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
