What Makes a Good Business Plan: A Winning Management Team
We often forget that business is a human enterprise. We are led to believe that we will succeed just because we have a great product, or a well-written plan, or deep financial backing. But history--even recent history--is littered with tales of seemingly great ideas gone bust, while lesser ideas dominate. The difference, invariably, is the skill of the people in charge. It is fundamentally true that no human activity succeeds without the direction and encouragement of human beings. Invariably, the more skilled and experienced the managers, the more likely the venture will succeed. The combination of great product, receptive market, sufficient capital and great management is well-nigh unstoppable, but management is usually the key ingredient. Smart investors know this, and so they will look first and foremost at the management team.
Indeed, it is probably not a stretch to say that investors, in betting on a company, are betting more on management than anything else. After all, they cannot really evaluate the product to the same degree that you have. They cannot really evaluate the market to the extent necessary to second-guess your market studies. They cannot take the time needed to understand your financial projections as well as you who have spent months putting them together. About the only thing they can evaluate with any degree of confidence is the management team.
Nor is it a stretch to say that is usually enough. A good management team, committed to the business's success, will critically evaluate all the other aspects of the business better than any investor can. If the product or service is lacking, good management can correct it, or even abandon it in favor of a better product. If the actual financial operations of the business do not match the projections, management can alter operations, projections, or both. If the marketing plan does not work, good management can change it. The non-human pieces of a business are static, frozen in time, at best a potential. People, and only people, can make a business come alive.
Investors know all this. What will investors do if one of their companies fails to perform? They will not change the product or the marketing plan. Generally, they will change the management. Success always depends on management.
So, what makes a good manager? Or, more to the point, what kind of manager will impress an investor? The short answer is someone who has done it successfully before. The more often he has done it, and the more spectacular the prior success, the "better" he will be in the eyes of investors. Put yourself in your investors' shoes: Who would you rather see spending your money, a proven veteran or a neophyte?
But let's be real here. Most entrepreneurs have never done it before, successfully or otherwise. And, most of the people they will have access to will not have done it too many times, at least not on their own, and maybe not very successfully either. Is there any hope, then, for a real-world start-up? Well, of course there is. Nothing is perfect. Waiting for the perfect new business would be like waiting for the perfect mate. If investors did not accept flawed prospects, they would never invest in anything.
But still, nothing replaces experience, and that is the key factor investors will look at. So consider carefully the quality of experience that your managers bring to the table. The first and most important lesson here is that if you are the classic inventor of the next new thing, but you yourself have never run a business, then the best thing you can do is very quickly find an experienced business manager to be your partner. If you don't, you will not attract investors, especially not in today's environment. And I mean "partner," not employee; investors will want to know that the manager really has the authority to run the business, and won't be fired the first time he disagrees with the (usually) cantankerous inventor.
How many managers you select will depend on the business plan. A chief executive officer or president is the bare minimum. Like the captain of an old sailing ship, a good CEO should be able to do all the work of other officers, if he has to. Also, she can supervise other officers effectively only if she knows their jobs as well as they do. So make sure your CEO is fully conversant with all the aspects of business management, including operations, finance, marketing, slaes, and human relations. As the business grows these areas can be delegated to subordinate officers. Don't make the team too small, however; your managers cannot perform effectively if they are overworked. Also, the early days of a start-up can be an emotional roller coaster, and a mutually supportive team can make the difference--both practically and psychologically--between toughing it out and giving it up.
Next to consider is the quality of your managers' experience. The best is someone who has successfully managed a business similar to yours. Next is one who has successfully managed a business in another field. Next again is someone who was part of a successful management team, though not its leader; at least he has seen it done, and now may be his turn to shine. Also, some investors like to discover new talent, betting that the kid being touted as CEO will be the next Jack Welch.
Prior success, you see, is key. Nothing succeeds like success. Unfortunately, however, these days there are plenty of unemployed managers of businesses that have failed. What about them? It depends on the person. Many of our greatest businessmen had early failures, but learned from their failures, and went on to success. People who have never failed are either extraordinary lucky, or have never taken chances (or not enough of them). Clearly, prior failure must not have been caused by some personality flaw of the manager himself. However, if the manager can articulate the reasons for his prior failure so as to convince you (and your investors) that those reasons will not be repeated, he or she may very well pass muster.
The management team are the people who will make your idealized business come to life, so that it produces real goods and services for real customers and makes real money. Investors are interested only in the real money at the end of the road; inventors all to often are stuck in the idea stage. The managers make the idea real. Choose them carefully, and let them do their work, and your investors will be impressed.