THE BLOG

Dear Professor Investor, I Need Some Advice on How to Build a Team, and Determining What Kind of Talent I Need? Alan From Boston.

06/03/2015 05:39 pm ET | Updated Jun 03, 2016

Dear Alan,

I have found that the majority of successful start-ups have people with: business acumen, domain knowledge and operational experience. e.g. (reverse order) someone who understands how to build it, someone who understands what customers want and someone who can help execute. I've heard the triangle described as: A hacker, a designer and a hustler. Of those three corners in the talent triangle what are you weakest on? Let that guide you. I hear investors (big and small) make statements like: "We like to bet on the jockey not the horse" or "We will always back an A team with a B idea, not the other way around".

These are only a few of the axioms common to the venture and angel investment landscape that stresses the important role management plays in the investment decision process. This management bias was confirmed a few years ago in a survey produced by, the National Venture Capital Association ("NVCA"). The members of the NVCA considered management as the most heavily weighted factor when deciding to invest in a particular venture (i.e. management received over 35 per cent of the weight, compared with 25 per cent, 20 per cent and 15 per cent for the market opportunity/sector, business model and the actual technology/product respectively). This, of course, helps in answering the question, "What factor do investors put the most weight on when reviewing an opportunity?" What it does not answer, however, is, "What do investors look for when evaluating management?" After straw-polling some colleagues on this question, most of my VC peers share the NVCA's findings, but felt that the 35 per cent figure may even be too low (one colleague stated he based as much as 60 per cent of the investment decision on the quality of management). The answer most frequently offered was "we look for a well-rounded team that can increase the probability of the venture's success." In response to this answer, I ask, what defines a "well rounded team that can increase the probability of a venture's success?" In order to satisfy my query, I delved into the archives.

Years ago, when I was working for Ernst & Young's Venture Capital Group, I decided to investigate what a well-rounded management team consisted of, by issuing a survey to 500 of the most successful high-growth companies (based on multiple year published lists of the Profit 100, Deloitte's Fast 50 and Ernst & Young's Entrepreneur of the Year program winners). The goal of the survey was to determine if there were common management elements among the high-growth companies. The results showed that more than 80 per cent of the successful high-growth companies had common management elements. Based on this survey, the attributes of a successful management team included three key elements: business acumen, operational experience and domain knowledge. These elements form the corners of what we coined, the "Talent Triangle." In addition, the survey revealed that having the right cogs in place was vital, but even more important was how those cogs interacted with each other. A management team with all three elements, should structure its business to ensure that each segment of the triangle, has not only the responsibility for its own portfolio, but also the authority to make decisions on issues under its specific jurisdiction.

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