In Brands, Exclusives, Finance, Insight

In my firm we spend the vast majority of our time helping firms pursue change and growth. For young brands, there are few things that create more change and unlock more potential than a successful round of capital-raising. Hence, we are often focused on helping our clients raise capital. What follows in this series are observations about the things investors ask our clients, why they ask, and some advice on how to respond.

In my experience the first thing an investor asks of a venture is Who is the team? Why will they succeed uniquely? Since you are an early-stage venture, you haven’t had serious success yet. If your team has track records at all, they’re from your prior lives. Investors look at the team and say, who are these individuals? What are their strengths? What are their personality types? Why have they selected each other—is it based on a track record of working together, and if so, for how long? Do I like any of these people? Do they even like each other? You must prepare excellent answers—implicit or explicit—to these vital questions. There is no dodging them.

Admittedly, some of this comes down to the team’s chemistry, that is to say, the often-subtle social phenomena that are hard to read from the outside and which are at best only a weak predictor of success. But don’t fully discount chemistry. Good chemistry may not be enough for a new venture to succeed, but bad chemistry is more than enough to make a venture fail. (And, clear signals to an investor that a team has bad chemistry include when team members talk over one another impatiently, contradict one another, or seem more calm and happy when they’re away from the team.)

The core question the investor is trying to answer is this: how does the team combine for unique strength? The word for this is synergy, the special power gained by working together, where an ensemble can achieve much more together than the sum of what they could as soloists. And, where chemistry relies mainly on commonality, synergy relies on difference, nowhere more so than in the need for founders to have different skills (and quite often different personalities). It is these differences that give a team complementarity, that is, where each member’s abilities compensate for the other’s shortcomings, avoid overlap, and with synergy form a powerful unity.

Examine your team and you may discover you have founded a firm with those far more like you than different from you. We see it all the time.

This wouldn’t be a problem if you had free access to the players and talents and skills of your prior employer. For example, the people who did all the things that kept the business running. People in finance, or supply chain, or HR, or technology. People with whom you didn’t strongly identify in departments you didn’t volunteer to rotate to in order to expand your skill set. Now they’re gone. Most founding teams overlap quite heavily because people choose people they identify as similar to them with whom they have good chemistry. Good founding teams must have both good chemistry and complementarity if they expect to survive. If you don’t, you may wish to round out your team today. For it is better to expand your founding team today in pursuit of synergy than it is to be forced to reduce your team later, at the behest of your board and investors, to make room and free up equity for a new set of team members.

The next and related question: Will the team focus only on the work that matters most? Related, because teams that are too similar cannot divide labor appropriately. Teams without synergy when dividing labor will always run out of skills before they run out of important tasks, leaving key things undone. Teams with synergy work the other way; there’s always a surplus of time and labor in which they can change and adapt.

A team that knows which 20 percent of all possible efforts will drive about 80 percent of success and who can assign duties with minimal overlap stands the best chance of creating wealth. Being able to show investors your areas of true focus and the attendant division of labor will set you apart from other teams. And, you’ll get a lot of great feedback (whether you want it or not) from seasoned investors on these topics, so listen carefully.

Finally, there is the question of unity: What core belief unites the team? What idea are they all convinced of, in love with, and uniquely able to manifest into being from chaos? If the team can’t describe it in a tight narrative, then that’s a telltale sign. Disunity will deter all but the most naïve investor. Never mind whether your narrative is preposterous, disconnected from reality, or, as we see more and more and far worse: dully entitled. The founding team needs to be at least mildly delusional in order to become entrepreneurs—that’s necessary. But they cannot be both delusional and disunited.

This essay has focused on young brands, which is not to suggest that investors seeking to trade in bigger fare don’t also care about teams. They do. But in the case of already very successful brands ($10 million or more in sales), the investors’ primary concerns are with finding the levers to growth. The team becomes a part of that analysis. Being able to coach, change, and augment brand teams is a skill that only the best institutional investors have, and it makes them far better investors.

Read the full series What Investors Ask Our Clients:

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