Investors mostly agree that choosing top-performing entrepreneurs is probably the most important factor in their success. But how you identify a great entrepreneur is not so clear cut.
What do we look for? When we (an early stage venture fund) decide to back an entrepreneur, want to see a track record of success, ideally as a CEO, or C-level executive in a successful startup, deep knowledge of the industry the venture wants to disrupt (to fix it you need to understand it), and high-level contacts with potential customers and partners.
And, we look for key skills and personal characteristics. High-potential CEOs have these traits:
• Drive is probably most important factor: ferocious focus on success, and pragmatic willingness to do whatever it takes (within ethical bounds). For me this helps explain why recent immigrant CEOs are so successful — they are driven to “make it” in the US — and why some done-it-before executives are not successful — they may have acquired a bit of “affluenza”.
• CEOs need to be very effective in sell mode. This is oxygen for a venture: the CEO is the sales force, fund-raiser, and head recruiter at the beginning. His or her sales skills need to be flexible and sophisticated to adapt to different types of selling situations. Fund-raising is a litmus test: the CEO needs to be able to create excitement and credibility with investors, not just us but also other investors whose help will be needed down the road.
• Startup CEOs must have vision: a big, exciting opportunity is the reason that everyone comes to the party.
• And startup CEOs need to be strategists: they can’t win by brute force, so they need to see how to exploit the weaknesses of incumbents, find dissatisfied and under-valued customers, and build a business model that gains power as it grows and ultimately disrupts incumbents. Then they need to adapt the strategy when circumstances change or it fails to work.
• At the same time, they need to be doers: to get the product finished and shipped, the sales pipeline prioritized and closed, and the customers delighted, all with minimum spend.
• Last but not least, startup CEOs need to be leaders who can motivate the team to work together and make extraordinary efforts in the face of deep adversity: money running out, lead customer is going slow, product not quite working yet, etc.
These traits are also good, if kept in balance:
• Startup CEOs need to be very persuasive (recall Steve Jobs' "reality distortion field"), but maintaining trust is vital. Investors, customers, and partners rely on their estimate of what they can deliver. Forecasts are always wrong, and venture CEOs are always optimists, but if this goes to far, it becomes manipulation and breaks trust, and that usually leads to disaster.
• CEOs need to persevere and stay the course when the going gets tough. But, this cannot extend to inflexibility. Few plans carry through to exit without major changes; hence teams that can’t adapt typically fail. The best CEOs constantly ask themselves and their teams what could kill their strategy, and they adapt, before the money runs out.
At the end the decision to back an entrepreneur is a gut call: some data mixed with a lot of experience and intuition. Often we face a decision to back a a first-time CEO. Why would you do this? Because so many landmark startup successes have been led by a first time CEO: Steve Jobs, Bill Gates, Michael Dell, Jerry Wang (the first time), Jeff Bezos, and Mark Zuckerberg, to name a few. Sometimes you need to look beyond the objective data to the person. Bear in mind that talent can overcome lack of experience, but experience rarely overcomes lack of talent.
It’s common to pair a brilliant but unproven young CEO with a more experienced executive. This can be quite successful: e.g., Larry Page and Eric Schmitt, or Mark Zuckerberg and Cheryl Sandberg. But it’s tricky and can blow up dramatically if the chemistry is not right: Steve Jobs and John Sculley come to mind.
The investor/CEO relationship is a five to ten year commitment, and the stakes are high. You have to enter the relationship with conviction: gather all the facts you can, decide if you truly believe, and take the leap.
