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What Do Investors Want to Know of You And Your Business Team?

August 2007 (The New Business Road Test)

Do investors care about execution? Absolutely, they do. It’s what keeps them awake at night. It’s the best protection they have after they’ve made a decision to invest in a nascent entrepreneurial venture. Once they’ve made the decision to invest in your venture, your ability to execute on your CSFs is the best – maybe the only – protection they have for their money. No wonder they’ll fixate on it before they settle up.

We really dig into the management team. We want to be totally confident that this team can deliver on the promises they have made. We do that by looking at their experience, by assessing how well they understand their industry and their customers. We want to know about their leadership in terms of the CEO and the heads of engineering, R&D, and marketing [or whatever the most important functions are for any given opportunity].

Execution is why the refrain ‘management, management, management’ is heard so often in venture capital circles. But what does great management look like, when viewed from up front, before events have unfolded? Is it about character? Chemistry? Drive or motivation? Perseverance in the face of adversity? Is it industry experience? Is it glib salespersonship? Is it technological expertise? Is it ‘having done it before’, as Louis Borders had done in book retailing before his ill-fated Webvan adventure?

In the research that led to this book, I learned that great management is about all of these things and something more. Do character, drive and perseverance matter? Sure. Is industry experience relevant? Of course. But not just as a line on a CV. Does the ability to sell matter? Absolutely: it’s what successful entrepreneurs do with much of their time. But successful selling is not to be confused with a dynamic personality, as the naturally introverted Jeff Hawkins will attest to. Most of these elements are like fitness to the athlete. Necessary, but not sufficient for greatness. What do astute investors look for?

What astute investors look for in people they back – and ‘people’, plural, is the right word here – is simple, really, but not very obvious to most aspiring entrepreneurs:

Investors want to know that the lead entrepreneur has identified and understands the CSFs in the industry they propose to enter, as well as the market and competitive environment they will encounter. A credible understanding of the seven domains can provide the evidence here. That’s step one.

Step two, the crucial one, is that the lead entrepreneur has then assembled a team that can demonstrate in past deeds, not words – that its players taken together can execute. On what, you may ask? Execute on each and every one of the CSFs that the venture’s industry and strategy therein will require. Or, alternatively, and equally satisfactorily, the entrepreneur has identified what’s necessary and also what’s lacking on their team and acknowledged the need to fill that gap, perhaps with the investor’s help.

So, if you want investors’ backing for your new venture, make the effort to understand the CSFs that your venture will face. If you’ve not worked in the industry you plan to enter, you’d better find someone who has. There are always just a few factors that are crucial. It’s the ones that make the difference between who wins in your industry and who are the also-rans. Next, look in the mirror and ask what you – demonstrably, in past deeds, not just words – bring to the party. Finally, fill out your team with people who can deliver what you yourself do not have or cannot do. Fill it with people who are different from you – diverse teams perform better than look-alikes.

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