It seems like an incredibly simple notion -- to take advice from those that have some experience. Not experience giving advice, but actual experience having done whatever it is they are advising about.
One of the problems, of course, is that advice peddlers are everywhere (yes, this blog is one example). And everyone that is dispensing advice is as sure as a round Earth that they happen to know what they are talking about. Nevermind that they often don’t. That’s just a minor detail right?
Consider this example: An accomplished venture-capital lawyer is likely to have significant experience putting together capital-raising transactions from a legal documentation point of view. He or she has done a lot of deals and has good knowledge of how they should be structured. His or her advice on this particular topic is genuinely “expert.”
But does such a venture-capital lawyer happen to know anything about valuation? It is certainly likely he or she has spent a lot time discussing or negotiating price, but what about actual experience with value or price? Unless the lawyer also an experienced investor, the answer of course is no. You would, of course, be better served by taking valuation advice from a source that has some valuation expertise.
The more difficult scenario arises when comparing two or more prices that are a little different and two or more sets of terms that are also a little different -- and even perhaps investors who you may perceive to be very different.
How to sort through it all? The short answer is to ask yourself what matters more? While you certainly want to avoid a legally dubious transaction, there is little question that value will be far more important than the other legal terms of the investment. While there will almost certainly be no malicious intent, the simple reality is that a lawyer will be biased to his area of expertise. Said another way, it is highly likely that he or she will display a stronger preference for the deal with the best legal terms. A lawyer doesn’t know so much about value and price, after all, and he or she is probably even less well-equipped to have an intelligent point of view on any qualitative factors that may be worth considering, and those qualitative factors may be very important. In any event, such advice will be filtered through this type of sieve -- and you, as an entrepreneur, need to be aware of this. The concept is the same for any professional services provider – indeed for any purveyor of advice.
So how does one separate the proverbial wheat from the chaff? It is really is pretty simple -- look for experience.
When you’re an entrepreneur, there will be many people offering you advice -- some qualified and some less so. But in the end, you’ll likely be on your own when weighing all of the variables and advice to help make a decision.
The secret? Embrace those moments. Understand what matters more. Try to understand who has a lot of experience and who has less. That’s a big part of an entrepreneur. You’ll make a lot of mistakes -- just like every entrepreneur that’s ever lived. That’s part of success. Relying more on experience-based advice, and recognizing that mistakes are still going to be made, will allow you to avoid unnecessary risks and focus on the calculated ones.