As an entrepreneur, when I consider the ideal investor I would like to have, it’s a lot more than someone with money. I want them to have characteristics like:
- Able to make smart bets: Investments are largely made when it’s too early to tell with certainty who or what will win in a market.
- Add value and insights: This is more than replaying personal war stories and biasing from your own experiences.
- Asking good questions: Someone who pushes founders to take a step back and recognize the things that matter often comes more from asking questions than providing answers.
Being great at those three things is no small task. Fortunately, there’s been some great books written that can supplement the knowledge and know-how of even the most veteran entrepreneur or get a new investor off on the right foot. These are books I’ve read and re-read because they’ve providing so much value to me and I believe can specifically help investors as well.
The Innovators Dilemma by Clayton Christensen
Disruption is a brutally abused word in tech these days. Clayton Christensen brings it back to reality and explains how it really works in this classic written in the 90s (and has arguably gotten better with age).
As an investor this is critical so you can call BS on an entrepreneur that claims they’re disruptive, but really are hopeless. This book will help you understand not only how to recognize disruptive technology in its earliest days, but what it means to get in the market, grab a position and successfully grow and take down the incumbents. Benjamin Tseng, a Bay Area VC, has a great post also discussing the value of this book for investors here.
Investor Scenario: A founder claims they have a disruptive innovation and are telling you about their immediate mass market plans, The research in Christensen’s book will help you guide them a better approach or to pass on the deal.
The Master Switch by Tim Wu
Over the past 100 years, communication platforms have dramatically changed and evolved. During this time, we’ve seen the emergence of the telephone, radio, television, email, the internet and more. Without fail, every time one of these new mediums emerged, they fought an uphill battle to eventually win the market.
This book goes perfectly hand in hand with Innovator’s Dilemma by walking you through how many technologies were slowly commercialized and changed the world. By the time you get to the end the patterns will be impossible to miss and priceless to match against what you see in new markets emerging (some of which you hopefully can invest and place strong bets on).
Investor Scenario: A founder has a transformative technology. Knowing the patterns of past innovative companies, you can help them anticipate resistance they may face both in the market and legally.
Tribal Leadership by Logan, King & Fischer-Wright
A book on culture to go hand in hand with two on innovation cycles? Absolutely. While there are other books out there I’ve rated higher on culture, none are more powerful for an investor.
You only get a limited amount of time with a founder and their team, so knowing how to quickly tell the difference between a strong team culture and one struggling is huge. What makes Tribal Leadership special is how it helps identify the key words that you can listen for to tip off how a company is really doing.
Armed with this information, you can help a founder get back on track if some of the team has issues. It can also help you decide if you should pass on an investment that looked good otherwise; a motivated, excited team will be significantly more productive, work longer hours and help recruit the best talent. You need those for the characteristics for a company to hit deadlines and win the market.
Investor Scenario: You visit one of your investment’s offices. If you overhear employees talking about their excitement for the mission, they’re operating at a high level. If instead they’re complaining about how much their work or a project sucks, you may want to ask the founder some questions.
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Unfortunately, many business books are a complete waste of time. Luckily, gems like the 3 books above exist and help tremendously to educate us, change our perspectives and diversify our knowledge on important subjects. I’d love to hear any great book recommendations in the comments for investors or entrepreneurs.