The Management Team is fundamentally important in any new venture. You need to show that the business has not only identified a viable opportunity but that it has a management competent to exploit it.
The right balance of skills, drive and experience is required to increase the chances of success in a new venture. Investors know this and will not take a project seriously unless they are impressed by its Management.
How Important is The Management Team?
The management in an organisation with high growth potential is argued to be the single most important factor to its success. It is certainly fundamentally important, as is the proposition and the opportunity being addressed.
The project must demonstrate not only that it has a viable proposition but a management team competent enough to exploit it – and able to overcome the numerous and diverse challenges it will face in the process.
For projects that specifically exploit the expertise of management, such Management Buy Outs and Management Buy Ins, and indeed BIMBOs (a combination of MBO+MBI), funding will unquestionably be primarily determined by the quality of the Management Team – rather than the detail of the opportunity.
You must highlight to potential investors current gaps in management capacity and plans for filling them – or state that you need help in doing so. That way the investor will see that you understand the nature of business – they may even see it as an area in which they can help. Do not leave it to the investor to point out to you weaknesses in your team – they won’t, they’ll just dismiss the project.
It should also be noted that large company executives tend not to make good entrepreneurs. Their considerable skills and expertise are based around managing and directing substantial resources – entrepreneurs have to constantly leverage highly scarce resources and do much ‘dirty work’ themselves.
Why is the Management Team so Important in New Ventures
Developing a new venture or opportunity is highly challenging. Though the drive of the entrepreneur or entrepreneurs moving the project forward will help overcome many challenges, that energy is far more likely to lead to a successful outcome if it is supported by experience or specific expertise.
Entrepreneurs have to constantly leverage resources and, in terms of their management capacity, will often require to deal with a broader range of management issues, and a greater amount of management challenges, than would a dedicated manager in an established company. You need more management capacity in a developing project – yet you will have less resources at your command with which to achieve this.
Investors want to be convinced that the management can cope – does the core management have a sufficient skills portfolio to move the project forward, does it have a firm grasp of the task involved, are they realistic about what they can do and cannot, do they understand how they can bring in additional expertise and capacity, and do they have a practical and realistic way for achieving all this.
Investors are handing over their funds and trust to the management team. That is why winning their confidence in this area is essential.
How Many in the Management Team?
Typically the core management team should be between three and five – three is probably the ideal for many early stage projects seeking their first injection of outside capital.
The Management Team
Different skills will be required at different stages, and the skill mix will vary from project to project. In essence you need to demonstrate:
• Technical / Product Experience – expertise in the product or technology you are developing. That is your fundamental asset – but is worth nothing without the skills to exploit it.
• Commercial Know-How – for that technology or product to have any value, you need commercial know-how. You need to understand how that technology can be exploited. How it will benefit consumers, and how it can be optimised to do so. It is the application that realises value so expertise on commercial issues is essential – many argue convincingly that this is more important than the technology!.
These are the two core skill sets you will need before you contemplate putting together a fundable plan. One of the most common problems with technology based products is too much effort being focused on the technology and not enough on its application. If you are an innovator but lack advanced commercial skills, pair up with someone who has commercial know-how. The team will then require the following skills and management capacities:
Broader Management Skills & Capacity:
• Market Experience – experience particular to the market sector to reduce the learning curve. If you have a new innovation like a catalyst for the petrochemical sector, the chances of success are greatly increased if you have someone in your team with experience of that market sector.
• Marketing Skills – an ability to create an appropriate identity and effectively communicate with the target market – and other important communities such as the investor community.
• Sales Skills – no matter how good the product, it will not sell itself. Strong sales skills are an integral part of success once products are ready to go to market.
• Financial Management Skills – there is requirement to have someone with financial management skills to actively consider the financial dimension of the business, keep a tight reign on cash, and be pro-active in terms of the current and future financing needs of the project.
• Production & Operations Management Skills – if you have a product that requires to be made, or a service delivered, then the skills to develop an efficient, appropriate and effective production system is required. Even if you decide to use a production partner, you need the knowledge to ensure that the system and processes being developed are appropriate for your needs.
• Any other skills required specifically for the venture.
Supporting Skills – advisors:
The project will also require supporting skills that can be accessed when and if required, in:
• Legal matters – find a lawyer with experience of your chosen market, and /or entrepreneurial projects and have them lined up as advisors at the start even if you do not expect to use them until later in the project.
• Intellectual property requirements – if you have a patented or patentable technology have an appropriate IPR agent in place. You may be able to file initial trademarks yourself but patents require professional advise – make sure you agree fees in advance.
• Financial advice on expert matters such as taxation and audit – choose an appropriate firm to your short and medium term plans.
Having these in place can also reassure an investor that you are aware of their potential requirement – but equally they may be able to recommend experts if you say you have yet to select these.
Management Skills Versus Management Capacity
Management skills are one thing – capacity is another. You may find all the above skills within one or two individuals – but you need to ensure they have the time to apply those skills and effectively address the requirements of the project. They may have sufficient capacity to do this at pre-market stage, but may not be able to deal with the sheer number of issues that arise at market stage. You need to factor this in your plan and increase capacity as the project requires to ensure effectiveness.
You must be realistic about what each individual can physically do. If the one team member has great skills in Sales and in Marketing, but only has the time to deal with sales, then you need someone else to deal with Marketing. You may well support them by using a marketing agency which has experience of managing the entire marketing function – which she/he can direct.
How to Strengthen the Management and the Venture
Bring in part time experts – perhaps in Finance. Use non-executives. Partner with Expert Organisations. Delegate non-value adding tasks.
The role of Mentors
Mentors, particularly for the CEO / Managing Director, are an under-valued yet potentially highly significant resource and source of strength.
Mentors, in the sense we use the term, tend to not seek specific reward for their support. They may be involved and it may be in their interest for the project to succeed, but for the act of ‘mentoring’ they do not make demands. Indeed most mentor relationships develop and are not planned in advance. Do not think that we are advising for you to take on a paid-for mentoring service – we are not. Such a relationship may be approriate for you but it is not what we are advising here. We are talking about unconditional support and a relationship based on trust – to a model of parent and adult daughter / son, but in a business context and without the prior emotional ‘baggage’.
Leading an entrepreneurial project, continuously confronted with ambiguity and uncertainty, is often a lonely task and having wise counsel, or just a friendly and supportive ear to talk to who has been through the same thing, can provide much needed support and delivers tangible benefits.
In our experience, the majority of successful entrepreneurs had mentors. Use one – ideally an experienced business man or woman – they need have no experience of your particular sector.
Ensure Agreement between the Management of Roles and Ownership Details
These are much harder to sort out later and a lack of clarity at the start can reduce focus and potentially cause serious problems down the road.
Service Agreements and Remuneration
It is important that you have a service agreement for each director – to protect them and investors. This also provides a professional platform which can be carried through to all aspects of the business.
Avoid excessive salaries or benefits, such as a Porche, particularly before the company delivers results – this is a big investor turn-off and probably not the best use of scarce resources.