berkus_ventures_300ppi copy


Which is more important: Management quality or a better plan?

So, what do you think is more important? The quality of your management team, or the plan you execute toward success?

Checking with professional investors from angels to VC’s, the answer appears to be near unanimous: the quality of the proposed or actual management team comes in a strong first, before the attractiveness of the business plan itself.  The quest for a great management team is not a fluke, but rather a result of backward looks at the failure rate from past investments by those same angel investors and venture capitalists.

If you read last week’s analysis of statistics for startups and early stage businesses, you have learned the truth that at least half of the businesses backed by professional early stage investors will die within three years or less. That reality is a tough one for the professional investor, almost as tough as for those entrepreneurs who lose their businesses.  The latter can start new businesses, flush with the experiences gained from the previous effort and much the better for it.  But the investor’s cash is lost forever – and the experience gained usually is just another notch in their investor belt.

[Email readers, continue here…]  Here is the conclusion: It is the management team, most often led by a passionate entrepreneur with experience in the industry, which makes the biggest difference between success and failure, even for businesses built upon less than sterling basic ideas.  Among professional investors, almost all would rather back a great team with an average idea before a great idea and inexperienced team.  It comes back to coachability and flexibility, our insight from several weeks ago.

As a reminder of that conclusion: Great teams are flexible and have the advantage of experience in seeing the pitfalls before them from their past.  They are coachable in that they have taken advantage of the vast experience of others in overcoming obstacles and finding ways to speed a product to market faster or create a service whose quality exceeds that of the competition.

None of this is to say that an inexperienced entrepreneur cannot lead a great new business.  But it would be foolish to try without surrounding himself with as many experienced co-leaders as possible from the outset.   As a start, that smart entrepreneur will soon “know what he (she) doesn’t know”, an important qualifier for success in any business endeavor, when combined with the willingness to fill gaps in knowledge with help from those who have the experience to do so.

Even if you are not considering taking in money from professional investors, this advice would serve you well in protecting your own monetary investment.

  • My experience as an investor, and student of the venture development process, is that most successes resulted from a number of major, well sold, strategic pivots. These range from name changes to major shifts in business models. Airbnb is a good example. Look at the early slides at: Look specifically at what at the pivots between the seed round and the Series A investment.
    This captures many of my own investing, and start-up situations. Louis Knobbe, a founder of Knobbe Martens first shared this insight with me in the late ’80s. When I realized how key it had been to my own personal experiences as an intrepreneur, and then an entrepreneur, I made it a part of my own investment philosophy. It become a key expectation as I started my angel activity in the ’90s. Today, I could sight many personal examples of it. The airbnb situation, which I did not participate in, is just particularly well documented.

  • Bill Carpenter

    I’ve always said a mediocre plan, well executed, beats a great plan that’s poorly executed. Nobody’s argued or proved me wrong yet!
    Bill Carpenter

Leave a Reply

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


Sign up for
Dave's weekly emails

Most Recent Posts