This VC Pioneer Recalls His Biggest Investing Mistake And Why It's Always Best to Say No Quickly

It's a lot easier to make people happy. Give a gift, a compliment, some help.

Knowing that you're about to make someone unhappy - that's really difficult. There's an art to it. Delivering bad news is never easy. Some people are terrible at it, dancing around the rejection or masking the bad news as good news.

If you're an entrepreneur or a hard-charging executive who takes risks, you'll have to get used to lots of bad news and rejection. George Zimmer, the former CEO of Men's Wearhouse, described how ten years into running his company he had to fund raise again. Traversing the country, everyone rejected his proposal until his mother bailed him out. Ouch.

What if you're the one who has to dole out the rejections all the time? That's the problem for someone like Alan Patricof, one of the best know venture capitalists in the country who has funded some of the biggest companies like Office Depot, Apple Computer, AOL.

After decades of telling people no, Patricof jokes he has a slight paranoia when people approach him and say: "You don't remember me but."

"When you've been around this business as long as I have, every week, in fact sometimes multiple times a week, someone will come up to me who I have no idea who it is and they always talk the same way, `You don't remember me but...' And that has made me think a lot about...how you deal with people on the way in your career," he said in the latest episode of my podcast, Radiate. (You can listen to our entire podcast episode here at iTunes or here on SoundCloud). 

How many times do Patricof and his partners at his firm Greycroft have to say no?

"Right now, we're seeing in New York something like 75 to 80 new deals a week and in our Los Angeles office in Greycroft, we see probably 30 to 40 a week. And we're just one firm...what amazes me is when we share with some of these other firms what their flow is, the duplication is so small," Patricof said, meaning so many entrepreneurs are out pitching deals. But out of a hundred pitches, only one or two will get his funding. That's a lot of nos. 

Patricof is the first to admit not every no is right. He said no to a little known coffee company called Starbucks, which has become one of his life's regrets.

"I was very parochial, I lived in New York City...I said, `Are you crazy? I mean we've got coffee shops in New York. We've got two in every single block. They just call it luncheonettes or coffee shops....what in the world do we need another coffee shop?'...I didn't understand the culture and what Starbucks was really about. It wasn't a coffee shop, it was really a way of life." 

Like it was for Patricof, Zimmer and others, these moments of no teach us more than any long string of yeses.

So what's the best way to say no in business? Here's 3 rules to live by:

1. A fast no is the biggest favor you can give anyone. Nobody likes being rejected but drawing out the no for days, weeks is painful for the receiving party. Make the cut early, say no politely as gently as possible and move on.

2. Give an honest answer. Don't do the classic "it's me not you." Tell the receiving person why this is happening - you'll do him or her another big favor by giving them honest feedback.

3. Keep doors open. This is more for you than for the rejected party. If you've been in business long enough, you'll know fortunes can reverse, junior employees can become decision makers, and so on. Making sure you keep the doors open to future contact can pay dividends later. A no now may mean a yes later. And as Patricof has realized, yeses are memorable but it's the nos that people never forget.

If you like this article, you'll love my new podcast, Radiate, featuring interviews with CEOs, entrepreneurs, and thought leaders. You can click on new episodes on iTunes, SoundCloud or on my website. www.betty-liu.com. Here is the RSS feed too. And please don't forget to REVIEW the podcast or contact me at [email protected].