Tax Tip of the Week: Humility = Money

Timely, relevant bursts of tax nuggets

Tax Tip of the Week | Apr 13, 2022 | Humility = Money

This Week's Quote:

When it comes to luck, you make your own.
                                  -Bruce Springsteen

Our featured WSJ article by Heidi Mitchell was published on November 4, 2021.  It discusses studies that show that humble entrepreneurs are able to raise more money than ones who are not. 

That article prompted some thoughts of mine about the characteristics of wealthy people that have crossed my path.  Spoiler alert – all of my insights may by wrong but for starters, here are my top fifteen traits of wealthy people:

  1. Humble
  2. Not afraid to:
    1. Make mistakes
    2. Say no
    3. Change
    4. Try something different
  3. Generous
  4. Creative
  5. Incredible listeners
  6. Eternal optimists
  7. Never take credit
  8. Not reactive
  9. Grateful
  10. Always deep learners
  11. Curious
  12. Have a sense of humor
  13. Proactive
  14. Never pull rank
  15. Never tell people what to do; instead, they ask how can I help you?
  16. Enthusiastic

                                   -Mark Bradstreet

Some Humility Can Really Help an Entrepreneur Win Over Investors

Entrepreneurs are supposed to be brash and aggressive. But staying humble goes a long way, research shows.
For entrepreneurs, sometimes it pays to be a little humble.

That is the finding of a recent study in the Academy of Management Proceedings journal. Early-stage entrepreneurs who display signs of humility with investors are nearly twice as likely to reach the next step of the funding process as ones who don’t.

“There is a discrepancy between a founder’s common image and the early-stage entrepreneurs who are actually funded,” says Laurent Vilanova, a professor of finance at the University of Lyon 2.

Not a negative

To test the power of humility, the authors surveyed venture capitalists to learn what kind of entrepreneurs they sought out. On the one hand, the investors gave the answers that you would expect: They wanted founders who were aggressive and ambitious. But they also wanted those qualities to be tempered by humility—founders who were capable of listening, who would accept that the funders knew better in their chosen sector and who would take advice easily.

“Humility is not a weak trait,” says co-author Ivana Vitanova, an associate professor of finance at Lyon. “Rather, it reflects a strong person who knows that when there is something he cannot do, he will ask others for advice and appreciate their knowledge.”

Earlier literature has looked at humility among leaders within organizations and found that humble chief executives fostered teamwork and a shared vision. The French researchers wanted to know how that same quality influenced external stakeholders’ perception of entrepreneurs and if that, in turn, led to funding.

“Since VCs are not just purely finance providers, the social interaction between the two parties would seem to be important,” Prof. Vilanova says. “We suspected that if entrepreneurs presented themselves as humble, potential investors would feel that they could trust them, coach them and click with them and that they could competently construct and build their organization.” Then the VCs would fund their startups.

To test their hypotheses, the professors created transcripts of fake pitch meetings for two entrepreneurs—both of whom had founded drone-making businesses. One of them was humble, the other wasn’t.

The humble entrepreneur made statements like, “I admit there are still some uncertainties about the sustainability of our business model and our capacity to monetize our offer.” In response to investors’ objections, the less humble founder would say, “Personally, I believe in the sustainability of our business plan and our capacity to quickly start making money out of our offer.”

The researchers asked hundreds of venture capitalists in France to weigh in, asking how they perceived the entrepreneurs’ personalities, if they felt compatible with them and how likely they were to fund their companies; 57 individuals responded.

“We found that VCs perceive humble entrepreneurs to have more constructive qualities, to be more coachable and were more likely to click with the investors, who will spend countless hours shaping the next steps of these early-phase companies,” says Prof. Vilanova.

A better bet

While humble entrepreneurs were perceived as being less innovative than their assertive counterparts overall, the positive traits outweighed the negative. In the end, the humble entrepreneur was 1.7 times likelier to receive an investor offer than the other.

Profs. Vilanova and Vitanova believe their findings suggest that entrepreneurs should express their doubts when seeking investors, perhaps saying something such as, “We really believe that we have a good project. Still, there are some issues to address. I usually consult with my collaborators on all important issues and will work hard with you and my team to make the project successful.” They should also try not to appear completely certain of their success and avoid saying something like, “I have a clear vision about this venture. I listen to others’ opinions, but in most cases I prefer following my own gut.”

“VCs appreciate entrepreneurs who set high goals for their ventures,” Prof. Vilanova says.

“At the same time,” adds Prof. Vitanova, “they estimate that ambition without humility is a sign of arrogance, overconfidence and stubbornness.”
Credit Given to:  Heidi Mitchell. Published November 4, 2021 in the Wall Street Journal.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author, Mark Bradstreet

-until next week.

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