As one illustration among many I can recall, let me tell you the story of the first investment![\"\"](\"https:\/\/berkonomics.com\/wp-content\/uploads\/2024\/06\/too-many-advisors1-300x300.jpg\")
made by a newly organized formal group of angel investors. Some of you can guess that name of the group. It was thrilling for these angels to find a young entrepreneur with an idea for a business that seemed so destined for greatness that the angels invested over $1 million on the condition that the group receive two board seats and one observer seat on the start-up\u2019s board.\u00a0 The young, eager entrepreneur immediately agreed, and the business was launched, well- funded and anticipating great profits.<\/p>\n
Good intentions sometimes lead to\u2026 <\/strong><\/p>\n As the business expanded into a second city and then planned expansion into a third, there was a rift that became evident between these angel board members, played out in front of the CEO.\u00a0 The angels argued about whether the expansion was too quick, requiring additional money, or should be slower and bootstrapped with profits from the first city\u2019s success.\u00a0 Finally agreeing upon expansion at speed, the angels raised more money and encouraged the CEO to accelerate the expansion, which the CEO did with enthusiasm.\u00a0 It did not take long for the company to again run out of money, and for the board to split over the next moves (since the first city continued to be profitable).<\/p>\n The consequences of not thinking ahead:<\/strong><\/p>\n [Email readers, continue here…]\u00a0 <\/em><\/span>\u00a0 The angel investors could not raise the next, larger round to finance the shortfall and further expansion, putting the fragile young company at risk for following the advice of its board.\u00a0 In the end, the company had to turn to a wealthy individual investor who took control of the corporation as his price for saving the company. \u00a0Look ahead only a short time, and the new major shareholder ran into trouble overleveraged with his real estate investments and defaulted on his funding promises.\u00a0 But I digress.\u00a0 Painfully.<\/p>\n What went wrong?<\/strong><\/p>\n And the result for the entrepreneur for taking this advice?<\/strong><\/p>\n By not putting up any argument and being completely compliant, the CEO ceded control of the company to outsiders who gave bad advice.<\/p>\n The lesson for any CEO or for any of us for that matter is to filter all advice through the strainer of good reason, taking that which seems reasonable and rejecting that which is wrong for ourselves or for the immediate time.\u00a0 And, as I have learned from experience, if you perceive advice to be in error or against better judgement, form your arguments after a little thought and make your case with information to back it up if necessary.\u00a0 Most of the time, the person on the other side of the table will see your side, feel your passion, and either agree or withdraw any objection.\u00a0 Remember, passion and reason almost always win the day in these cases, even when facing a superior in the food chain.<\/p>\n Now you can tell your story\u2026<\/p>\n Images for this block created using DALL-e, Microsoft Designer, with prompt: A group of diverse standing adults surrounding a single young businessman, all casually dressed, with all staking at once. Photo-realistic image with ragged edges and transparent background.<\/em><\/span><\/p>\n","protected":false},"excerpt":{"rendered":" Ever get bad advice? Sure. We all have in our past. Ever take that advice without question because the person giving it was an investor, a superior in rank, the chairperson of your board?\u00a0 I\u2019ll bet you have at least … Continue reading ![\"\"](\"https:\/\/berkonomics.com\/wp-content\/uploads\/2024\/06\/too-many-advisors2a-300x300.png\")
Had the angel board members been able to agree upon a financeable strategy for growth, the company might have been immensely successful.\u00a0\u00a0 To put an ending to this story, the entrepreneur followed the suggestions of the new investor just as he had followed the angels, and accelerated quickly into more cities, again running out of cash.\u00a0 And now you know that the wealthy investor in the meantime, could not make good on his promise to further fund the company, which found itself unable to meet its obligations and ultimately was shut down, causing a complete loss for all.\u00a0 Bad advice taken by an enthusiastic and compliant young CEO was the root of the cause, compounded by circumstance.<\/p>\n