Harry Nelson

Failed Leadership: A Case Study in Victipreneurship

Over the years, I have invested and served as a lender to many start-up companies.  Some have been successes; some have been failures.  But the past few months, I have had a front-row seat to one of the worst start-up train wrecks I’ve ever seen:  a start-up company imploding while the founder is unable to help himself.  It has been painful to watch misdirected fear and damage lead to self-inflicted defeat.  I have come to think of the founder as a “victipreneur”: an entrepreneur so caught up in a loop of victimhood, denial, and blame that he is his own worst enemy.  Although it has been hard to observe, I thought it was worth writing up some notes while this memory is fresh with lessons for founders, funders, and other leaders.

Lesson #1:  Founders, Your Words Matter

As in many cases, in hindsight, the warning signs of the founder’s misplaced sense of victimhood were present, if only we had paid more attention.  He had a great spiel: a vision for the industry and his company, but a tendency to veer from the facts into fantasy.  He painted a rosy picture: wide open competitive landscape with few competitors, a short time until the company expected to be cash-flow positive, a  major figure in Los Angeles healthcare already onboard as an investor and a user of the company’s services. In fact, the already engaged supporter represented enough business to make the business successful with no other customers.

As they say, anytime something sounds too good to be true, it is too good to be true.  Over time, we would learn that there were many further along competitors with superior offerings and bigger visions and an absurdly long time horizon to cash-flow positive.  The big supporter?  When we pressed, it turned out he had “mysteriously” gone radio silent.  Even as I write this, it’s not clear if the founder was just a helpless liar or self-delusional, but it doesn’t really matter.  His credibility evaporated with each discovery that he wasn’t living in reality.

The big lesson for founders:  your credibility is the most important resource you have. Don’t burn it with sloppy, over-optimism.  Being realistic and acknowledging weaknesses shows realism.  No one wants to invest in companies run by people living in fantasy world.

Lesson #2:  Investors/Lenders: Trust, But Verify

I wish that I could say that we discovered these things before providing funds to the founder, but unfortunately, the discoveries were only apparent as the months ensued and it became clear that there was no “there” there. We were dealing with a great storyteller, but the real story was far from great.  As lenders or investors, our mistakes were not verifying key facts. We took a report about the loan portfolio and projections, rather than insisting on seeing the underlying data, which made the projections laughable.  We took the founder at his word on the commitment of the lead client/investor, rather than insisting on speaking to him.  We accepted the founder’s theory of the competitive landscape, without undertaking research about the companies he wasn’t talking about.

The big lesson for investors/financiers:  don’t pull the trigger based on slide decks and good pitches.  Conduct independent research.  Test assumptions.  Insist on talking to key outside relationships.

Lesson #3: Clarity Not Certainly – Move Quickly

Although the writing was on the wall within months that we were dealing with either an unrealistic person or something worse, we continued to hold out hope that maybe he was just confused and capable of turning things around.  The human resources lesson of “fire fast; hire slow” applies in investing:  we should have gotten out right away.

The lesson: Waiting for certainty when you have clarity is a big mistake.  Take small warning signs seriously and don’t delay action.

Lesson #4: Watch Out for Bad Listeners

A good friend once shared the wisdom that “people will tell you everything you need to know, if you only listen.”  The one quality that stands out about the founder over the months of interacting with him is that he never listened — and we didn’t take his inability to process what was beign said to him seriously enough.  Good leaders listen to the feedback around them, and process. Weak leaders just shut it all out, another form of self-delusion.

Lesson #5: Don’t Bite the Hand That Fed You

The most disappointing thing of all was that when we finally pulled the plug on funding, the victipreneur’s response was “I’m gonna sue you.”  I never felt sorrier for the guy than when it became clear that he had given up on finding other funding and was so stuck in his own victim narrative that he was talking to lawyers.  Beyond the lack of legal basis (defunding is not the same as terminating), the ultimate sign of failed leadership was this response.  Even when a funder is pulling the plug, the appropriate response should only be gratitude.  Leadership means finding the positive and moving to the path forward.  Rather than looking for other investors or lenders, this founder was stuck in a negative blame game and unable to move forward.  He was throwing in the towel.  There are few things as sad a human being who has given up on himself.

I hope that this individual finds a way to move forward in his life.  I admit I was tempted to post his name and picture so that no one makes the same mistake of getting misled and sucked into the victipreneur drama.  But in a spirit of compassion, I’m sharing this story anonymously.  What lessons do you have on failed leadership?

 

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