By Lisa Suennen
First Posted at Venture Valkyrie on 5/5/2013
“The team with the best players wins.”–Jack Welch, former Chairman & CEO, General Electric
Last week I had the pleasure of moderating a panel of accelerator and angel investor representatives in the course of teaching my healthcare venture capital class at UC Berkeley’s Haas School of Business. Together with my teaching partner, Dr. Jeff Rideout of Trizetto, our goal each year is to leave MBA students with a sense of what it is really like to work with entrepreneurs and how to evaluate and oversee venture investments in the healthcare field. In this particular class last Thursday, Jenna Rose of HealthBox, Don Ross of HealthTech Capital and Geoff Clapp of Rock Health came over to help us talk to the class about the earliest of early stage endeavors and the issues that separate great young start-ups from the ones that go belly-up in the goldfish bowl before you can say, “What was your market entry strategy again?”
What struck me from this nearly two-hour conversation was how often the conversation came back to the importance of having the right management team, no matter where the primary topic started out. It is hardly news that picking the right team is typically considered the most important decision in forming or investing in a young (or any) company. Entrepreneurs and investors hear it all the time: the right product is nice but the wrong team will sink you while a great team can sell ice to the Eskimos. This has become such a well-known rule of thumb that people just say, “Yeah, yeah” and move on from the conversation when it comes up.
But once again this critical topic was brought to the fore in answer to my favorite question to ask other investors, “What was your worst investment decision and what made it such a disaster?” It is worth noting that an investment can go wrong for many reasons: poor product, misjudging the market opportunity, inability to deliver good clinical trial results, bad service delivery, incorrect business model, problematic intellectual property, etc., etc. And yet each and every one of my panelists claimed a failed management team dynamic as the primary reason for their biggest investment regret. In other words, if bad management=bad investment and bad investment=zero returns then, by the transitive property, bad management=zero returns. I may not be a math genius, but I know that geometric law is ironclad (humor digression: Urban Dictionary defines the transitive property this way: If person A hooks up with person B and person B hooks up with person C, then person A has hooked up with person C. Too funny.)
To elaborate: Jenna spoke about a company where, in the end, the management team turned out to be dabblers and not fully committed to making the company go. When times got tough, as they always do in start-ups, the team headed for the hills with a big “never mind” sign hanging in their rear view mirror. This is definitely the wrong profile for a start-up team. What you want is a group whose raison d’etre sounds like the chorus from Chumbawumba’s song Tubthumpin, “I get knocked down, but I get up again, you’re never gonna keep me down.” For those of you not following 90’s British Alternative bands, Chumbawumba refers to a singing group, not an Internet company, although the name sounds exactly like what these entities like to name themselves. Either way, when a management team’s motto turns out to be, “Take this job and shove it,” you know you have a problem.
Don talked about his most regrettable investment as one where he had to fire the CEO for cause. He didn’t elaborate on the cause, but his body language suggested that the situation was pretty tawdry. It is pretty difficult to fire someone for cause these days unless they have broken the law or done some other pretty disgraceful thing, so I can only imagine. In my own career I have encountered two separate and very unfortunate experiences in companies where embezzlement has been committed in a pretty serious way. I am not sure if that was the problem Don encountered, but it only gets worse from there. And when the leader behaves badly, all too often the ship sinks around them. Again, to look at it in lyrical terms, beware the CEO who is humming “Been Caught Stealing” by Jane’s Addiction. Much better when your leader gets his musical thrills in the mode of “Reach Out and I’ll Be There.” I can tell you that I have become incredibly cautious on this front; more often than not you can catch me humming the Who’s “Won’t Be Fooled Again.”
Geoff also described his biggest investment failure in terms of a team failure, in this case a team that just couldn’t gel. Babe Ruth once said, “You may have the greatest bunch of individual stars in the world, but if they don’t play together the club won’t be worth a dime.” So true. Excessive ego is a toxin in the recipe for start-up success. When people trip over theirs on the way to a meeting, bad things happen. Many in the investment world have an ironclad commitment to the “No A-Hole Rule”, but you don’t always see them coming (fair comment that venture capital has its own share of rule violators). There is a definite point at which an executive’s appealing self-confidence transforms itself into the much less appealing “I’m Too Sexy for My Cat.” And here’s what I think about that: Next!
So after this sad trifecta of woe, one of the students asked the appropriate question, which is: “What are the characteristics of the most successful management teams?” Here are the collective answers from the panel, with which I heartily agree:
- Great leadership and communications skills
- Committed to their business like they are on a mission from God
- Low “bad” ego but strong self-confidence
- Ability to share credit as well as accountability
- Honest at all times, including when things are going poorly
- Complementary strengths and weaknesses, as well as strong self-awareness of both in selves and each other
- Worked together before or another proxy for strong team dynamic
- Strong knowledge of big picture/design/customer issues and not just technology
- Deep marketing understand, especially of who pays
- Ability to be honest with themselves about what is and isn’t working
- Focused, but flexible—the team always has a Plan B and maybe even a Plan C in their back pocket
I also happen to believe that the ability to laugh together and use humor to break up the stress is also the sign of a healthy team. And speaking of teams, the SF Giants were able to keep almost their entire team together after winning the World Series, a pretty unique feat that speaks to the connection among successful colleagues. The Giants have recently released a hilarious commercial in the Bay Area that highlights how humor can cement a team’s camaraderie and provide a particularly silly call to arms (see below). As the Giants well know (and Michael Jordan once said), “There is no I in team but there is in win.”