The other day, while watching sharktank. I noticed that there is a certain bias from investors in favor of entrepreneurs that have their back to the wall.
Specifically Barbara Corcoran is hostile to anyone who is not hustling with his back to the wall.
First let me explain the term. Having your back to the wall or back to wall entrepreneurs, are basically the entrepreneurs that are living from the business, and do not have any social net or backup source of revenue or support.
In popular terms, having your back to the wall means you need to work in your business to eat.
Why investors prefer entrepreneurs who have their back to the wall?
Investors put their money in the entrepreneur’s business. Thus they need the entrepreneur to be fully committed and fully invested in that business. Best way to have this situation is by having the entrepreneur fully dependent on the business’s success, thus putting a 100% effort.
An investor, especially an immature and greedy investor, would prefer the entrepreneur to be all in, in the project pitching for funding. A mature investor would know that it is better to have an entrepreneur that is in a zen state rather than one burning the candle from both sides. Especially that an investor-entrepreneur relation can last a lifetime and span multiple projects.
Why having your back to the wall is not in your best interest as an entrepreneur?
1- Businesses often fail: Even if you commit your full effort, your business have a high risk of failing. And that is irrelevant of the founder. Other factors can lead to the demise of your business. If your business fail and you have no way to buffer the fall, that would become a big personal problem (can even end in homelessness).
2- Puting all in, is dangerous financially: The other day, i was watching a business show. They introduced an entrepreneur who used up all his savings, withdrew his 401k, maxed his credit cards and took loans on his home … All this to help execute his idea and project. Unfortunately his idea was not financially sound. How many entrepreneurs put themselves in this guy’s situation, and put their back to the wall, just to chase a dream!
Entrepreneurship is a journey on a road, very few entrepreneurs gets things right from the first try. It often takes few tries till an entrepreneur succeed in a business. Putting yourself back to the wall can impend this journey.
Having your back against the wall, business reality.
Having your back to the wall, means you are determined to succeed. But also, to put all in, no matter the personal and financial consequence … By doing so you have indeed a higher probability to succeed, but if you fail, you would suffer much much more. It’s a Russian roulette.
In my opinion, money can buy anything. Money can buy time through hiring, can buy expertise in execution and can buy experience via consultants. Thus the entrepreneur should not push himself to the brink, when instead he can use money from investors and even get expert opinion from these same investors.
A lot of successful entrepreneurs launched their project or business as side hustle. Often while having a stable job to pay the bills and finance their business early capital needs.
An investor that is looking for back to the wall entrepreneurs, is someone who is looking to optimize his profits by getting a business at a lower value and getting the entrepreneur to be involved as an employee, manager and CEO.