April 26, 2013
This article was originally published in the Global Banking & Finance Review.
From the first minute of the first meeting with a Startup entrepreneur, there are a myriad of indicators which any investor will be looking for in order to help them determine if the opportunity they have in front of them is a potential world beater or a deadbeat.
While these might differ between individual investors based on their own expertise and history with previous investments, for me, there are a few key factors which will quickly determine if I’m in or I’m out.
For me, technology stars of the future are outliers, companies which have the potential to redefine how a specific industry or niche market currently works and also have mass appeal. Their ability to be successful will have much to do with their chosen industry, their timing and, arguably most importantly of all, the people involved, specifically the leadership.
One of the biggest things I’ve learned as an investor is that, if you want to be successful, you do not invest in startups themselves, you invest in people. My primary investment thesis is that if the people and the leadership of a startup aren’t world class, their business won’t ever be either.
One of the hardest lessons I learned as an entrepreneur is that you never have all the answers. A company which is being driven by an egocentric founder who won’t be challenged and who has assembled a group of employees rather than a team is one which is being setup for failure.
When this type of singular company dynamic has been established, entrepreneurs easily get lost in the idea they are creating and not why it’s being created. World class entrepreneurs and investors know the idea behind a startup means very little, the power is in the execution and the strategy around it. With one guarantee of a startup being that failure, of some sort and at some time, is inevitable, a company whose leadership is self-aware, flexible and able to learn and pivot without hesitation, is, in my experience, far more likely to see eventual success.
The most successful teams I’ve worked with will often comprise multiple co-founders and options holders who understand the buy-in they have and are coordinated in their desire to see growth and success. The surrounding ‘team’ will also be better positioned to monitor, not only their organization’s own market position, but importantly, the strength of their competition. Competitors exist and will often times perform certain aspect of their business model better than you. A world-beating team will learn from this, a deadbeat will hide from it.
Industry & Timing
In which industry a startup chooses to operate and the timing of their offering has a significant bearing on whether it will be a success or failure. When entrepreneurs look to enter into an industry simply because it’s new and making headlines, they are invariably already too late to the game.
A rapidly growing tech trend can be intoxicating to a startup entrepreneur but a lack of real industry awareness and genuine experience of competitor products are red flags to investors. The best leadership knows and loves their competitor’s products or offerings but is looking to improve them. When a team is able to fully evaluate the strengths and weaknesses of the current market leaders, they will build strategically in order to better them. Hiding from the competition means building in a silo. World-beaters operate in the open, know exactly why they are in business and where to direct their focus.
Picking a winner
Startups are inherently risky and choosing the right ones as an investor can be through utilizing gut feeling as well as market analysis. By examining a chosen industry, the timing of a product and the egos at play in the boardroom, risks can undoubtedly be mitigated and great ideas given the opportunity to become true world beaters.