critiques.

While it was initially tough to hear our sales numbers being picked apart, I trusted the wisdom of our investor who had experience working with numerous successful SaaS startups. He knew the potential pitfalls that we may not have anticipated. So, we put our pride aside and provided the requested data.

This data revealed that a select few reps were carrying the majority of the sales load, while most others were struggling to meet their targets. This highlighted the need for change, as our sales efforts were not sustainable or scalable in the long run. By restructuring the sales team and educating underperforming reps on how to improve their close rates, we were able to bridge the gap. This specific issue is now regularly discussed in board presentations and is even named after the investor who initially brought it up.

Advisors vs. Operators

It’s also crucial to establish a clear distinction between advisors and operators when collaborating with investors. While both bring valuable insights and guidance, advisors provide more overarching advice and direction, while operators are more involved in day-to-day decision-making and execution.

This distinction helps maintain a focused and efficient relationship with investors, avoiding any confusion or clashes between their different roles. Advice from both perspectives is valuable, but it’s essential to identify the most appropriate resource for the current situation.