At every stage of a company, every decision has a varying effect on the interests of various stakeholders. This is more true in the initial years. Many times, founders face a typical dilemma while making different types of decisions. They face the challenge of balancing conflicting priorities.
Some decisions which may be good for customers may be detrimental to the interest of the investors. When such a dilemma arises, whose interest does the entrepreneur prioritize?
I watched Manu Chandra, Founder and Managing Partner of Sauce.vc, a venture capital fund, making a candid comment on this. He said:
“We investors are in the business of being wrong. So, when you are building a business, do not look at us on how to build a business. The answer lies with your consumer.”
He meant that investors generally lose money on almost 80-90% of their investments. So, their judgements are more wrong than they are right. So, one must always decide in favour of customers when forced to choose between the interests of investors and customers.
Of course, investors are important, but they have a short-term interest in the company. They look for a higher valuation of the company at the earliest, so they can make good money on exiting the company. It is an investment for them and their primary business objective is to make money. But, from an entrepreneur’s perspective, focusing on customers may be good for the company’s long-term health and hence must be preferred.
This was surprising, coming from an investor. However contrarian it may sound, I think that is the right advice. I appreciate his honesty and clear-headedness, which gave higher weightage to the long-term health of the company he invests in. In the usual money-minded investment world, such thinking is a refreshing breeze.
-Sanjay Shah
SME Business Coach