The People, or Execution Risk of a Business
Written by Jay Turo on Monday, March 23, 2009
In my last column, I wrote about how to measure risk in a startup and/or emerging company. In today's column, I go deeper into what is by far the biggest factor driving this risk - namely the "people," or execution risk of a company.
It is extremely hard to identify a management team of a smaller company (or any company, for that matter) with the right combination of small business and corporate smarts, integrity, and work ethic to build and exit a company for themselves and their investors.
In my 10 years at Growthink, I have had both the benefit and the misfortune of not only investing in and advising a lot of companies that were successful in executing their growth plans, but also a lot of them that weren't. And it has been in the comparison between the two that has informed my thinking as to what to look for.
Here are 7 managerial attributes that I have found present in virtually all of the successful companies with which I have worked, and which were lacking in those that failed:
7. They are, in fact, a Team. This may seem obvious, but all great companies are not simply the by-product of a visionary and/or charismatic founder and chief executive, but rather of a multi-disciplinary, multi-faceted, and well-meshed leadership team. Great companies have cultures of achievement. The tone of this culture might be, and usually is, set by by a charismatic founder. But its enduring success is dependent on how it can replicate and maintain that culture as the company grows, and as its founder's role becomes less pronounced.
6. It is clear who is in charge. This may seem contradictory to the above, but all well-led companies have clear and final points of decision-making. There are many effective styles of leadership, from greatly autocratic to fundamentally consensual, but all of them share the fact that in them there is one person at whose desk the "buck" truly stops.
5. They have small business discipline. To paraphrase Guy Kawasaki -- one of the most informed and battle-tested entrepreneurial commentators out there -- the worst folks to run a startup or an emerging company are a group of ex-Microsoft executives. Entrepreneurial companies are first and foremost small businesses. As such, their management must a) fervently guard cash flow and manage with a cult-like intensity and b) always make decisions with the mindset that they only have so many "arrows in the quiver" in terms of time and capital to pursue initiatives.
4. They are risk-takers. The proper goal of an entrepreneur with outside investors is not to run a small business in the common sense of the term. With the fear of sounding harsh, the best managers are minimally concerned with protecting their own "middle-class" lifestyles. Rather, they understand that to achieve greatly requires daring greatly. For investors, the worst outcome of an investment in a company is not necessarily a flame-out failure, but rather a muddling along driven by too conservative managerial decision-making influenced by the desire to preserve salaries. Companies run this way in fact usually require MORE money to be invested into them, and thus perversely are actually riskier than their harder-charging brethren.
3. They are Goldilocks-ish. While there are certainly outliers in this regard, the significant majority of the best entrepreneurial managers are not "too hot" nor "too cold." Again, not a hard and fast rule, but most venture firms prefer to back a management team where the key people are between the ages of 30 to 45, have had a few past successes and maybe a failure or two. They are now in that sweet spot between experience and wisdom, between youthful hunger and energy. They know what they know yet they still have the intellectual and emotional flexibility and curiousity to change and grow.
2. They are technologists. All successful emerging company investments are made in what are, at their essence, technology companies. This does not mean that they are all what would be considered as classic "emerging technology" companies (though the majority of them, in fact, are). Rather, well-run modern companies leverage technology -- from CRM and ERP to SEO and SEM to scenario-planning and simulation -- to "best practice" their business models. Their managers understand that "IT" is not just the domain of a geeky guy to call when computers can't boot up, but is rather the crucial skeleton of the organism of their business.
1. They are pig-headed, determined, and willing to sacrifice to be successful. More than anything else, great, modern managers work hard. As in very, very, very, very hard. They work nights. They work weekends. They take short vacations, if any. They work when they're sick. They work when they're tired. They work and work and work and then to paraphrase the great (and famously hard-working) golfer Gary Player, "The harder they work, the luckier they get."
Look for this quality above all others in leaders and managers -- it is almost always the best predictor of the presence of the other qualities on this list, and of entrepreneurs that make their investors a lot of money.
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