The Way I
See It… 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 – 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
didn’t 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 –
companies that just couldn’t cut it. However, there are many more which don’t
exactly fail, but aren’t smashing successes, either. These are the ones that
the VC’s refer to as their living dead. I think of them as patients in a coma.
They’re still alive, but they’re 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 isn’t this P&L at all that’s
really important. It’s one that’s a lot more difficult to measure, although not
at all difficult – yet frequently overlooked – to observe. And that is true
P&L – Passion and Leadership.
One overwhelming conclusion which I’ve come to is
that it isn’t 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 –
but without passion and leadership it’s pretty useless. I’ve seen countless
detailed plans and projections which are impressive to say the least – worthy
of high grades and accolades – 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 peoples’ money. They are obligated to look at, and validate, the P&L
numbers. Angel investors who, by definition, invest their own capital don’t
need these numbers. They look at the
other P&L paradigm. Maybe that’s why VCs like to back angel deals – 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) doesn’t mean
that they will be good at building a business that does those things. But
simply hiring people with the requisite management talent isn’t enough.
The way I see it, management may
well be the most important factor in building a successful company, but it’s
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 Vancouver’s Angel
Network. He may be reached at mike@risktaker.com.