How involved should your investors be in your positioning process?

I’ve noticed a very interesting pattern in the past couple years of working with open source startups on positioning. First of all, I get a lot of referrals from investors. It usually goes something like, “XYZ portfolio company really needs to work on positioning — they’re trying to be everything to everyone.” But on the flip side, one of the big fears I get from startups is that better positioning will somehow hamper their ability to fundraise, by making their TAM seem too small.

So are your investors friends or foes to your positioning process?

Investors are not all the same

It should be immediately obvious that this is a stupid question, because investors come in all shapes and sizes and backgrounds and technical sophistication. So I can’t know what your investors are like or whether or not those particular individuals would understand why you need to make your positioning as specific as possible.

However… I will say that investors are generally a pretty savvy group. They’ve usually either founded at least one successful company themselves or been a key employee at a successful startup. They also have a more birds-eye view of the startup ecosystem, and have the benefit of a front row seat at a large number of startups. I actually think that is more critical than having been a successful founder themselves, because it allows them to see patterns in what works and what doesn’t. With a sample size of one, you can’t make too many generalizations. Even serial entrepreneurs aren’t likely to found and exit more than 6 startups over the course of their career. Investors see enough successes (and failures) to see patterns about what works and what doesn’t.

So while acknowledging that not all investors are the same, I would say that in my experience they are more likely than founders to understand the value of good positioning. That’s probably because they are enough removed from their portfolio companies to see when positioning is a problem, and have enough experience to see that tight positioning will increase a startup’s likelihood of success.

So should we invite our investor in when we talk positioning?

That said, I don’t recommend inviting investors into the positioning discussion — unless you are having a structured discussion about positioning that your investors are facilitating. In other words, if your investors are being the kind of facilitator that I would be during a positioning workshop. Investors aren’t talking to your users or your customers, they don’t have their hands in product development and they aren’t the ones on a mission to change something about software development. So they just don’t have any critical input into what your particular positioning should be, which comes mostly from what users and customers say about it and what comes up in conversations with potential users and potential customers.

There’s also the risk that people will be less honest with investors present. A good positioning exercise starts with very open minds — and if you told your investor you were building X, it might be uncomfortable to explore the possibility of actually building Y or Z while in the presence of that investor. It could be uncomfortable to talk about the project or product’s weaknesses in front of investors — though hopefully you have investors who you can be honest about these kinds of things with.

Should we work on positioning with our investors (instead of someone like you)?

I also see a fair number of founders who end up working with their investors on positioning instead of working with me. This is a perfectly good approach, particularly at the beginning. The main difference between working with your investors on positioning and working with me on positioning is that your investors don’t do positioning all the time, and most likely don’t have a structured process for figuring out positioning. As a result, you’re more likely to spend more time wandering around through rhetorical dead-ends than if you work with someone who does positioning all day, every day, and has a structured way to get us to the destination.

However, working with investors on refining positioning is also not a bad idea. If you feel like it’s not the right time to work with someone like me, turning to your investors for feedback is the next best thing. Your investors are also usually very good at telling you whether or not you should seek someone like me out — they can definitely tell you whether or not you have a positioning problem.

The bottom line I want you to take away from this is that investors are allies in the positioning game. Even if it means focusing on a smaller TAM in the short turn, they will get it and understand that you can’t achieve the grand vision if you don’t get 10 customers signed in the next year. They don’t need to be in the room, but don’t hide your positioning work from them, either. Chances are if you think you have an issue with positioning, your investors know and are hoping you’ll fix it ASAP.