The Most Important Person on the Startup Team
Friday, July 11, 2008 at 05:01PM
I propose that it is time to reject the notion of the “business guy” (or “business gal”) entirely. The underlying problem is that there are really three different components here, and like the classic three-legged school, they are all essential for success, albeit with differing relative economic values. What gets things confused is that the components can all reside in one person, or multiple people. And what gets people upset is that there are different quantities of those components available in the economic marketplace, and the law of supply and demand is pretty good about consequently assigning a value to them.
Perhaps surprisingly, the components are NOT the traditional coding/business pieces; nor are they even coding/UI/business/sales, or whatever. Rather, here is the way I see it, from the perspective of a serial entrepreneur turned serial investor, listed in order of decreasing availability:
1) THE CONCEPT
A given business starts with an idea, and while the idea may (and likely will) change over time, it has to be good on some basic level for it to be able to succeed in the long run. How excited am I likely to be when I see a plan for a 2008-model buggy whip? another me-too social network? The 87th investor-entrepreneur matching site with no investors? The base concept has to make some kind of sense given the technical, market and competitive environment, otherwise nothing else matters. BUT good ideas are NOT hard to find. Not at all. There are millions of them out there. The key to making one of them into a home-run success brings us to:
2) EXECUTION SKILLS
It is into this one bucket that ALL of the ‘traditional’ pieces fall. This is where you find the superb Ajax coder, AND the world-class information architect, AND the consummate sales guy, AND the persuasive biz dev gal, AND the brilliant CFO. Each of the functions is crucial, and is required to bring the Good Idea to fruition. In our fluid, capitalistic, free-market society, the marketplace is generally very efficient about assigning relative economic value to each of these functional roles, based upon both the direct result of their contribution to the enterprise and their scarcity (or lack thereof) in the job market.
That is why it is not uncommon to see big enterprise sales people making high six figure, or even seven figure, salaries or commissions, while a neophyte coder might be in the low five figure range. Similarly, a crackerjack CTO might be in the mid six figures, but a kid doing inside sales may start at the opposite end of the spectrum. Coding, design, production, sales, finance, operations, marketing, and the like are all execution skills, and without great execution, success will be very hard to come by.
BUT, as noted, each of these skills is available at a price, and given enough money it is clearly possible to assemble an All Star team in each of the above areas to execute any Good Idea. That, however, will not be enough. Why? Because it is missing the last, vital leg of the stool, and the one that ultimately–when success does come–will reap the lion’s share of the benefits:
3) THE ENTREPRENEUR
Entrepreneurship is at the core of starting a company, whether tech-based or otherwise. It is NOT any one of the functional skills above, but rather the combination of vision, passion, leadership, commitment, communication skills, hypomania, fundability, and, above all, willingness to take risks, that brings together all of the forgoing pieces and creates from them an enterprise that fills a value-producing role in our economy. And because it is THIS function which is the scarcest of all, it is THIS function that (adjusting for the cost of capital) ends up with the lion’s share of the money from a successful venture.
It is thus crucial to note that the entrepreneurial function can be combined into the same package as a techie (Bill Gates), a sales guy (Mark Cuban), a UI maven (arguably Steve Jobs), or a financial guy (Mike Bloomberg). And that it is the critical piece that ultimately (if things work out) gets the big bucks.
Who do you think got the biggest relative return from the development of Trump Tower? Architect Der Scutt (the IA)? Engineer Irwin Cantor (the coder)? Broker Louise Sunshine (the sales gal)? EVP George Ross (the biz dev guy)? Or whomever happened to be The Entrepreneur in that deal?
The moral of the story is that for a successful company, we need to bring together all of the above pieces, realize that whatever functional skill set the entrepreneur starts out with can be augmented with the others, and understand that the lion’s share of the rewards will (after adjusting for the cost of capital), go to the entrepreneurial role, as has happened for hundreds of years.
Reader Comments (2)
The second category is fairly clear-cut, but I imagine every would-be entrepreneur with an idea will insist that they are examples of #3, not #1. What specific characteristics differentiate the two?
It seems to me that the first category is where you end up when you fail at the third, and also that to be in the third category, you also have to be in the second.
John, you raise a very good point, and therein lies the crux of the matter. Virtually every would-be entrepreneur thinks that he or she is #3, and virtually every investor would tell you that he or she 'bets on the jockey not the horse'...yet according to the real, live statistics from Angelsoft only 1.32% will actually get funded.
So what's the disconnect? Easy: the fact that YOU think you're a #3 entrepreneur unfortunately is not enough to actually make you one. As an active angel investor, I spend virtually my entire working life desperately seeking real #3s. And believe me, the distribution of them among well-meaning wannabes is much closer to 1.32% than it is to 100%.
You ask what specific characteristics differentiate the real thing from the not-so-real. I will tell you that I think it is a combination of mindset and attributes. The mindset is one that is creative, is comfortable with risk, has a healthy self-confidence, an incredible work ethic, and a never-say-die attitude.
The attributes, as I tell my pitch coaching students, are these (and pretty much in this order): Integrity, Passion, Experience [in starting a business], Knowledge [domain expertise], Skill [in functional operating areas], Leadership, Commitment, Vision, Realism, and Coachability.
But is the sum of ALL of the above that make up the classic, effective entrepreneur, and the one with the best chance of getting funded. You don't necessarily NEED to have one of the #2 skill sets (although it can't hurt), but you must be able to assemble, inspire, lead and manage a team of people who do.