2 min read I know what you’re thinking, “Startup illusions; what does that even mean?” Don’t worry, we aren’t talking about magic here.
Illusions are often based on cognitive biases or fallacies. Illusions are normal, but they can hinder the ability of a startup to thrive. There are four illusions that as a startup you need to be aware of. it will help you be prepared and think clearly in regards to decisions being made that will affect the growth and prosperity of your startup.
Illusion of Control
The illusion of control phenomenon is defined by Wikipedia as the tendency to overestimate one’s degree of influence over other external events. Startups often display an illusion of control about how their product and sales efforts will take over a market. Just as the gambler in the casino cannot make the dice come up the way he wants, the startup cannot predict how fast his product will gain adoption. A few organic sales often lead startups to believe they have a working sales and marketing plan, when in fact they have not yet developed a way to drive the process.
To convince investors the startup must show a repeatable, predictable process for generating leads, qualifying the sale, and finally closing the sale. Even at the early stage startups can track the number of leads generated through a channel and how many leads convert to a sale. By showing this on a unit economics basis, you can overcome the illusion of control and provide clear evidence that you have a customer acquisition process in place. Those with strong organic sales that come without much effort are the ones most likely to believe that they can grow sales without a program or process.
The money illusion effect is defined by Wikipedia as the tendency to concentrate on the face value of money rather than its value in terms of purchasing power. In pricing the product, a startup should list their product price in the smallest unit possible such as daily cost rather than annual cost. For example, if the price of the product over a year is $2000, then list the price as $5 per day rather than $2000 per year. The smaller dollar number will attract more customers. Startups raising funding should focus on what the funds will buy rather than the dollar amount alone.
The Illusion of External Agency
The illusion of external agency is defined by Wikipedia as when people view self-generated preferences as instead being caused by insightful, effective, and benevolent agents. Founders often believe someone else can make their fundraise successful. The responsibility of a fundraise for startups lies solely on the founder’s shoulders. While others may help through introductions and mentorship, the duty to follow through lies with the founder.
To overcome the illusion of external agency, consider the following: The strategy and content of the fundraise comes from the founder no matter who is driving the campaign. Part of the fundraising process is to build a relationship with the investor. The founder must be integral to the fundraise campaign to do so. The founder is responsible for the outcome of the fundraise as investors look to the fundraise campaign as a proxy for the founder’s skills including communication, execution, and follow-up. The fundraise campaign is an opportunity to demonstrate those skills. While others can help, it’s the founders themselves who must own the campaign.
Illusory superiority is defined by Wikipedia as overestimating one’s desirable qualities and underestimating undesirable qualities, relative to other people. New startups tend to have the perception that they are superior. Believing that they are the best of the best and should receive funding accordingly. The startup world in which investors have the advantage of seeing many startups while the founder sees far fewer. In fundraising, there’s a competition for startup investment.
To overcome illusory superiority, consider the following: Maintain awareness of illusory superiority throughout the fundraise process. Remember how many other startups are raising capital and the challenge that imposes. Look at startups outside your own circle to see how they compare. Always be learning about startups and the startup world. Get an independent view of your startup to see how it compares to other startups. Look for critical views of your startup to see how you can improve. Through constant improvement, you can overcome illusory superiority.
Feel free to try out our calculators and contact us if you would like to discuss your fundraise: https://www.startupfundingespresso.com/calculators/
Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: email@example.com