Talent as an Asset

If you are looking to start a business, you are probably obsessing about brand name, market strategy, funding options, product/service attributes, etc. You may be thinking about staffing requirements as well, which I would like to obsess about here.

All venture capitalists need to observe three key attributes before diving into more specific due diligence of an opportunity: (1) large market size, (2) compelling and defensible value proposition, and (3) quality management team. In fact, many experienced investors believe that an average idea with a superior team is a better bet than a superior idea with an average team. This may seem counterintuitive, but bear with me as I explain.

Don Valentine, the founder of Sequoia Capital and an original investor in little companies you may have heard of like Apple, Cisco, Electronic Arts, and Oracle, is also famous for many memorable statements he has made over the years. He has said, “The trouble with the first time entrepreneur is that he doesn’t know what he doesn’t know. After a failure he does know what he doesn’t know and can beat the hell out of people who still have to learn.” Of course, many great inventions, works of art, and ideas come from young minds; however, for day-to-day business building, experience counts.

High growth markets also tend to be highly unstable and unpredictable. In other words, today’s superior idea may be arcane tomorrow. Given these rough waters, wouldn’t you rather have an experienced crew on board? An experienced team can make the most of an average idea or even reshape it over time into a home run; however, an inexperienced team more often than not will only succeed despite themselves, or as Don Valentine has also said, “I like opportunities that are addressing markets so big that even the management team can’t get in its way.” Smart guy, huh?

Finally, I’ll retell an anecdote of a college roommate of mine. While he was attending Harvard Business School, he explained to me that regardless of subject matter every HBS class is dominated by the case study method. I was attending Wharton at the time, where many subjects were full of case studies, but accounting and finance were more dominated by lectures. My friend was complaining that since many of his classmates were learning accounting for the first time, they were getting very confused by theoretical questions postulated by the professor through the case study method. For example, his professor asked the class “should your employees’ salaries be expensed or capitalized, because aren’t people really an investment in your company?” Of course, this is a ridiculous question on so many levels, particularly when asked of students just trying to learn the language and rules of accounting; however, the philosophical element of this question is important to consider.

Talented people are an asset, and an investment in talented people is often more critical to success than any other investment in your business. Whenever possible, hire people for roles within your company, where you can say, “he/she could do a far better job of this than I could.” And, on the flip side, when you realize that you have made a bad hiring decision, first determine if there might be a better role for this person in your company. If not, get rid of them as quickly as possible. Mediocre performers aren’t just a waste of capital; they tend to frustrate and de-motivate your high performers.