Why People will always be key to success

Experts argue that getting the right management team can do more for the success of a tech company than the quality of its products. The trouble is, many start-ups can't afford to hire the best talent.

'I would much rather have a first-rate management team with average technology than have the reverse - a first-rate technology with a second-rate management team. The strong management team is much more likely to succeed.'

So says John Preston, associate director of the Entrepreneurship Center at the highly-regarded Massachusetts Institute of Technology, in a paper entitled 'Success Factors in Technology-Based Entrepreneurship'. With extensive experience helping commercialise inventions from MIT students and faculty, he's seen numerous tech start-ups in action, and he believes the composition of the senior management team is one of the key ingredients. 'One of the false impressions about entrepreneurship is that entrepreneurship is an individual behaviour,' Preston says. He points to work carried out by Professor Ed Roberts from the Sloan School of Management, who found that a company's chances of success increased dramatically as the size of the team grew, up to four or five founders.

But for many start-ups, building a management team is ultimately about making the most of whatever resource is available. Many companies are set up by former colleagues or friends of friends who share a common product vision, and it's often more by luck than judgement if the team ends up with the right balance of skills. The majority of hi-tech firms are set up either by a technology specialist with a product vision, or a sales and marketing professional who spots a market opportunity - it's relatively rare for someone to have both skillsets, and it's not uncommon for tech start-ups to fall short on the sales and marketing expertise. These core skills will need to be complemented with day-to-day financial expertise and broader strategic insight: in addition, many companies will seek out a non-executive 'expert' to add credibility in the eyes of investors and customers.

Even if they recognise the need to bring in additional expertise, however, most start-ups lack the resource to do so. As John Blowers, managing director of equity funding exchange AngelBourse, points out: 'Equity capital is so scarce at this level that they can't afford to headhunt key people - so they will try [people] they know who they can beg, steal or borrow. Not many start-ups are in a position to find an 'A' team.'

Most start-ups face up to these recruitment problems with a degree of pragmatism. Temporary help is one solution, although it's not always easy to find the right people - while interim management companies do operate in the start-up tech sector, the shortage of funds makes this a less attractive market for them to focus on. Networking events are also a potential hunting ground, particularly for non-executives, although they need to be approached with a degree of caution. As Blowers points out, at worst you may find 'a rather motley collection of saggy grey suits hoping to pick up some consulting work'.

Some of these senior management challenges ease when organisations make it as far as first round venture funding, where the combination of VC vested interest and a large infusion of cash helps tackle some of the recruitment problems. In many cases, VCs will bring in their own people to fill gaps on a short-term basis, or recommend independent external directors with particular expertise. Mark Albert, Partner at Seattle-based international law firm Perkins Coie, says the most successful start-up he's worked with was a software house that lacked both sales and marketing expertise, and hired two non-executive directors with experience in each. Their role was not confined to the boardroom: as well as attending board meetings, each worked directly with the sales and marketing team on a regular basis to help with both operational and strategic issues. In some companies, a non-executive's industry connections may also open the door for sales opportunities.

Carl Showalter, general partner at early-stage venture specialist Lightspeed Venture Partners in Silicon Valley, points out that given their extensive contact network, these independent directors may also be able to help recruit additional senior executives. That will come as a welcome relief to many technically-oriented founders who are uncomfortable assuming the role of chief executive but are unsure how to find a replacement.

In the long-term, the choice of independent director can prove critical. The typical hi-tech board of a financed company consists of five people - an uneven number designed to avoid paralysis through tied votes - and is usually made up of two founders, two representatives of the VC, and an independent director. There's an inherent conflict in this set-up: although the VC-appointed directors are charged with growing the company, they also have a responsibility to their own venture capital firm, and those interests may not always go hand-in-hand. As a result, the independent director may be in a pivotal position when it comes to bringing an objective view and making decisions.

'The independent person should clearly be an expert in the areas you need most help in,' concludes Albert. 'They should complement, not counteract, the CEO. You have to take a look at where you are today and where you want to be two years from now, and see what areas of your team are most lacking.'

Written by Keith Rogers, Webster Buchanan Research