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Why most VCs give bad advice  

Kamal Hassan:

To sum up, venture capitalists:

  • know less about the business than the entrepreneur
  • often have limited experience in the industry and in running businesses
  • often feel that they know better (their environment encourages it)
  • can fire the entrepreneur, so their ‘advice' carries too much weight
  • have a different share class so have different incentives
  • are on a fixed timeline that may impose looming deadlines
  • are biased to take action if things seem to be going poorly

Advice is a dangerous beast. Advice from the wrong context pushed overly forcefully can easily damage or even destroy your business.

As an entrepreneur, it is your responsibiity to:

1) understand the context that the advice is being given from; is that context actually relevant to the advice being given? 2) translate it to your own context; how much of the advice can reasonably translate to your potentially very different context? 3) decide how and whether to apply the advice, if any is useful at all.

It's your business and your life. Only you can make the call on whether the advice makes sense. Any situation where you have no choice but to disable your critical thinking and take someone's advice anyway should be avoided like the plague - whether or not you're going down the funded vs bootstrapped route.

I've heard some pretty horrendous advice given to startup founders by people who sounded like they knew what they were talking about. One startup I advised recently was being told by one of their "advisors" that a transactional business model, for what they were doing, was impossible, so they were going for a subscription model instead. I know several businesses using transactional models in similar contexts, so I was able to undo that bad advice, but ultimately there's only one defence against bad advice: think and make up your own mind.

More from the library:
The idea funnel
Three types of acquisitions
When do you kill your startup?