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What to Look for in an Entrepreneur

When assessing an entrepreneur, there are three basic qualities you should look for: their goals, their knowledge, and their capabilities.

If these basics are not covered, you might find some unpleasant surprises after making an investment. For example, many investors have been left stupefied by entrepreneur decisions not to sell at an attractive price. In fact, these decisions probably supported the lifestyle business that the entrepreneur had dreamed about all along.

Here is what you need to know, plus the key questions for each point.

Knowledge

Industry, market, technology, customers... the entrepreneur's knowledge of the opportunity is relevant to assessing their ability to evaluate the opportunity as well as modify it during implementation. Do they know enough to know what they are getting into?

The best way to assess knowledge is through direct conversations with the entrepreneur and by relying on other stakeholders who have relevant experience for assessing that knowledge. Potential co-investors and past associates of the entrepreneur can be quite useful.

Key questions to ask: Do they know what to do? Do they understand this business? Are they known and respected by others within this field?

Capabilities

Sales, management, product development... the entrepreneur's capabilities are relevant to their ability to implement. Can they make it happen?

Track record is the best indicator of capability. Many successful investments were led by entrepreneurs with winning backgrounds, such as StarMedia (MBAs with management and financial experience), idealab! (successful software entrepreneur who founded his first company while still at high school, and sold one company to Lotus 1-2-3), and RealNetworks (BA and an MA in Economics and a BS in computer science from Yale University, plus 10 years' experience at Microsoft). Notable exceptions include Microsoft (college drop-out), and Lotus (transcendental meditation instructor).

Key questions to ask: Can they do it? Can they get others to do it? Can they implement?

Goals

Career, financial, personal... the entrepreneur's goals are the undercurrent driving their actions and are relevant to big issues, such as when and how to exit. Does the entrepreneur share the investor's goals?

Indirect discussions and observations will reveal the most about the entrepreneur's goals. Do they think about strategic sales or salary? It is critical to get at the underlying beliefs and objectives of the entrepreneur as they will eventually win out or create a major break with some stakeholder group.

Key questions to ask: What are the underlying goals and are they relevant? What are they communicating indirectly about their goals?

Authors: David Amis and Howard Stevenson

 

 
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