You do not earn someone’s trust because you do business with them. Someone does not earn your trust because they do business with you. You have to earn the trust of others and they have to earn your trust. This applies to everyone—investors, customers, employees, consultants, and vendors:

I had a CEO colleague who was manufacturing a product and near the production of the final version, the manufacturer demanded additional dollars to finish the product. The manufacturer felt that additional monies were owed to them and would not deliver the product until they received the money. This put the business in a difficult position so the CEO immediately started sourcing another vendor. She was lucky enough to find one.

Even though the CEO and the president of the new vendor had never met, the CEO shared with the new vendor the details of the current situation, including the fact that the previous vendor had put them in a tough spot. The new vendor told the CEO he understood, and a week later provided a price quote that was in line with the CEO’s expectations. The CEO communicated, “If we don’t deliver our product for the launch next month, we are screwed.” The CEO told the vendor that they would go with them.

Two weeks later, the new vendor’s quote grew by almost 70 percent. The CEO was shocked to see a revised quote that the vendor said “was because the devil was in the details and they were not aware of some of the complexities.”

“Learn the importance of making a distinction between the people that you do business with and those that you trust with your deepest, darkest secrets.” 

Especially with Investors

This is particularly important when it comes to investors. Trust doesn’t exist because someone invests in your company. You have to earn the trust of your investor. Your investor has to earn your trust. Many investors, especially the most successful ones, view investing with a talented entrepreneur as a win-win. If they enable the business, both the investor and the entrepreneur can win. Some investors, however, view it as a zero-sum game. A dollar that you get is a dollar they don’t get. These investors will use their influence to make sure that more of those dollars go to them. The priority should be that when the business thrives, investors and the entrepreneur win. Let’s not be naïve. For many investors, the priority is the best interest of the investor followed by what’s in the best interest of the business, and then finally, the entrepreneur. Often entrepreneurs treat investors like confidants and share many details that they should keep to themselves—including that their investment proposal is the only game in town. Building trust with an investor is critical but that trust must be earned:

I was introduced to my investor by Jason, the former CEO of a healthcare company. The CEO knew healthcare and also the payment space. Our investor had invested in the CEO’s company when he was CEO. In our deal structure, our board allowed for one independent Board member that would be picked by our investor and me. I figured this CEO was the perfect fit since our investor had invested in his company, he had introduced us and he knew the space. I suggested this to our investor. I suggested he knew both of us, knew the space and had no other agenda. He strongly objected. I was surprised.

Prior to closing our deal, I asked our investor for references. The investor gave me as a reference the new CEO of the company of which Jason was formerly CEO. I thought it was strange to have the new CEO as a reference. We had a cordial conversation and I poked and prodded. I got some stock answers and overall a positive reference as you would expect.

Prior to that phone conversation I had never spoken to the CEO. About ten minutes later the phone rang and he was calling again. It was strange because we had concluded but at first I didn’t think much of it. He said to me, “I understand you’re considering Jason to be on your Board.” I was taken aback. Why would he even know I was considering somebody for my Board?

He went on to say that he’s been a CEO for a while and always is in the business of trying to help other CEOs. I told him I appreciated that. He then buried Jason. He said that Jason was not trustworthy and was not the type of person that you want on your Board. I thanked him, told him I appreciated his candor and got off the phone. I was blown away. Imagine someone who I’ve never met before throwing somebody else under the bus. For all he knew, I could’ve been a reporter for the New York Times.

It told me all I needed to know about my investor. My investor didn’t want Jason on the Board and instructed the CEO to coax me to keep Jason off my Board. At that point I should’ve walked away. A few months later, our investor sued Jason.

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