VC Cliche of the Week

Most entrepreneurs are smart, many are very smart.

But one of the things that entrepreneurs need to watch out for is being too smart for their own good.

We call that "too clever by half".

It's a cliche I've used and heard used for as long as I've been investing, but I honestly have no idea where it comes from.

I did a little work on the web, and the best I could come up with was this.  I suspect the origin of this cliche is british, but beyond that, I have no clue where it comes from.

Whatever the origin, its a good phrase.

I remember one of my earliest investments.  The entrepreneur was really smart but whenever he had a deal to work on, he'd always try to optimize it way beyond what was necessary.  He'd get too cute and in the end all the complexity worked against getting the deal done.

I recall another deal early in my career where the entrepreneur had a company interested in buying his business.  It was a good deal.  But he tried to carve out a part of the busines that he thought the buyer wasn't interested in.  The buyer didn't really want that part of the business but they thought the entrepreneur was trying to pull a fast one on them and the mistrust that developed killed the deal in the end.

The phrase "keep it simple stupid" is really great advice for anyone who is really smart and prone to overcomplicate and overanalyze things.

The tendency to overcomplicate things often shows up in business plans, business models, product plans, and the products themselves.  And things that seem really interesting and attractive on paper often don't end up being very attractive in real life.

I have come to believe that the act of reducing something to its essential elements and focusing laserlike on them is the best thing an entrepreneur can do.

Because being "too clever by half" is often the kiss of death for a business.

Comments

[John Evans (SYNTAGMA)]

The Catalyst report, currently causing a stir across the blogosphere, says the same sort of thing about blogs : they're just too geeky, and no-one but experienced bloggers can understand them. You're right to pinpoint over-engineering as the problem. After all, computers only really took off when clicking little icons replaced complex keyboard shortcuts. But what's the next step for blogs, I wonder?

[Josh Kerbel]

Going through this right now attempting to set up a small credit facility (about $2mm CDN)and the business owner is over-playing his hand.

The guy has $15 million in annual revenue on the line.

[Malaika Martin]

I fear that I am guilty of this kind of thing in many aspects of my life. The question is: how does one cure the malady so as to get on with business?

[Joe White]

My apologies if I sound like a broken record -- maybe not on this blog, but other VC blogs -- but this notion, and don't mind while I speak for all entrepreneurs here, is also completely true of VCs. My god, have you ever read a term sheet? I mean those things are the dictionary definition of the phrase.

[Josh Kerbel]

As someone who has been on both sides (and the middle) of a terms sheet and run an active finance company........the lender/funder is taking the risk on you. The terms sheet is slanted in their favor, big deal. They are the ones who have to explain where the money went when things go bad.

The entrepreneur is building a business with someone elses money.......if it works out.....Horray for all. If it doesn't, everyone licks their wounds.

Accepting VC money means you have accepted the rules of the game.

[Joe White]

Josh: Got your point, but I don't think we are talking about the same thing. The "rules of the game" are not to screw over people by presenting term sheets that are "too clever by half." My guess is that you disagree with this. Why? Because you are a lender/funder whose listed occupation on your blog site is "Invoice Discounter." Perhaps you confuse being in the VC business with running an "active finance company." Two entirely different animals. And while I may expect an "active finance company" to screw me and present a term sheet that is "too clever by half," I expect better from VCs -- ostensible partners in a business -- and I am merely crying over VC term sheets that are 'too clever.' While I am not convinced you have a good idea of what an entrepreneur does (is all we do build a business with someone elses money....gee, what easy lives we have), I am quite convinced that money is a commodity and that when I see a term sheet that is 'too clever,' I am running for the hills. That or ignoring "active finance company" executives (as per usual)!

[fred]

i'm with Joe on this one.

VC term sheets are too complicated for the most part.

we are trying to make them simpler where we can.

[Josh Kerbel]

Ya, I guess you have me.......I just print my capital with the press in the back room.

[Daniel Nerezov]

So true. Term sheets are very complicated.

I mean, they're just exercises in legal problem solving- it's just that there are soooooo many issues in a standard term sheet. On another hand, I've seen two-paragraph long agreements...so who knows.

Great post Fred!

[Jonathan]

Fred is spot on. Entrepreneurs and lawyers alike have got to remember the "KISS" rule. Some of the overcomplexity is indeed over-lawyering out of a desire to be precise, but still more of it results from bad negotiating, as I've discussed here:

http://brouhaha.blogs.com/brouhaha/2005/07/keep_it_simple_.html

[Chris]

You know you've achieved perfection in design,
Not when you have nothing more to add,
But when you have nothing more to take away.
-- Antoine de Saint Exupery