When a company raises money from investors, they need to negotiate the best possible valuation for the fund raise. Often, founders mistake the 'best possible' to mean 'highest possible' and negotiate for the highest valuation that they can get in the round.
The higher the valuation, the higher their popularity and probably higher the amount of money they can pay themselves and their employees. More money also means more things that they can build, the faster they can ship products and features and the quicker they can gain market share.
At the same time, higher the valuation, higher the expectations. After all, the investors who are putting in the money this round will want to see it grow at a certain rate. And if the valuation this round is artificially high, then so are the expectations, leading to unreasonable growth targets. Failing which, raising money in further rounds becomes very hard.
By treating 'best possible' as the 'highest possible', founders are setting themselves up for failure.
But this doesn't just happen with founders and fund raises. It happens in every aspect of our lives.
When a college graduate negotiates a huge pay package in her first job could be the equivalent of a founder raising funds at an artificially high valuation. And with that pay comes equally high expectations and should she fail to deliver on them, she is setting herself up for failure. This is true when negotiating pay and title while taking on any job in the market.
Mark Manson tells the story of his friend who falls into this trap when it comes to relationships. After having great chemistry with a woman on a one week vacation on a Mediterranean island, he decides that she's the most wonderful woman ever (she feels likewise about him) and quits his job and moves cities to be with her. But having made such drastic changes to his life to be with her, he has raised the valuation of the relationship to artificially high levels, and with it the expectations. After spending a few months with her, he soon comes to the realization that she's not different from some of the other women he's been with before. He set himself up for failure through unreasonable expectations.
Running the first mile in a marathon very quick, going overboard with weights on the first day at the gym are other equivalents of this where initial valuations are impossible to live up to in the long run and we'd kill ourselves trying.
The best possible doesn't always mean the highest possible. And as James Altucher says, happiness is reality over expectations.
Kumara S Raghavendra. Powered by Blogger.