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Berkonomics

Is it the jockey or the horse?

                Early stage investors have been arguing over this for years.  Do they bet on the entrepreneur (jockey) or the business idea and plan (the horse)?   This is serious stuff.  If you are looking for money, this question will certainly come up in one form or another when you approach professional or organized angel or VC investors.

                My answer always varies as I examine each deal, sometimes deferring and passing on an investment because of an uneasy feeling about the entrepreneur, even if the business plan seems able to capture the market.  Speaking for others, I see VC investors jumping into deals knowing that soon they will push to replace the entrepreneur with a professional, experienced manager that the VC has vetted and trusts.

                I have bet on the entrepreneurial jockey a number of times and been blind-sided by after-investment behavior that completely reversed my opinion about an entrepreneur’s ability to manage growth to breakeven.  Other times, the entrepreneur went on to assemble a great team and execute the plan as it inevitably changed again and again.

[Email readers, continue here…] Although this debate will continue for ages, I tend to fall on the side of betting on the jockey, simply because it has been a rare business plan that did not change again and again seeking a successful model in the marketplace.  And great management is able to morph a company to adopt without destroying the culture of the company in the process.

                What if you were the investor and someone walked into your office handing you a business plan executive summary that floored you with its brilliance?  And what if that person admitted immediately that he or she had no team and was not the person to take this plan to market?  Would you, as an investor, plow money into the plan and help to incubate the idea into a real enterprise?  I would not, nor would most all of those I co-invest with.  There are millions of great plans that failed over the years for want of a great management team.  And I am sure there are many, many average plans that developed into great companies with the help of a great team.

                So if you are one of the entrepreneurs without experience or ability to take your great plan to market, admit this early and form a team that investors can trust to do this, personally stepping into a position that fits your core skills, be it marketing, sales, development, or other areas required by a young company.  

                It would be refreshing as an investor to meet an entrepreneur with a great plan and a pre-formed management team fronted by the strongest possible leader, even if the entrepreneur offers to take a back seat in order to make the vision a grand reality.

  • Don Kasle

    Dave — A great topic. While it can be argued from either side, and you presented both cases well, I am TOTALLY in the belief that I have to really, really, really like the horse, — AND even more so — I have to be “madly in love” with the jockey. Don

  • Dan Hoefflin

    Hi Dave:

    As an owner of several Thoroughbred race horses, I would suggest that “a good jockey will rarely make a lousy horse win”, but “a lousy jockey can make a good horse lose”. Finally, some horses are simply so good that the jockey doesn’t much matter as long as he/she stays on the horse.

    I think this also pertains to businesses in general.

    All the best,
    Dan

  • Arthur Lipper

    Is not the answer simple? One bets on the horse, only if one has confidence in the jockey.

    Been there, done that.

    Arthur

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