In my line of work, I’m routinely pitched new deals and investment opportunities. Along the way, I’ve heard a lot of good sales pitches and done very well financially after investing in some of them. That said, I’ve made (saved) almost as much money by saying “no” to investments that sounded too good to be true. Every once in a while I get pitched by a borderline charlatan, someone whose story doesn’t add up… I’m not saying these presenters were scammers, but they were either naive or drastically overly optimistic. As an entrepreneur or investor, quite literally, the opportunities you choose to pursue or invest in WILL determine your level of success or degree of failure. So that’s why I wanted to share some of my observations over the years on how to spot an opportunity that is too good to be true.
7 Clues to Spot if an Opportunity is Too Good to Be True
A long-winded monologue: This is a personal pet peeve. Any pitchman who likes to hear themselves talk, and babbles on and on, isn’t considerate of your time, which may also indicate they won’t be a steward of your money if you choose to invest. Some people want an audience. Pay attention to egos. Long monologues within a pitch indicate the presence of a big one.
Anyone promising a shortcut – a way to skip a step: Steps are in place for a reason, and they’re precious from a gathering of intel and experience perspective. If shortcuts were truly remarkable, everyone would be doing them. Unless pressed for time on a road trip, beneficial shortcuts do not exist, especially in business and investing. Shortcuts make you miss critical components to long-term success.
Bullshit baffles brains: When probed (questioned) on his sales pitch key points, the pitchman should be able to give clear and concise answers. Unless an engineer is pitching you, complex answers usually mean the person selling is trying to pull the wool over your eyes or hide the challenges (selling something too good to be true). Great products, companies, and services sell with simple language. Life, and business, really isn’t that complicated. When complicated, stress is not far away.
Lack of detail when asked tough questions: Naturally, before being sold on an investment you should ask many questions. If the answers you’re hearing are thin on details, it’s a sloppy operation. Details should come out during question period.
Delay tactics: Over-promisers abuse time. Just know that delay tactics delay consequences in the eyes of the irresponsible. This one is critically important if you’ve gotten yourself into something that is too good to be true but want to salvage what’s left. Know that people who don’t have their shit together with big plans/deals almost always need to buy time in an attempt (which rarely works out), to stay in the game. Deadlines matter to most, but not to over-promisers.
Promising a win-win: Doing a business deal, or making an investment in a company, implies it is intended to be a win-win situation. That’s why we do business deals – to the benefit of both parties involved. Anyone who routinely uses the term “win-win” (for you and him) should raise red flags. If I’m pitching you and explaining that if you invest in my company it will be a win-win, tell me to shut-up and walk away. Of course it should be a two-sided deal! Saying that is akin to pointing out the sky is blue.
When risk is overlooked or deemed irrelevant: Everything with upside in life and business comes with an element of risk. In business, the more significant the real potential (from an ROI perspective), the higher the risk. It’s a well-known truism. Anyone pitching a concept of significant upside with little to no risk is delusional at best. They’re either an idiot who has glanced over critical details or a scammer. Either way, never invest.
N.B. If you’re making a pitch to a VC, an instant credibility gainer is to explain the risks, and how you plan to manage them – not eradicate them (because that’s impossible), but manage… VCs know about, and are willing to take on, risk. They’re acutely aware that every startup or developing business has an element of risk.
Whom you choose to back and what projects you take on is so important as an entrepreneur. A degree of skepticism, so long as it doesn’t kill your optimistic nature, is a great thing to have. When being pitched, look for the above seven red flags when pondering if an opportunity is too good to be true.
P.S. I’ve invested in dozens of startups over the years. I’ve seen the good, bad and the ugly, and have learned a ton along the way. Subscribe to my newsletter below. Only my best content will land in your inbox.