I Don't Know!

‘I don’t know’ is difficult to admit for anyone, especially for founders or investors at the early stage of venture building. Founders or Investors are expected to know it all. They are expected to do the crystal ball gazing and build outsized businesses or generate superior financial returns by predicting the future. However, we all know that accurately predicting the future can be a stroke of luck at best. If this is true, how do founders or investors increase the probability of success?

The answer in my understanding is a combination of multiple factors such as a sound thesis, resilient management teams, sectoral tailwinds, thorough research and diligence processes, fair valuations, etc. But there is one common thread linking all these factors – Storytelling – stories that founders share with all stakeholders, stories that management teams execute on, and stories that investors tell themselves.

There is substantial literature and empirical evidence highlighting the importance of storytelling in building successful enterprises. To illustrate why storytelling is especially critical in the early stage of venture building, let me share an analogy from the public capital markets. You would have come across this famous quote by the father of value investing – Mr. Benjamin Graham:

‘In the short run, the market is a voting machine but in the long run, it is a weighing machine.’

The takeaway here is that in the short-term the public capital markets can act as a voting machine driven by irrational or exuberant human emotions. However, as an investor, it's better to focus on the business fundamentals, given factors such as competitive moat, profits, and free cash flows, start to weigh more heavily on the stock price performance in the long run. One could say that this applies only for mature companies that we come across in the public capital markets. But as founders and investors of early-stage startups, there is a profound takeaway for us as well here:

‘Successful Venture Building is coupled with Storytelling’

To get an opportunity to build large businesses, one needs to constantly gather resources. Both human capital and financial capital which are pre-requisites for any venture, cast their vote of confidence in the short-run based on a Story. Eventually, once traction is built, it becomes viable to weigh the proposition in actual fundamentals. Hence, it's important to build a credible story, as well as convey the story in a manner that can rally the troops to believe in it, and subscribe to it for the long journey of venture building.

If I had to sum this up based on what’s trending from the ongoing Paris Olympics 2024 :)

(L) Venture Building <> (R) Venture Building + Storytelling