Founders are surrounded by people with reasons to be polite: friends, early employees, investors protecting their position. A mentor is one of the few people who can tell them the truth without an agenda. If you soften it until it disappears, you've wasted their time.
Directness is about clarity and timing. Say what you see, as plainly as you can, as early as you see it. “I don't think this market is big enough” is useful. Ten minutes of hints that leave the founder guessing are not.
Being demanding is not the same as being harsh. Criticise the plan, never the person. Be specific about what's wrong and why, and stay in the conversation to help fix it. The goal is a founder who leaves challenged and motivated, not crushed.