Why Great Storytellers Excel in Business? A Key to Startup Success

Biases, like confirmation bias, often influence investment choices, favoring narratives over data. In fields like mutual funds, venture capital, and startups, skilled storytellers excel, securing capital and fostering belief in visionary ideas.

Manoj Singh
12 Sep 2023

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The power of storytelling is more profound than mere facts, whether in the context of investments, branding, or crafting a political narrative. So, what an entrepreneur needs, aside from other essential entrepreneurial skills, is a compelling story to share with the world. Exceptional storytelling can elevate your startup's narrative and pave the way to connect with the right people in the market—be it future investors, customers, or any other stakeholders.

The Psychology of Investment: Belief, Bias, and Storytelling

One notable investment advisor, Mr. Pushkar Singh, who specialises in Startups, Private Equity, and Venture Capital, recently shared something intriguing on his LinkedIn account. His post effectively encapsulates the essence of effective storytelling.

Pushkar Singh

Pushkar Singh, Founding Partner at Tremis Capital, emphasises, 'We believe what we want to believe. Psychologists call this fallacy confirmation bias, which transcends countries, cultures, education levels, and age groups; it's a human bias. The truth takes a backseat; we want our beliefs to be true. We invest our money based on these beliefs."

The Impact of Storytelling in the Financial World

For instance, let's consider the scenario of Index Funds versus Mutual Funds. While investing in Mutual Funds is widely popular in India, with Assets Under Management (AUM) standing at ₹ 46,37,565 crore as of July 31, 2023, the total amount invested in index funds and equity ETFs reached ₹4.3 trillion by January. On the other hand, actively managed equity MFs garnered ₹15.1 trillion.

Surprisingly, despite the fact that Index funds consistently outperform over 90% of mutual funds (MFs), millions of people continue to invest in MFs. Why is that?

The answer lies in storytelling. MF managers craft compelling narratives, promising rapid wealth accumulation within months. No manager advises investing in index funds because doing so renders their skills seemingly obsolete. There's no "apparent skill" in buying an index fund.

Unlocking Capital with Compelling Narratives: Lessons from Venture Capital

The same principle applies to the Venture Capital industry, where most VC funds underperform stock market indices. Nevertheless, rich individuals, university endowments, insurance companies, pension funds, and others continue to flock to VC investments. Why?

Once again, it's the power of storytelling. VC fund managers weave captivating tales of unimaginable riches. Investors yearn to believe these stories, whether or not they hold true. Their desire for these stories to be real is sufficient motivation.

Startups and the Storytelling Edge: Crafting Believable Visions

This phenomenon extends to  Startups as well. Proficient storytellers secure capital, while others face an uphill battle. Have you ever wondered why prominent VCs support seemingly audacious companies? Much of it can be attributed to hindsight bias, as many of these companies eventually yield poor returns.

Yet, most VCs want to believe in these narratives of 200x returns and unicorns, regardless of their veracity. They invest in founders who skillfully tell stories that align with their own beliefs. The savviest founders excel in storytelling, selling a compelling vision and conveying precisely what investors want to believe.

Embracing the Power of Storytelling: Shaping Realities and Inspiring Success

The journey of entrepreneurship, investment, and venture capital is undeniably shaped by the profound influence of storytelling. As we navigate the complex landscape of startups and financial markets, it becomes increasingly evident that facts alone are insufficient to capture the hearts and wallets of stakeholders. It is the art of storytelling that transcends mere data, enabling us to connect with others on a deeper, emotional level. Whether you're an entrepreneur seeking capital, an investor evaluating opportunities, or a participant in any facet of the business world, remember the enduring lesson: a well-crafted narrative, one that resonates with the beliefs and aspirations of your audience, can be the catalyst for transformational success. So, embrace the power of storytelling, for it is through stories that we shape our realities and inspire the future.

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