Entrepreneurs who take the risk to start businesses make the world a better place. We are thankful there are individuals out there willing to put everything on the line. In order to be successful, the entrepreneur has to chase all opportunities, take major risks, be involved in every facet of the business, and follow their gut. Ironically, some of the attributes that made entrepreneurs successful in the start-up phase may actually serve as deterrents for investors when a company transitions from early to mid stage.

“I am involved in every business decision. I know everything going on in my company.”

This is a great attribute for a CEO at an early stage as it is important to understand every role in the company. What the investor potentially hears is key man risk, making the business unscalable. In order for a business to grow, a CEO must build a capable team empowered to make business decisions. A well oiled machine allows a CEO to focus on vision and strategy. If a CEO is caught up in the daily minutia of an operation, this creates a ceiling for the business. At some point in the evolution, a CEO needs to create guidelines for decision making at the executive, manager and junior level.

“I never leave any stone unturned. I have will always take a meeting to explore new opportunities.”

Chasing opportunities is vital to getting a business started. A business often pivots several times before finding its stride. What the investor potentially hears is that the CEO may often get distracted by shiny objects. One of the biggest reasons for business failure is when a company tries to bite off more than it can chew. While entrepreneurs hate to admit it, there is an element of luck that comes with every success. Entrepreneurs sometimes feel overconfident thinking they can repeat this success in any market. The danger is that entrepreneur deploys resources into a venture that doesn’t work out and doubles down due to stubbornness. More often than not, there are still plenty of opportunities to generate more revenue and reduce costs in an existing core business to boost profitability.

“We make decisions very quickly. I have a pretty solid sixth sense when it comes to business.”

Most CEOs tell me they were able to get their first customers through quicker response time and better customer service than their competitors. Quick decision making is vital for the survival of an early stage business. What the investor potentially hears is the company operates with a lack of due process. Especially when decisions require capital expenditures or increase operational expenses, there needs to be a well thought budget. Once a company has established a steady revenue stream with a viable operation, there is a lot more to lose taking risks.

“I am available 24/7. I work 80 hours a week and return all calls within an hour.”

It is hard to knock a solid work ethic. Successful entrepreneurs are thinking about their business even in their sleep. However, the concern from an investor perspective is whether the entrepreneur is spinning their wheels and not moving forward. Here are some of the red flags I have observed working with CEOs who work around the clock:

• Taking important phone calls on the road traveling to meetings. Decisions are being made without looking at documentation. Far too often, the two parties remember the conversation differently and this leads to disagreements and rehashing of the conversation.
• Constantly checking emails and text messages, especially during meetings. When a meeting is called, it is likely that a lot of preparation went into preparing materials for a group of people to make a decision. Any lack of attention during a critical meeting results in misinformed decisions.
• Phoning employees and vendors in the evenings and weekends. CEOs may decide to work all hours of the day but to expect everyone else to operate at their hours infuriates people. CEOs need to appreciate that other parties are not as invested in the business and appreciate their work life balance.
• Speaking twice as much as they listen in meetings: Have you ever been in a job interview and the interviewer spoke 75% of the time? CEOs are often so used to being in sales mode, they fail to grasp the fact that some meetings are learning opportunities and they should only be asking questions, rather than talking about their business.

The required skill set to start up a business and get it to $2 million is vastly different from the skill set to get from $2 million to $5 million and vastly different from getting from $5 million to $50 million. This is why founders often recognize their strengths, grow the business to a certain size, and hire executives to manage facets of the business where they are weak. Once a business hits a certain size and employees grow, bureaucracy is a necessary evil of ensuring smooth operations. It is critical for CEOs to understand this when communicating with investors in later stages of funding. Your audience is no longer the same as the friends and family that were sold on your entrepreneurial spirit when you first started.