Joe Johnson, Ph.D.
Entrepreneur. Investor. Startup Expert.
A great business idea is only as good as the people behind it. The right team will work together for the success of their business plan from point of nurturing a nascent idea all the way through the blossoming of an empire. Most angel investors won’t fund a startup unless they see that the proper team is at the helm. How can you, as an investor, ensure that the people running the show are the best for the job? Here’s what you should be considering when vetting a startup team:
When you’re evaluating a business plan and the growth projections for a particular business model, it may be easy to forget that those figures only matter if the team behind them has the wherewithal and fortitude to see the endeavor through to a successful conclusion. Many varied decision points come into play when assessing an investment opportunity – some illuminated by conversations and meetings with the team, while others require research during the due diligence process. Throughout, you must carefully consider which qualities are required and which are merely desired. If a team fails to meet your requirements, then it’s time to move on to the next company – without regard for how strong you believe the essential idea.
The Right Values
Values tend to fall into the “necessary” category for many angel investors. You should be certain that the group in which you’re investing is honest and hardworking. The most important team values to identify and confirm include:
Anyone with whom you work or invest should be honest and committed to running their business along legal (and moral) lines. This is a key value. Investing in a team lacking integrity will always be a bad investment.
A team must have clear leaders who are able to transform ideas into reality. Startup teams are small, but they still require active direction.
All business thrives on creativity. Every team should include a visionary who can communicate the company’s ideas in a manner compelling to both industry and market.
Running a business is hard work, especially in the startup phase. Teams should be passionate and committed to excellence. They must maintain the energy and emotional inertia to continue trying new ideas in the face of repeated challenges.
A life in business is accompanied by inevitable peaks and valleys. A good team will weather the storms and learn from them. A bad ‘today’ cannot lead inexorably to a bad ‘tomorrow’. Startup teams should know (and fully internalize) that they’ll face many rejections, but must possess the resilience to continue.
Most angel investors have entrepreneurial experience. As such, this is likely old news, but the need for tenacity in the face of adversity cannot be overstated. Oftentimes, the incredible efforts poured by entrepreneurs into their endeavors go unrewarded. Despite that, they get up the next day and do it again. Without that passion for a project and the burning drive to succeed, a team may not find the wherewithal to drive themselves past the challenges.
Beyond innovation, a good team must be able to work intelligently. They need industry-specific or role-specific knowledge (or both) that will help them to work better together and increase their venture’s overall likelihood of success.
A team should demonstrate an ownership attitude. This applies not only to pride in the endeavor, but also for each member’s particular role. The right sort of team member will never say (or even think) “That’s not my job.” Every person involved will actively seek out tasks that remain undone and complete them, without complaint or thought of immediate reward.
Curiosity has, over the eons, been the greatest boon for human creativity. The urge to push boundaries leads directly to further innovation in every field of endeavor.
Team members’ personalities should be complementary to ensure that, together, they cover the entire spectrum of necessary values.
Angel investors tend to be more open to backing early-stage startups when the principals bring relevant industry knowledge to the table. While having that knowledge isn’t absolutely necessary (and some investors refuse to back a team without it), it goes a long way toward improving the overall likelihood of success.
Team members should have experience working within the specific industry. That experience may have been gained either by starting a new business or by working for an established one.
Previous Successful Exits
Serial entrepreneurs with a history of successful exits are valued as having the ability to both recognize viable ideas and create good teams. This information is generally found in the business plan’s resumé section.
In business as in life, whom one knows matters a great deal – and that applies to startup teams, as well. Having connections within an industry, such as with manufacturers or other supply chain individuals, can help to facilitate business operations. Check to see both whom the team members know and who knows them.
It should go without saying, but a team must be able to work well together. For a startup, a large team is often a sign of bloat. Leaner teams of between two and four founders are preferable. This helps to ensure that every member is vital and brings something essential to the table. The members of a well-rounded team bring complementary values, skills, and experiences to the new business. You should ensure that each team member has ownership of at least one particular aspect of the business (sales and marketing, operations, etc.) and that the division of labor is appropriate.
Once you’ve evaluated the structure of a company’s initial team, think carefully about any gaps you’ve identified. Where was the team weak? Could they use another team member with more experience? For the present, ignore mere charisma in favor of substance. Did the team possess the necessary values and skills to meet your investing criteria?
The nature of business is change. By ensuring that you’re investing in an experienced team with the drive, commitment, and energy to succeed, you reduce your investment risk and increase your likelihood of success. Similarly, for those interested in mentoring entrepreneurs as part of their investment activities, a committed team is one that’s ready to learn and to put into practice their newfound knowledge on behalf of their business.
Given that angel investors often fund early stage startups – and the inherent risk of this sort of investment – betting on the right team can go a long way toward mitigating your overall risk and ensuring that the elements of an opportunity that initially attracted you to an opportunity (ingenuity, energy, etc.) survive, even after the inevitable pivots and business plan modifications, both of which are likely to occur at some point. Investing in the right team means choosing a team that will weather the changes and make the necessary decisions to remain both relevant and competitive.
About the Author
Dr. Joe Johnson is an entrepreneur, investor, and startup expert. He is the founder and principal of GoodField Investments and the GoodField Foundation (www.GoodField.com).
Joe has a Ph.D. in Entrepreneurial Leadership and an MBA. He is the author of the upcoming book on The Science of Why Most Entrepreneurs Fail and Some Succeed.
Most importantly, he is the incredibly blessed husband of one amazing wife and father of six wonderful children. He resides in Bradenton, Florida. For more information on Dr. Johnson and his work, go to www.JoeJohnson.com.