The Way I See ItÖ by Michael C. Volker†
The thrill of transforming a new idea into a successful commercial venture is hard to match. We love to talk about the success stories Ė those that make heroes of their founders and millionaires of their backers.
We don't like to talk about our failures. Yet, we can learn a great deal from these euphemistically called learning experiences. Why do some companies fail when others succeed in the same environment?
Venture capitalists on the speaking circuit love to explain that there are three essential criteria for success: management, management and management. But when we do hear about a company that didnít make it, the reasons given by management are usually along the lines of inadequate funding, market conditions, competition, or some governmental woe.
My business is starting-up businesses.† As such, I see a great number of failures Ė companies that just couldnít cut it. However, there are many more which donít exactly fail, but arenít smashing successes, either. These are the ones that the VCís refer to as their living dead. I think of them as patients in a coma. Theyíre still alive, but theyíre not performing.
I was recently speaking to a class of university engineering students on how to measure corporate performance using the P&L, i.e. Profit and Loss, statement.† Indeed, it is the job of management to produce P&L results. For startups though, a P&L is merely a projection of what might happen.
In these cases, it isnít this P&L at all thatís really important. Itís one thatís a lot more difficult to measure, although not at all difficult Ė yet frequently overlooked Ė to observe. And that is true P&L Ė Passion and Leadership.
One overwhelming conclusion which Iíve come to is that it isnít just management that will make a business hum.† What do we really mean when we talk about management? Is it the MBA school skills or business experience that will make a difference? While these are necessary, what are the essential success factors?
An entrepreneur who is passionate about her business and who can lead a management team, i.e. the operators who can execute a business plan, is the one who is going to hit a home run.
When looking at the usual P&L numbers, the exhaustive spreadsheets and backup material projecting future revenues and profits, it may be easy to conclude that a good management team is in place Ė but without passion and leadership itís pretty useless. Iíve seen countless detailed plans and projections which are impressive to say the least Ė worthy of high grades and accolades Ė but which have not taken off.
VCs and other investors need the business plan in the course of doing their due diligence to provide the justification for risking other peoplesí money. They are obligated to look at, and validate, the P&L numbers. Angel investors who, by definition, invest their own capital donít need these numbers.† They look at the other P&L paradigm. Maybe thatís why VCs like to back angel deals Ė both types of P&L may be present.
Monday morning quarterbacking will inevitably point to the lack of passion and leadership. We know that because all other obstacles can be overcome if these attributes are present.
Budding entrepreneurs or those wishing to back them, must understand this. A critical self-assessment will keep the entrepreneur from deluding himself. Anyone who tends to blame others or circumstances or has trouble trusting others to carry out tasks will have difficulty.
I like what Michael Gerber, small business consultant, refers to as the E-Myth which simply states that many people who think they are entrepreneurs are merely technicians suffering from an entrepreneurial seizure. His thesis is that just because someone is good at performing a technical skill (engineering, programming, or design) doesnít mean that they will be good at building a business that does those things. But simply hiring people with the requisite management talent isnít enough.
The way I see it, management may well be the most important factor in building a successful company, but itís passion and leadership that differentiates the winners.
Michael Volker is a high technology entrepreneur and director of Simon Fraser U's University/Industry Liaison Office. He is a director of the BC Advanced Systems Institute and the Vancouver Enterprise Forum and runs Vancouverís Angel Network. He may be reached at firstname.lastname@example.org.