“What keeps you up at night?”
It’s not the first question I ask, and it’s not usually the last. But if I am serious about investing in your company, it may be the most important.
Why? It’s a hard question to answer truthfully. It’s also the kind of question where a ‘wrong’ answer is always better than a half baked one. Oh, and if you treat the question like a throwaway, I can confidently draw our diligence to a close. You and me? Not a match.
The “what are you most concerned about” query is especially good at revealing three things:
Are you being honest about the risks the company will face?
Do you have the courage to face those risks head on?
Will you actively seek support as you navigate the less-than-rosy parts of the business?
If I asked those questions point blank, I can guarantee the answers: Yes. Of course. Always. Yet, companies die every day because they miscalculate risk, willfully ignore serious threats, and bury bad news they fear will cast the company in poor light. Most of us have done it, if only to a modest (and perhaps not fatal) degree.
When asked about perceived risks, most founders default to a competition-related reply. Someone does it better, cheaper, faster. It’s a reasonable answer, if uninspired. The answers I find most compelling go deeper, reflecting a team’s ability to discuss how externalities or macro changes in the market may converge to slow progress and threaten success. Startup death comes in many flavors. There’s the devil you know, and the devil you don’t. It’s the latter that keeps me up at night.
If you admit that you are vulnerable, will that deter me from working with you? Maybe. But sometimes not working together is better than founder/investor misalignment, which is the Azkaban Prison of startup misery.
So go ahead and describe the monsters you worry may be under the business bed. Chances are I already know. We can talk about your ability to hold down the fort should things take longer or not go as planned. I can tell you how I see it, and what I might do to help. Then, you can evaluate my qualifications to help you. Not just with money and resources, but with capacity and experience.
It burns my buns to know that we’ve glorified the virtues of early stage failure while propping up the “we are going to crush it” approach to characterizing company trajectory. It’s an onerous double standard. One that good founders and good investors work hard to see past.
Think about it. Prepare for it. Go back to it, time and again, to see how your answers change (they should). Test them out. Aside from being a great way to test for investor/partner fit, it’s a surefire way to gather market intelligence on the things you might not see coming, and there will be many. Once a risk is surfaced, it can be addressed. Keep it under the water and all you've done is missed a chance to get stronger.
The road to startup triumph passes as close to hell as it does to heaven. I can sleep well at night despite this. Put the rewards AND the risks of your company in context, and you can too.