407: How to Deal with Investor Conflicts?

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Steli Efti: Hi everybody, this is Steli Efti.

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Hiten Shah: And this is Hiten Shah.

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Steli Efti: And today on The Startup Chat, we’re gonna talk a little bit about investor conflict. Here is why I wanted to talk to you about this Hiten, a listener has been emailing back and forth with me for the last couple of days, and basically he describes a situation where he has perceived conflict with a number of his investors. And I thought it would be cool for us and valuable hopefully to the listeners to kind of talk a little bit about how do you deal with is when you have investors that wants you to do something completely different from what you want, or if you perceive that there’s conflict and pressure with the people that give you money. So in this particular case, I’ll summarize to my best of my abilities what has happened so far, which is, this guy a raised a small round, I think a total of 500k from some angel investors and some small VC investors, has gotten the company to profitability. And now that the company is profitable, he feels really proud of himself and that things are going really well, but now he’s starting to get pressure from some of these investors. The pressure that he’s getting is that, A, he’s not thinking big enough, so they want him to expand into a lot more markets much more aggressively than he thinks is right. And there are also, he shared some quotes that they’ve used in talking to him, that seem fairly aggressive to me. The sort of thing of like, don’t fuck with your investors, you might regret it one day and that sort of thing. It’s slightly like intimidating language on taking on their path or their advice versus resisting or pushing back on it. I went back and forth quite a bit trying to understand how many investors are those, have they orchestrated this, is this is a bigger problem that he describes to me or a smaller problem that he perceives it to be, how much power they really have in terms of voting and all that. And my summary is that right now it’s not that big of a deal, I think he is, he seems to me to be very sensitive to this problem, maybe hypersensitive. He has full control of the company, these people can’t really like just politically do anything to him or force him to do anything. And there was never a kind of a departure of what he promised in the early days when he raised money and what he’s trying to do now. It seems that one investor in particular is not a professional technology startup investor and has a change in life situation that is maybe making him care too much about what the startup is doing and what they need to do. And so that’s kind of the situation, he’s basically saying what he wants. What he’s asking me or us in this situation is, how can I deal with this conflict in a way where I can bring all these investors on my side of seeing the world so I can just execute without worrying, without arguing or without having that mental stress of knowing that one of these people is getting angry with me because I wanted to do something different with my company? So I thought it’d be valuable for us to discuss this, inspire around this a little bit on the episode.

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Hiten Shah: I’ve seen a scenario a number of times where there are, and I’m sure you have, where there are people that are investors. When you’re the operator running the company and these investors are speaking to you, and telling you things and giving you advice or telling you, you should do this, that or the other. And you’re a businessperson first, and these people have given you money and you’ve said a bunch of things about what you’re going to do and they have opinions about what you should do. And sometimes their opinions come from an emotional place because we’re all human, things happen in our lives and whatnot, and sometimes these opinions are just like based on information that they have and they’ve seen. So step one, if you’re seeing that you have a conflict like this arising is, you need to find the supporters that actually support you, trust you. And regardless of what their ownership stake is in things, ideally these people have more ownership stake than the folks who are more on the descent side of this, but you find supporters. That’s important just because they’re a good sounding board, not because you try to use them to say anything on your behalf or anything like that, yet you’re just literally trying to have a sounding board. And then what you do is, you make it a business problem. A business problem is that you have stakeholders in your company that wants you to do certain things, you feel very confident about the things you want to do. And so my idea would be if it’s like something that’s causing this kind of discomfort, is actually go talk to everybody, get their opinion, let them know you’re going to do that. Be like, I’d love to talk to everybody. Anyone that wants to talk to me, please let’s set up a call and let’s talk about what your opinion and take is. And then ultimately this is my business to run, and that’s why you guys put your trust in my money and you trusted me to make the best decision possible at the time, and I continue to do so and I will continue to do so. And so I’d like to talk to you and get all your perspectives and then I will take the time to write a summary and a write up of what I’m going to do based on all of your inputs. Some of you might not be happy with what I want to do, but you’ll know that I heard you and you’ll know that I’m taking it into account because honestly I have a business to run and that’s the best I can do is, take your input into account and if it is something where I can adjust direction or do something, I would love to hear it. I would love to know what it is and I’d love to do it, if it makes sense. But I need to hear everyone’s opinion because it seems like there’s a bunch of conflicting opinions here and these opinions are not in alignment with what I told you I’m going to do, and what I’ve said. So in his case, he holds a lot of the power here. He holds all the responsibility because it’s his company, but he holds a lot of power here because he said, hey, I said I’m going to do a bunch of stuff and I’ve been doing it. Now it’s different if there’s a problem in the company and what you said you were going to do you weren’t able to do or something like that, that’s a different story. That’s one where like the same process would work, but you probably need to put more weight on everyone’s opinion because you have a decision to make, you might either not be seeing or realize you need to make and need to change.

