March 2nd, 2022 | By: Wil Schroter | Tags: Strategy
The worst advice Founders get consistently comes from their hometown.
I call these the "local yocals" and every hometown has them. They are well-meaning advisors who try to guide a Founder through the startup stages but instead fill their head with irrelevant, outdated, and in many cases straight-up bad advice.
Every single time I talk to a Founder that's been clearly led astray, I ask where they got that advice. And in almost every case, it's from someone that simply isn't relevant to the startup ecosystem. It's their well-meaning uncle who made a boatload of money in commercial real estate, or a local angel investor who has no idea who YCombinator is, or the "startup guru" who had the one exit in town but has never left the state.
From a Founder's perspective, this is sage-like advice, because it's the only advice they are getting and they've got nothing to compare it to. But time and time again, it's just really bad advice.
Look, anyone who can write a check can call themselves an investor. I invest in the stock market but it doesn't make me Warren Buffet. These investors love to give Founders advice about how valuations work, "what investors want" and where to steer their startup.
The thing is — they aren't competitive investors. Competitive investors are very active investors who are seeing a ton of deal flow and have to compete at the highest levels for getting startup deals. They understand current valuations, terms and to some extent, what the market is currently looking for.
A good way to size up an investor is to find out what's the most successful deal they've done (in the past 5 years), how much capital has that company raised (it's on Crunchbase) and how involved are they in the company. If they fail all of those tests, it's a local yocal investor and we've got to take their advice with a grain of salt. Seek good investor advice from good investors! Hint - 100% of them are super active on Twitter.
Every town has a "hometown hero" Founder that did something really big (by local standards) and everyone lauds them like the winning quarterback in High School. I should know, I was one of them — last century. They run around giving Yoda-like advice to would-be startups who take their words as gospel.
What even they don't realize is that the startup ecosystem changes a lot every 5 years, so what worked for them "back in the days of yore" almost certainly isn't relevant today. On top of that, they probably didn't do it in the industry that we're working in. I made a bunch of money in the agency business in the 1990's, that has absolutely nothing to do with your fintech healthcare startup you're running today. Just keep that in mind.
Also worth noting — if you've never left your hometown, which many haven't, you often don't have a good calibration for how things work elsewhere. Until I left Columbus, Ohio for LA and SF, I knew about 20% of what I needed to know about the startup ecosystem. Most of what I knew only applied to what worked or was understood in my hometown. It's a very different game elsewhere.
Easily the biggest culprit in this whole mix is the super successful advisor we turn to for guidance. It's our aunt who has a very successful accounting practice or our one friend who is the star partner at a law firm. We make the mistake of transferring the success or domain knowledge they have at that one thing to mean it applies to us as well.
I can't tell you how many times I've heard someone say that that they talked to a local attorney and they insisted the first thing they need to do is have everyone sign an NDA before they see their pitch deck. I don't know of any legitimate investor that has ever signed an NDA to see a pitch deck! But, if you didn't know any better, you'd hear that advice and assume "This is the Way."
What we're missing as Founders is a way to stop and say "Wait Aunt Ginnie, you know a lot about accounting but have you ever raised money for a mobile edtech startup?" It's sweet that she helps you file your taxes but that has nothing do with putting together financial projections for a VC round.
I love that people are willing to help Founders — we need all the support we can get. But as Founders, we have to consider that all of these local yocals can only offer us a tiny bit of helpful advice. It's our job to seek out advisors who are clearly "in the game", relevant to our industry, and have a track record of helping people just like us succeed. Until then, take all that advice with a grain of salt.
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Wil Schroter is the Founder + CEO @ Startups.com, a startup platform that includes Bizplan, Clarity, Fundable, Launchrock, and Zirtual. He started his first company at age 19 which grew to over $700 million in billings within 5 years (despite his involvement). After that he launched 8 more companies, the last 3 venture backed, to refine his learning of what not to do. He's a seasoned expert at starting companies and a total amateur at everything else.