Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Entrepreneurs, Take Your Time When Choosing Key Personnel for Your Executive Management Team

Choosing the right executive management team for your start-up company can make the difference between getting funded and not getting funded.  Once investors “like” the business proposition, their investment decision primarily rests on the quality, experience and depth of the start-up company’s executive management team.  Therefore, choosing the right executive management team members is a key for any start-up company.  So, as an entrepreneur, you need to take your time in choosing your executive staff, as it is better to have a hole in your executive management team than to choose the wrong person for a key position within your start-up company.  Therefore, be very careful when choosing individuals to server as your start-up company’s executive management team, as picking the right team members will help you execute your roll out plan, allow you to attract investment capital and serve your start-up company well both short and long terms.

Don’t Commit Up Font with Unknown Individuals

When choosing the initial members of their executive team, entrepreneurs generally go with “known” individuals.  This can be a mixed blessing.  More often than not, the entrepreneurs have worked with these same individuals in some capacity during their career.  This makes these same individuals a “known” entity and therefore, the entrepreneur has a good sense of their skills, work ethics, morals, and overall ability to perform on the job, both in good times and in challenging times.  On the other hand, if these same “known” individuals do not work out, it is much more difficult to let them go, as existing personal relationships are often more difficult to sever. Therefore, be careful when choosing friends and/or colleagues to be members of your executive management team.

For key executive management positions that need to be filled with “unknown” individuals, as an entrepreneur you need to learn to be a bit more skeptical.  With that being said, I find it important to meet with these same individuals and understand both their motivations and compensation requirements.  Some of these same individuals are just looking for a pay check and are not willing to put in the necessary time or work up front to show what they can do.  These types of individuals, as such, do not provide you with the opportunity to determine what overall value they can offer your start-up company. I would pass on these individuals. On the other hand, if an individual is someone you are interested in bringing on board offer them a minimum number of stock options for a short period of time, for example, three to six months. Then use a performance-based consulting contract as the engagement vehicle to define the initial relationship.  At the end of this period you will have a better understanding of this “unknown” entity and their commitment to your start-up company and the skills and value they can bring to your start-up company.  Remember, individuals that are not willing to work on some type of performance-based consulting contract upfront, are not individuals you need to bring onboard as key members of your executive management team of your start-up company.  Accordingly, this type of short term performance based assessment is the best indicator of long term performance and value an individual can bring to your start-up company.  Anything less, is just a shot in the dark, and is something your start-up company cannot afford, both in terms of lost time and opportunity.

Don’t Let Executive a Staff Member that is Not Working Out Linger too Long

Often, even “known” entities, colleagues or friends that are brought on board to be members of your start-up company’s executive management team do not work out.  This is usually obvious from the beginning and can manifest itself in many ways, including:

  • They are not willing to put in the effort or commitment to get things done. 
  • They do not add the necessary value that is expected of a senior executive staff position.
  • They are not self-starters and require too much direction and “hand-holding”. 
  • They have too many personal distractions that take away from their job performance.

Be that what it may, these same individuals are not to be considered valuable executive management team members of your start-up company and over time can often be more of a distraction and overall hindrance.  As such, these executive management team members need to be removed as soon as possible. Allowing these same individuals to continue to be a part of the executive management team will only cause resentment among the other executive staff members, as they will understand that these individuals are not pulling their weight and need to be replaced.  Therefore, as an entrepreneur you need to understand that even “known” entities do not always work out. Hence, it is your job to recognize this early and institute a discipline-based, performance improvement plan, if possible, or let them go, as doing nothing and letting it linger too long will not benefit your start-up company and its overall performance.

Executive Management Teams will Change

Sometimes valuable executive management team members, of your start-up company, will leave the company for a number of reasons. You, as an entrepreneur, need to recognize that all executive management teams change over time. This can be for performance reasons, personal reasons, etc.  The key here is to make sure that you recognize that the initial executive team you start with will necessarily not be the executive team you end up with. This is especially true if you take on third party venture monies.  Venture capitalists are notorious for removing members of the executive management teams of the start-up companies they invest in, and in many cases you will have no control of this.  So you need to recognize that through attrition, your own actions, or the actions of third party investors, your executive management team will change. This, more often than not is a good thing, as over time non-contributors leave and higher value-added individuals are brought on to replace them, and as such the executive management team will get stronger.  Therefore, as an entrepreneur, you need to recognize that a change, at the executive management team level, of a start-up company, is often a good thing and will in many cases enhance the overall performance of your company.  

As an entrepreneur, you need to take the necessary time to choose the right individuals to serve as members or your start-up company’s executive management team.  This is imperative for any successful start-up company.  To do this properly you should not commit to “unknown” individuals up front, recognize that even “known” individuals may not work out and need to be replaced, and finally recognize the fact that all executive management teams will change over time.  Understanding these principles is important. Therefore, take your time to choose the key individuals of your start-up company’s executive management team, as this will necessarily help facilitate your start-up company’s success in the market.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

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February 8, 2010 - Posted by | Venture Capital, venture finance, Venture Funding | , ,

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