I pitched a VC group, and one of them asked me, “What mistakes have you made and what did you learn from them?” What was the right answer to this question?
Believe it or not, the right answer is to tell the venture capitalist (VC) about some mistakes you have made and what you learned from them! Many aspiring entrepreneurs are hesitant to answer this question, thinking that it is like the interview question in which a prospective employer asks for one of your weaknesses. (What possible good can it do to provide the interviewer with one of your weaknesses?) The “right answer” for the interviewer is to list a “weakness” that would be good for an employer, such as that you get obsessed with your work and sometimes work too many hours.
However, with a professional investor, an evasive or pat answer is likely to hurt your cause. The “right answer” is to tell a story about a mistake that you made, ideally one that had really painful consequences for you and your business. Then, you talk about what you learned from the experience, preferably in a way that demonstrates that you are resilient, creative, and persistent.
The reason that investors ask this question is that they place a higher value on the leadership team (you and other founders of the company) than on the business idea. Gompers et. al. (2016) surveyed 885 institutional venture capitalists at 681 firms and concluded:
“In selecting investments, VCs see the management team as more important than business related characteristics such as product or technology. They also attribute more of the likelihood of ultimate investment success or failure to the team than to the business” (P. 169).
Since VCs believe that the quality of the management team will determine the success or failure of the venture, they ask questions that help them predict how the team will react to pressure. There is no greater pressure than the feeling that you have made a major mistake. The investors want to know that you have experienced that kind of pressure before and that you have learned from it.
Failure is a powerful force for learning. Just ask the dozens of successful entrepreneurs who failed multiple times before they achieved their fame. Domino’s pizza founder Tom Monaghan had a couple of bankruptcies before eventually selling his pizza chain to Bain Capital for more than $1B (Kelly, 2021). Steve Jobs, one of the original founders of Apple, was unceremoniously fired many years before he returned to lead the company to repeated glory (Peek, 2023). Surely, neither entrepreneur would recommend failure as a strategy, but they would almost certainly endorse it as a teacher.
So, think through your previous business experiences, and focus on mistakes that were especially painful or consequential. Then, ask yourself what you learned from them and what you will do next time that demonstrates your insight. Next time, you will be ready for the question and will have a meaty response.
Peek, S. (2023, February 21). Never giving up: 9 successful entrepreneurs who failed at least once. Retrieved on February 26, 2003, from https://www.business.com/articles/never-giving-up-9-entrepreneurs-and-millionaires-who-failed-at-least-once/