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Steli Efti: Yeah. The other thing is the, what you said, I think for him a lot of this is also just not being as emotional about things because the undertones oftentimes were that, he feels like he’s accomplished all these great things and to some degree he’s like just heartbroken why he’s not getting the support or why he’s not getting enough recognition of why he has to deal with these things. So it seems like he’s amplifying these conversation to himself to degree more than it should be, instead of just being very rational about it and being like, all right, so there’s multiple stakeholders in this company. Also when everybody agrees is in full alignment, but in life and in business, there’s going to be opposing opinions at times. My job is to hear those opinions, to bring in those data points, to make these people feel heard. But at the end of the day, I as the CEO have the mandate to make the best decision for the business, and that means that sometimes I’m going to make a decision that doesn’t conform with what every other investor wants, what the loudest investors that disagree with me want. And that’s okay too, it’s not the end of the world. As long as I communicate transparently, as long as I listen and manage those relationships, might be that if I’m right, they’re going to respect me for more down the line that I didn’t listen to them or that I didn’t listen, but that I didn’t go with their advice and went the other way. And if I fail, because I listened, maybe the dialogue will continue and I might see that I went down the wrong way and I can course correct. But I think the biggest problem or the start of making investor conflicts even larger and more complicated conflicts to resolve and to manage is when you amplify it emotionally. It’s the emotions that make things so much trickier, especially conflict, so much trickier to manage and to resolve. The first place you can start at is your own emotions, and recognizing that just because an investor is telling you, hey, I think you could do even better, and I think you should be thinking bigger and more aggressively and going that direction. If you have a strong emotional response to that, then maybe you need to meditate on this and try to figure out, this person just wants the best for our business. This person maybe just wants the best for me and challenge me to do even better, and I don’t have to take this as a personal attack. I don’t have to feel angry or betrayed or attacked all day long. That’s my choice in how I manage and deal with that pushback or with that conflicting kind of direction, and managing my own emotion first is the step that I need to take before I’m able to manage other people’s emotions and manage the board. But I think that’s the one step that we all like to avoid or that we like to skip and we’re like, why is this person so unreasonable? We get all crazy and we’re like, why are they sending me this terrible email? It’s like, well, why are you overreacting so much? Why are you responding so strongly? What’s going on with me? Right. I think if you’re able to like be calm, cool and collected even when other people lose their minds, even at the extreme cases where people lose their minds and are super unreasonable, it’s going to put you in a position where you’re going to be able to manage them and their emotions better, but also it’s going to reflect on everybody else that’s a stakeholder. They’re going to see how cool, calm, collected you are and how kind of overly emotional other people are, and it’s going to instantly make all the parties or more person want to align with you just because you seem rational versus emotional, right?

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Hiten Shah: Yeah. I think it’s important to take a professional approach even when someone else is being emotional, especially when someone else is being emotion. I think that’s the … Find your path toward being professional would be the key here. A lot of times we can feel someone else’s emotion and like take it on and we should realize that like, it’s theirs not ours and we should definitely feel good about the actions we take and the steps we need to take, and just get really practical because it’s not just about investors, this can happen in any situation.

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Steli Efti: Love it. All right. That’s it for us for this episode. We’ll hear you very soon.

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