berkus_ventures_300ppi copy

Berkonomics

The most important person on the startup team

By David S. Rose

 Described by BusinessWeek as a “world conquering
entrepreneur” and by Forbes as “New York’s Archangel”, David is a former Inc.
500 CEO, serial entrepreneur and the founder of New York Angels. He is the
founder and CEO of Gust, the angel financing platform used by over 50,000
accredited investors in 1,000 angel groups and venture capital funds to
collaborate with over 250,000 entrepreneurs in 95 countries.

Since Bill Hewlett joined with Dave Packard in 1939 to create what is today one of the world’s largest computer companies, there has been an evergreen debate as to who is more important in starting a tech company: the techie or the business guy? Steve Jobs or Steve Wozniak? Bill Gates or Steve Ballmer? Jim Clark or Marc Andreessen?

I propose that it is time to reject the notion of the business man or business woman entirely. The underlying problem is that there are really three different Basic_Berkonomics_front_covercomponents here, and like the classic three-legged school, they are all essential for success, albeit with differing relative economic values. What confuses us is that the components can all reside in one person, or multiple people. And what upsets people 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 /user interface / 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:

[Email readers, continue here…]  1) THE CONCEPT:  A business starts with an idea, and while the idea may (and likely will) change over time; it has to be good at 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 new generation of buggy whip, or another me-too social network?  The basic 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. 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 Rails coder, and the world-class information architect, and the consummate sales guy, and the persuasive business development person, and the brilliant CFO.  Each of the functions is crucial, and each 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 performing 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 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 user interface maven (Steve Jobs), or a financial guy (Michael Bloomberg). And that it is the critical piece which ultimately (if things work out) gets the big bucks.

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.

  • Bob Kelley

    Let’s also look at the broad Democrat social perspective on this and incorporate the following two quotes as we reflect on David Rose’s article:

    “If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business—you didn’t build that. Somebody else made that happen”.(Wikipedia: “President Obama Campaign Rally in Roanoke – Road to the White House. C-SPAN. July 13, 2012.)

    “I hear all this, you know, ‘Well, this is class warfare, this is whatever.’ No. There is nobody in this country who got rich on his own — nobody. You built a factory out there? Good for you. But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police-forces and fire-forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory — and hire someone to protect against this — because of the work the rest of us did. Now look, you built a factory and it turned into something terrific, or a great idea. God bless — keep a big hunk of it. But part of the underlying social contract is, you take a hunk of that and pay forward for the next kid who comes along.” (Wikipedia: (September 21, 2011). “Elizabeth Warren on class warfare: ‘There is nobody in this country who got rich on his own'”. TheBlaze.)

  • The above excellent analysis boils it all down into a digestible piece of writing. Nice!

    Yes, concepts are a dime a dozen. People with ideas often believe that they’re very valuable, but they’re worthless unless someone is willing to take the risk of converting the idea into a company.

    Every single piece of the execution portion of the business consists of replaceable parts. If both Joe and Sally are good at finance, then either might the your CFO and share in the ultimate rewards. I know such people, those who just happened to be friends with or friend of a friend of an entrepreneur and became very wealthy as a result. They did not have the idea and were not the driving force, but they did take some risk by spending some years of their lives on lower salary without guarantee of success. Their risk-reward ratio came out way better than most.

    Ultimately, it’s the entrepreneur who takes the largest risk, has to provide the leadership, and creates the vision for the rest of the team. The entrepreneur has to do much, much more — even to the point of understanding the job of every person on the team, even if not to the point of taking it over. The entrepreneur deals with setbacks, employee harmony, delays in paying vendors and employees, and a host of other issues.

    Let’s raise a glass to the entrepreneur!

  • The person with heart is the most important person on every winning team.

  • Once again you made my day!

    I would say that for me, it was finding the right CFO (Chris Lowe) who was willing to risk alongside me that created the shift in the movement and future of the company. All of the other pieces existed and were functioning, but because of the hybrid nature of the concept and industry resistance factors, his buy in changed the landscape for us. Yes, I’ve had many CFOs come and go, but with their hand out. I would say it takes not just a business mind that is talented, but one willing to go the mile alongside the entrepreneur.

    Thanks so much for your great contribution to us all, Dave!

Leave a Reply

Your email address will not be published. Required fields are marked *

Share

Sign up for
Dave's weekly emails

Most Recent Posts

Category