The Importance of the Management Team in Successful Companies

It is important that the founding team be staffed by people with experience in technology and business. This is one of the main reasons why success stories of companies established and managed over time by only one entrepreneur are rare. In most cases, even when the venture has only one entrepreneur, he quickly gathers around him a core of people in order to promote the idea from its initial stages. Investors regard the team as the greatest asset of a young company, and often prefer an excellent team with a mediocre idea, over a mediocre team with an excellent idea. If recruiting a full team in the preliminary stages proves difficult, it is possible to obtain people’s consent in principle, to join the company, if and when it manages to secure financing or meets certain initial targets. Many investors understand and accept such agreements. It is also important that an agreement with respect to the division of shares in the future company—according to the anticipated added value that each founder will contribute to the venture—be reached in the early stages. It should also be kept in mind that investors may assist in completing the team, and their potential contribution to the consolidation of the team should be taken into account.

The composition of the initial team changes from one company to another, but such a team generally comprises the following positions:

• Manager (CEO)— The person who conceived the original idea is not always blessed with the skills required to run a startup. There is no shortage of examples of extraordinary entrepreneurs who ultimately led their companies to bankruptcy, because they lacked the ability to lead a large organization in the global market. Many management theories describe various blends of characteristics that are suitable for running companies throughout their life cycles, and only a few entrepreneurs fit these descriptions. It is important to find an experienced leader as early as possible, even if such a leader will not manage the company in the long run.

  On the other hand, an experienced CEO is not always essential in order to succeed. For instance, one of the most successful companies, Microsoft, was run for years by Bill Gates, one of its founders, who had no experience in managing a company.

  Occasionally, one of the entrepreneurs can manage the company in its early days, but if the company grows beyond his managerial abilities, he must acknowledge this and step down. In addition, a talented outside manager will not normally join a very young company, but will do so after it has established itself somewhat, either by raising money or by developing its business. On the other hand, investors will not invest in a company that lacks a talented manager or, in many cases, will “penalize” it with a low valuation. The ability of one of the entrepreneurs to tackle the managerial position at the beginning, or, alternatively, the investors’ faith in the company’s ability to recruit talented and experienced managers, are therefore highly important.

• Technological Leader— If the venture is essentially technological, the founding team has to have at least one person with an acute understanding of the technology required in order to execute the idea. The presence of a technological leader on the team increases the chances that even if the original idea does not come to fruition, it will at least generate new and valuable technology. A technological leader increases the prospects of securing financing for the company; one of the main reasons for this is the fact that many companies start out by developing a product that was intended for a certain market, but ultimately succeed by putting their technology to other uses. The importance of a technological leader is usually crucial, and is naturally also conducive to garnering support from convincing potential employees to join the company.
• Marketing and Business Development Manager— From a historical perspective, most successful companies started by analyzing markets and engaging in business and marketing development already in the company’s early stages. There are many advantages in engaging a person with marketing experience in the development stages, since such a person can influence the direction of such development and can create marketing channels concurrently with the development.
• Production, Sales, and Financial Managers— These positions are essential for the management and development of the company, although in many cases they do not form a part of the initial team. Such positions should be filled toward the end of the development stage, concurrently with the increase in the size of the company.
• Coach— A coach is an experienced outsider who can draw from his experiences to help build up the company and create the necessary connections in the industry and the capital market. Such a person on the Board of Directors, or as an investor, is an invaluable asset. For instance, it is doubtful whether Netscape would have been funded by Venture capital funds, and eventually sold to AOL for approximately $6 billion dollars, were it not for the involvement of an experienced coach such as Jim Clark, nor is it likely that the company would have received financing in its various stages without his presence.