The Smart Entrepreneur: Part IV: Marshalling Resources
69
The Smart Entrepreneur: Part IV: Marshalling Resources
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Overview
Product Details
| ISBN-13: | 9781907642487 |
|---|---|
| Publisher: | Elliott & Thompson |
| Publication date: | 06/08/2011 |
| Series: | The Smart Entrepreneur , #4 |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 69 |
| File size: | 800 KB |
About the Author
Read an Excerpt
The Smart Entrepreneur â" Part IV
How to Build for a Successful Business
By Bart Clarysse, Sabrina Kiefer
Elliott and Thompson Limited
Copyright © 2011 Bart Clarysse Sabrina KieferAll rights reserved.
ISBN: 978-1-907642-48-7
CHAPTER 1
SECTION IV
MARSHALLING RESOURCES
SETTING UP VENTURE TEAMS
What?
These days, technology has made it more possible than ever for people to start small one-person businesses – witness, for instance, the proliferation of iPhone apps created by single developers. However, it usually takes a combination of abilities and multiple human resource hours to start a venture with higher growth ambitions and a more complex product offering.
You may already have one or more co-founders with whom you plan to start your venture, but in addition to co-founders you'll eventually need other types of collaborator, from employees and managers to board members and investors. You may not be in a position to put a full team together yet, but since a good team will be one of the resources needed for a viable business, this chapter outlines some information and advice for future thought.
Opinions differ regarding what constitutes a good venture team and what an entrepreneur's priorities should be when assembling a team. Investors typically say that they want to invest in a team with the best technical and commercial expertise available, a board with contacts and a CEO with previous industry experience. Once upon a time, 'previous industry experience' might have meant appointing a director who hailed from a large incumbent company, but nowadays investors look more specifically for a CEO who has headed another start-up (or more than one) in the same industry. This may put you at a disadvantage if you happen to be trying to start your first company, and is why team members with a range of different expertise and experience are needed to complement whatever you can bring to the table and make up for anything you can't. If you're a novice entrepreneur, you might find that you have to give up some control of your first venture in order to see your idea come to fruition with the help of additional collaborators with a range of experience.
In addition to skill and experience, passion and drive are also seen as important attributes, and occasionally certain investors in certain circumstances will prioritise these qualities over industry experience, asserting that passionate, motivated and open-minded entrepreneurs will learn to do whatever it takes to go to market and remain unswervingly committed to the goal.
The optimum conditions may lie in a combination of these factors; however, as all start-ups and starting conditions are different, what's important is that the team should be composed and managed in a way that satisfies the internal needs and external demands of the business. Internal needs include requirements for smooth operations and good decision making. External demands include the ability to attract and retain target customers, investors and future acquirers of your business, and delivering the technology, products or services at the right time. In the case of a new venture, all of this usually must be done in a shifting environment of changing demands, as a young company learns about its market and business setting and hurries to adapt its products and practices in response. Venture teams therefore frequently need to be primed for speed and flexibility.
Attributes you must consider when trying to assemble a successful team will include not just technical skills and industry experience (possibly from diverse industries), but also networks and contacts, personality and thinking styles, and previous acquaintance or shared work experience.
The key ingredient, however, is attitude, because the kind of team you'll assemble and the company you'll build, at least in the early days, will be different from the type of team you would find in a large organisation. It takes a different animal to accept a position in a start-up company as opposed to a large organisation. The risk of failure, lack of job security, long hours, high commitment and adaptability required, and low starting pay are factors that will be tolerated only by the right kind of team member, in exchange for other incentives and rewards such as the thrill of innovation and independence, the chance to express one's talent, the opportunity to learn and develop new skills, and the prospect of long-term rewards (and kudos) if the venture succeeds. So the culture of the start-up is just as important as its product. While this difference is widely understood in the US, it is sometimes less of a given in Europe, where the new venture community is smaller and working practices tend to be more conservative.
A team's success comes from its ability to coalesce around a set of clearly understood and shared values and goals, as well as its talent in implementing those goals. As coalescing is easier said than done, you need to devote as much thought to how you recruit, organise and retain the loyalty and commitment of your venture team as you do to your strategy and product offering.
Why?
Investors in start-ups typically state that the management team is more crucial to success than the business idea. A strong team can make something out of a second-rate idea – or modify it into a better idea – but a great idea will not succeed if the team that carries it out is not fit for purpose. If your venture will need outside investment, this alone should prompt you to pay close attention to the people aspect of your venture.
