26/10/2010

Sewing up the holes ... in people!

By Michelle Williams, AngelNews

Ah people - the great big enormous, knotty issue when it comes to Venture Capital and angel investing. When you ask investors what matters most in a deal the vast majority just say "people, people, people" or "an A team can make a B grade business great but a B team can ruin an A grade business." Not everyone says this - investors, like Jon Moulton, talk about the greater importance of the market and the business model, but they too know that whilst an A team won't be able to make it if the market opportunity or the strategy is not right, you still need pretty excellent people if you are going to get a 10x exit.

What easy wins are to be had in getting the right people into a business and indeed removing the wrong ones quickly? At a macro level, the obvious thing that needs to be done is to re-equalise the rights of employers vs employees. Think about it - there are even rules and regulations around how you write a job ad, for goodness sake. Can I ask for a Man-Friday to help me if I am a start-up or do I need to ask for a person-Friday so I am not being sexist - catch my drift?

And perhaps the most essential thing that needs to be done by Government, in this context, is to make it much easier to end employee contracts - not just at senior director level where breach of contract, dismissal or failure to perform provisions will be written into the shareholders' agreement, but at a general level for all staff. You should be able to terminate someone’s employment without going through the rigmarole of redundancy or verbal or written warnings prior to dismissal. Clearly the employer would need to give reasonable notice and compensation (including an agreed reference), but just imagine how liberating it would be for entrepreneurial businesses if they knew that they could not be faced with threats of discrimination or constructive dismissal, when someone they know is not right for their firm or even the role they are fulfilling, leaves. The Americans have got it right when they say to people who are not right for their own firm that leaving it gives that individual a chance to develop a new opportunity. Because, let's face it, how many entrepreneurs building businesses make perfect hires early on - especially when so many of them have not even run a business before? The trouble under the current law is that difficult people are hard to remove even if they are costing the business dear. It's also an expensive and lawyer intensive exercise - some might argue that it is worse than getting a divorce!

We also need to bring an entrepreneurial culture back into the school room - not at 14, 16 18, or worse, tertiary education, but at primary level. We are a nation of shopkeepers it is said. Could this be because children learn to count by "playing shops" in Year 1? What might happen if we got Years 2-9 playing Dragons' Den? It is no wonder that our children want to be pop stars or models if the TV has programmes that drive the "get ahead" factor (i.e. entrepreneurial zeal) amongst our population into starring on The X Factor!

Engaging with the over 40s is something that more entrepreneurial businesses should consider. Here I do have a bit of experience thanks to our Pitching for Management events. Each time we fill hold an event we fill it, with little trouble, with 40-80 senior business people - 80% of whom have experience of working in or with start-ups. They are extremely eager to win a role in an exciting young firm and are definitely open to offers of a package that will align their interests with that of founder entrepreneurs and their early stage backers in roles ranging from Chairman to Sales or Finance Director. In the case of Thermahelm, 17 people came forward after Julian Preston-Powers' pitch and from this group he hired three people.

Entrepreneurs need to surround themselves with serious business people who have the wisdom and experience to know when to chase an opportunity hard and when to hold back. As long as the personality mix is right, the balance of wisdom based on experience, with entrepreneurial instinct, can make all the difference between a flash in the pan and the establishment of a solid business growth trajectory. Interestingly, we are also seeing MBA students turning up at the events too as they seek career opportunities with the businesses who pitch - time will tell if this source of talent can also add value to the pot.

The value-add of personal experience is something that angels can sell-in to entrepreneurs they wish to back. The best angels understand well the different roles they can play:

• getting stuck-in operationally, be it long term or on a trouble shooting basis

• playing the NED card properly - actually adding value at board or a supervisory/strategic level

• acting as a proper investor - letting the management know what returns are expected and calling them to account as they work to deliver them

Troubles start when entrepreneurial expectations of what they are getting don’t match up to what they get. The usual complaint by entrepreneurs is either the angel is too involved or not enough! Angels complain that they are pushed out the minute their money is in the bank or later when bigger and ‘better’ money appears on the horizon. I suspect that striking the happy balance involves much more detailed communication prior to the investment taking place and also regular review meetings thereafter. The Brits tend to be poor at frank and open exchanges on this subject (too personal perhaps?) but wouldn't it be great if both sides understood better when goal posts were about to move! It's interesting that the value add angels (vs the cash investment angels) who occasionally come along to the Pitching events have told us that they want to get involved and help the company to organise itself in the right way long before the money discussion starts: they see this as a way to make sure that more companies actually win the right funding in the future. Unexpectedly we have discovered that these value-add angels may have found a way to steal a march on their cash rich brethren! Though this is not our doing really; all smart angels have long mentored smart entrepreneurs long before part with any cash. Our contribution is merely in the novelty of the format by which they can connect with each other.

Then we get to the question of the best entrepreneurs. In our next edition of Making Life Richer we have interviewed Christian Reitberger of Wellington Partners. He makes the profound point that European entrepreneurs find it harder to succeed against their international counterparts because they are much worse at packaging themselves and their businesses in a sales and marketing context. It's not technology and innovation that is holding back business growth, and certainly not the volumes of cash available for venture investing. It's the ability of entrepreneurs to market themselves from day one - to investors, customers, suppliers et al. and to implement effectively and quickly a sales channel that the customers actually want. Years ago, I heard an entrepreneur (name long forgotten) speak about how he had succeeded by handing over the jobs he did worst to other people who were good at them as soon as possible, starting with the most hated first and ending up with a situation where he only had to do the bits he was best at.

Perhaps if more entrepreneurs adopted this strategy, less VCs would have to remove the founder from running the company as he would already have disappeared back into his "innovation zone." Though the lessons of Apple in the US and Pret a Manger over here, tell us that it is unwise to let go of the founder entirely. It is the founder who, when push comes to shove, will treat the business he founded like the Prodigal Son and come forward to save it when everyone else has mucked it up.


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