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Sunday, December 17, 2006

The Value of Leadership: Why Start-Up Ventures Need a Steady Hand at the Helm

from Matt Ridenour, Momentum Venture Management





Over the last 15 years I've met hundreds of entrepreneurs who claim to have developed "the next big thing." Many of these people have good academic pedigrees, professional experience and technical skills, and yet very few of their ideas ever make it to market. Why?

The immediate answer that pops into most people's minds is: a lack of funding. After all, how can a visionary bring a concept to fruition without the financial resources to cover important pre-launch activities such as research and development, marketing and lead generation? While one can't underestimate the importance of funding, in my experience it's not the make-or-break factor that separates successful ventures from the also-rans. Rather, the most important issue is leadership. Simply put, companies need to have senior-level decision makers with the experience to understand how to navigate the unique and challenging path that start-up ventures need to take.

Building Leadership

Getting entrepreneurs to think beyond their technology can be challenging, but it is an essential step they need to take if they want their companies to succeed. So what skills do innovators need to build viable businesses? There is no single factor that defines a great leader (it's hard to find too many common personality traits between Southwest's Herb Kelleher and Apple's Steve Jobs), but the number one asset for an entrepreneur in a start-up environment is the ability to see past the day-to-day development of their products and take a realistic "big picture" to building a business that is likely to get funding.

Once an entrepreneur has come to the realization that he or she needs to focus on building a business, as opposed to a product or service, the next step is to see if those skills exist internally. In many cases, founders of start-up ventures may have superlative skills in their areas of expertise but have no clue how to commercialize their products, get the attention of critical partners or cost-effectively attract customers. In my experience, probably 50% of the product ideas I’ve seen were decent ideas, but a great product or technology idea is not even 5% of the battle to successfully launch a company. If you want your company to be taken seriously, you have to prove that you have a leadership team that can tackle all of the business issues rather than just their technologies or products.

So, how does one make the leap from having a great idea or product to having a company worthy of funding? Obviously, this is a tricky problem, given that attracting a team and getting market traction requires funds, and angels and VC firms aren’t going to invest without a “team and traction” in place. We call that problem the “entrepreneur’s dilemma”. There is no "magic bullet" remedy for this cycle, but there are some important themes and ideas that entrepreneurs should consider as they prepare to move their businesses to the next level:

  • 1 - Be “realistic” about your capabilities, about your technology’s capabilities, and about your company’s near-term prospects. If you are out of touch with reality, it will be obvious to other potential team members, investors, partners, and anyone else with whom you might want to work. No one wants to join up with a “mad scientist.” I’ve seen situations where investors were willing to back very early-stage companies with large gaps in their business plans but were turned off by the fact that the entrepreneur did not acknowledge what was missing. This is a real red flag for investors. On the other hand, if you can articulate the unique value of your technology, but can realistically acknowledge the areas where you need help, others will actually find that refreshing and attractive.
  • 2 - Imagine that the “holy grail” for your early venture is not funding, or even customers, but credibility. Each day, wake up and think about how you can increase the credibility of your company. Who should you associate with? What partners might you have that validate your technology? If you could “give it away” to one customer that would put you on the map, who would it be? Credibility is the single most important thing you and your company can have in the eyes of investors, employees, partners and customers.
  • 3 - If you can afford to hire experts in key disciplines, great. Otherwise, rather than spending time looking for potential investors, devote your energies to meeting potential advisors, mentors, and other “connected people” who can help grow your business. Build up a network of people to surround you that have “been there and done that.” Even if you don't have a lot of cash on hand, you should be willing to give up some equity in exchange for a real commitment from them to contribute to your business and to vouch for you with investors. Look for people who have specific expertise and credibility in critical missing disciplines and ask them to be “goal-aligned” with you to build a great company. In other words, ask them to work for little or no cash to get things going.

    Matt Ridenour is Managing Director of Momentum Venture Management, a Los Angeles-based firm that helps early-stage companies achieve early business results and develop credibility in order to get funding and transform their ideas, technologies and products into sustainable, successful businesses. For more information, please visit www.mvmpartners.com.


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