History is replete with famous, even eccentric, successful entrepreneurs.
But the great ones also had the capacity to motivate others to do their best, to make great personal sacrifices for the company and to stay the course during tough times (e.g., Steve Jobs).
Before making an investment in a new venture, ask whether a capable team has been assembled (Sales, Marketing, Operations, Finance, HR, etc.) and find out whether the entrepreneur is a good leader and manager.
Ultimately, a full management team is needed, and they must pull in the same direction. The entrepreneur must have the personal qualities needed to make this happen — at least until the company has reached a level of financial stability when a move to professional management in the CEO position may be required.
Very few entrepreneurs possess the ability to take a company from start-up to a multi-$billion enterprise (e.g., Bill Gates). Candid conversations regarding succession should be a part of the investment analysis process. You might discover that the entrepreneur’s ego will not allow for contribution and contradiction by others — a yellow flag at best.
Probe a little deeper: based upon experience, where is the entrepreneur most qualified to contribute (technology development, sales, financial management, etc.)? What is the entrepreneur’s most challenged skill set (it’s often financial management)? If self-aware, he or she should be cognizant of weaknesses and be willing to hire qualified staff to answer those demands. What’s missing in management’s capabilities? Don’t forget to look for adequate financial management that has a strong voice in planning and budget management.
Turn your sights next to the rest of the team: are they adequately compensated or otherwise motivated for the career risk they are taking? Has the entrepreneur shared enough equity with senior management and other key employees? Does the business have a “cash culture” (compensation is primarily salary and cash bonus-based), or, as suggested in the above question, is it an “equity culture” (stock options broadly allocated)?