Your venture will also require different team attributes as it develops through stages – from evaluating and developing the idea (as you're presumably doing while reading this book), to raising capital, starting operations, and implementing and growing the business if you're successful in the previous stages. Managing these operational transitions effectively is another skill you'll need to develop if your venture succeeds in launching.
Bear in mind that how you effectively manage people, skills and roles in a start-up is likely to be different to the approach taken in larger organisations.
How?
The research
A plethora of differently named methods and theories about team formation, team analysis and team management exist, and new ones are regularly devised by consultants and academics. Van Roost, for instance, based his approach on ideas from chaos management theory as it relates to high-performing teams (particularly on work by Dr Marcial Losada from the University of Michigan), as well as adaptive leadership methods set out by Dr Ronald Heifetz of Harvard University. What seems more important to us is that Van Roost was able to apply these ideas in practice with success. It matters less what method you subscribe to in name than what you are capable of applying in practice, and whether it fits a need.
Broader research into characteristics that have an impact on the success of teams indicates that the main ingredients are the following.
INTERNAL TEAM NEEDS
Recruitment and hiring: diversity and similarity between team members.
The relative merits of diversity and similarity between start-up team members have been studied at length. Obviously, a new venture will require diversity of skills and roles: technical, operations, marketing and sales, finance and so on. In the early days, when a team is small, some members may have to cover more than one area, with at least a partial understanding of each domain (or an inclination to learn), backed up when needed by the services of outside professionals such as accountants and lawyers. So, professional skills are one form of diversity, but the division is not clear cut in a small team, and often not the most important measure of diversity.
Looking beyond skills, research indicates that diversity or similarity in personality and thinking styles (for instance: analytical, empathic, visionary, tactical, risk-taking, conservative) also influences a venture's development and performance. So does previous acquaintance of team members in another environment, especially if they've worked together before. People who have similar work experiences and thinking styles and/or have worked together tend to share a common language and approach, which makes such teams good at taking decisions and implementing them quickly. However, homogeneous teams can also become overly comfortable with a narrow view of the company, and get stuck in a rut, which can be a drawback in fast-changing business environments.
On the other hand, highly diverse teams are good at exploring and comparing new ideas and developments that could impact strategy because each member has some unique insight to contribute; but they're are also slower, initially, at making decisions and taking action. As team members become better acquainted with one another over time, however, they develop a common language too, making them better at implementation but, gradually, less exploratory.
For reasons similar to those that make diversity desirable, research has also found that some occasional disagreement between team members and even co-founders is productive, as long as it remains in the realm of healthy debate over ideas and doesn't become personal (or taken personally). In practice, this may be easier said than done, but depends largely on how carefully the company manages its culture.
Not surprisingly, new companies that grow successfully contain a combination of diversity and similarity between team members. Looking back to the Handshake Solutions story, Van Roost began with a homogeneous team of people who'd all worked at the same parent company and consequently shared a common way of doing things, but he gradually fed in new members who could contribute alternative viewpoints and approaches. During interviews, he consistently sought an element in a candidate's attitude or personality that distinguished her from the rest of the team.
Organisation and decision making. Small team size and the likelihood that the venture will frequently change its shape in response to new developments mean rigid job descriptions and corporate-style titles such as CEO, CFO and CTO are inappropriate in the earliest stages of a new venture. Some people in the company will clearly have more experience, and consequently more authority, than others. However, it is important to be clear about who is responsible for what roles or tasks at any given time, so that needs are covered and work is not duplicated unnecessarily.
Decision-making style is also crucial to a new venture's success because the environment of uncertainty surrounding a nascent business requires new decisions to be taken and tested frequently. Van Roost's story illustrates how relying on the combined intelligence and talent of all team members (particularly in a diverse team) pays off in both the quality of decisions and the commitment of the team to those decisions, provided that all members of the company are aligned behind an understood common goal.
Communication. A venture team that's required to be versatile and agile cannot perform well without regular communication about ongoing developments and decisions. Communication should be structured into the venture's modus operandi. While it may seem an obvious requirement, start-up companies sometimes fail in this respect because it's taken for granted that in small groups word gets round and team members naturally align. When the team ultimately grows larger, steps aren't taken to facilitate communication flows beyond word of mouth. Andy Abramson, founder of Comunicano, a strategic communications agency for US and European technology start-ups, has noted this problem: 'You would be surprised how often, when we visit a client company for our initial strategy session, more often than not different team members have a different idea of the company's purpose and direction, and explain it differently. They listen to each other's comments and say, "Oh, is that where we're going?"'
