In teaching entrepreneurship for 15 years, I regularly emphasized that the quality of a management team is the single most key determinant of business success. The following are some tips to assessing, restructuring and powering up your business team.
The Importance of the Management Team
First, of the things that attract investors to a company, a quality management team is nearly always quoted as the most key element. It trumps product and market in almost every survey. The reason is because a great team can take a mediocre product and make it successful, while a mediocre team can fail with a great product. A survey of 262 professional investors conducted by Profit Dynamics evidences this notion: When asked what factors most influenced the decision to invest, management quality ranked first among all responses. Other factors like market size and proprietary technology were seen as important but paled in significance to management quality. When the investors were asked the reason that drove the decision to decline investment, the lack of an experienced management team ranked No. 1 by a wide margin.
So, what constitutes a quality management team? The response of these professional investors was overwhelming. It means experience and a good track record. While other qualities like integrity, vision and dedication were mentioned, only 17 percent of respondents did not include successful experience as one of the key components. While it’s clear that experience counts the most, those starters among you who haven’t yet achieved a track record should not be discouraged. A flexible management team, one that recognizes its shortcomings and is willing to recruit the right team members, was quoted a close second.
Fine-Tuning the Team
The first step in upgrading a management team is to assess both your current talents and your needs. This has to be an honest assessment. Remember, investors want to know either that you have the requisite experience or that you know you need it and are flexible in getting it. If you find that current talents don’t meet your needs, consider the following in restructuring the team:
• Be an expert in your industry. Focusing on whether you have significant, demonstrated experience in your industry is especially valuable. Lack of recognized expertise is killer both in terms of directing the company and securing investment.
• Drive diversification of disciplines. No company can survive with only techies. Even Apple has marketing and finance people. Make sure that the functional disciplines requisite in your business are resident on the team.
• Mix and match thinking types. Try to incorporate both linear thinkers and visionaries. Visionaries are creative people who come up with initiatives to take the business in new directions. Linear thinkers will concern themselves with what has to be done this month to ensure that you are there next month to do all those cool, visionary things.
• Encourage disagreement. While it might be comfortable to have people who always agree with you, make sure you have people who are willing to disagree with you. Challenging the current thinking of any management team is always healthy.
• Arm yourself to attract the right people. In talking to prospective team members, sell the company and its value. Remember, this is an investment. While investors invest their money, new team members are investing their careers. Sell the current team, as this is a marriage of sorts.
Advisory Board: Power in a Package
An advisory board is not a legal entity and has no fiduciary or financial responsibility. It simply operates at the discretion of the company and advises the company in its areas of expertise. This is a critically important, collateral element of the management team, and it can provide powerful leverage in both operating and financing capacities. Populated with people of recognized experience, your board brings instant credibility to the company.
In terms of recruiting an advisory board:
• Mine your contacts for introductions. If you knew the right people to get, you wouldn’t need contacts. But, most people don’t have the perfect advisory board within their immediate acquaintances. So, rely on your contacts.
• Don’t be bashful. There’s nothing wrong with cold calls to identified prospects. The worst that can happen is that the prospect says “no.” Just like in sales, “no” just means “next.”
• Aim high for demonstrated experience, but be reasonable. Apple’s Tim Cook likely won’t have the time to help you.
Finally, once you have an advisory board, use it. Have regular meetings and listen to your advisers. If you decide against taking a suggestion (since, of course, it’s your business), explain why so they know that you are paying attention and their guidance is valued.
In conclusion, the quality of the management team is critical for both company direction and financing. Experience counts the most, but willingness to recruit the right team is a close second. An advisory board can be a powerful addition to any business team if populated and used intelligently.
William J. Rossi is a partner with Koss Olinger, a Gainesville-based wealth management firm that has been helping business owners succeed for nearly 50 years. William sits on Koss Olinger’s Investment Advisory Committee and is key in the firm’s investment management, estate planning and income distribution strategies. William can be reached at [email protected] or 352-373-3337.