No matter how busy you are building a product or developing a customer base, the investment of effort in communicating about all aspects of the business, as is the case at Handshake Solutions, is worthwhile. Keeping people in the dark about important issues or changes, either because you're short of time or in an effort to retain control, will jeopardise trust and impede effective decision making.
Culture. Decision-making styles, organisation style and communication enable the creation of a culture within the company, the glue that holds it together. A clearly understood, shared sense of the company's purpose and goals is important, as demonstrated at Handshake Solutions. But it is also important for team members at all levels to feel that the company goals are aligned with their personal goals and interests, and that the work is based on a set of shared values. This is highly desirable in any work situation, but crucial in a new venture where the risks are high, changes in strategy and demands may be frequent and, consequently, commitment to something beyond each individual's domain of responsibility is needed. While material rewards, such as equity or share options, may provide a way to stimulate people's commitment towards a long-term goal, culture provides the day-to-day motivation.
Research supports the notion that a culture of openness and mutual support between team members will foster good working practices. A high degree of interaction between team members, possibly both on and off the job, also has a positive effect.
Good teams also need a strong leader, but, as Van Roost's example proves, a strong leader isn't necessarily one who decrees all the rules or single-handedly takes all the decisions. The leader's broader role is to foster and champion a company purpose and culture that allow for good decision making and will encourage members to work cohesively, perform well and create a winning product or service. The leader is also the individual who is tasked with representing and defending the company's goals and decisions to the board of directors and other external parties, so she must also be a person capable of fronting the company in these external relations.
EXTERNAL TEAM
Research on entrepreneurship also highlights the importance of the external or 'extended' team, including investors and a board of directors, an advisory board, other firms with which a venture forms partnerships or alliances, and the management team's network of industry contacts.
Ideally, your board of directors will include people with knowledge of your business sector, expertise to help steer your company in the right direction and a reputation that will lend credibility to your new venture. An advisory board doesn't have the governing power of a board of directors, but may also include experienced and reputable individuals who act as 'key influencers' in your industry or market. An alliance or partnership with a larger company (such as the product development partnership that Handshake Solutions formed with Britain's ARM, a leading chip designer, in 2004), also builds credibility and may provide the most viable route to market.
The people in these groups require as much care as the members of your internal team, so building and maintaining a trusting relationship through frequent communication and interaction is also essential to securing their commitment, ongoing support and help when it's required.
The everyday reality
In practice, you may not be able to line up all the success factors mentioned above to create the theoretically optimal start-up team described in the research, because you may not have control over all these factors. You may have to choose the best options available to you at a given time, in a given place, and find a way to make them work.
Let's start with the extended or external team: an entrepreneur (especially a novice one) rarely has the opportunity to choose investors, in the sense of having more than one offer on the table at the same time. While it is certainly a good idea to approach investors who have already invested in your industry, at the end of the day it's often the investor who will choose you, not the other way around. So, the extent to which an investor can offer valuable industry expertise, time or network contacts will vary with each circumstance. In addition, your investor(s) will have a deciding say over who sits on your board of directors.
Legally, a board of directors is mandated to take decisions in the interest of the company's survival and prosperity, and to serve the interests of all shareholders equally. Majority shareholders can rightly exert their influence in shareholder votes on decisions taken at shareholder meetings, but a shareholder who sits on the board should act impartially when weighing in on decisions that are the board's responsibility. In practice, however, conflicts of interest have been known to seep into the boardroom. The best antidote to this risk is to appoint an independent chairperson who is not otherwise employed by the company or by any of its shareholders, and who can effectively manage the board.
While you should obviously aim to build an optimal internal team, your ability to attract the most suitable set of people may depend on where your business is located, what kind of talent is available locally, economic and industry conditions that affect the competitiveness of the job market, cultural attitudes to risk and so on. You may not always find the optimal combination of technical ability, passion and open-mindedness in each person. Sometimes you may find people who have the right qualities or experience but are only available or willing to work on a part-time or consulting basis. Turnover is to be expected, especially when the venture must take a strategic change of direction and certain members are either not capable of or won't change jobs if necessary.
(Continues...)
Excerpted from The Smart Entrepreneur â" Part IV by Bart Clarysse, Sabrina Kiefer. Copyright © 2011 Bart Clarysse Sabrina Kiefer. Excerpted by permission of Elliott and Thompson Limited.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Table of Contents
Contents
Title Page,Acknowledgements,
Introduction,
IV Marshalling resources,
10 Setting up venture teams,
11 Seeking sources of capital,
12 Introducing the venture roadmap and basic financials,
Epilogue: the entrepreneurial business case,
Copyright,