Thursday, July 07, 2011

The Importance of the Human Resource in a Start-up Business

When you are a venture capitalist or investment firm, you are trying to determine where you should invest your money. Just as in any other business venture, what are the fundamentals in the potential business?

What is the most important resource in a start-up business?

The product? Who controls the product? People
The financials? Who controls the financials? People
The Intellectual Property? Who creates the Intellectual Property? People
The Clients? What makes up the client base? People
The inventory? Who controls the inventory? People

Therefore, it would appear that people may be the most important resource. How do you measure the potential success of the company? The product or service is certainly important. Once it is determined that the product or service is needed, who is the leader, and what is the caliber of people they have selected to lead? That sets the tone for future hiring of the people who will control all of the other resources. If they hire people weaker than they, they are afraid of losing control – not a good leader. If they have hired a great team, they are poised for success.

What is their motivation – extrinsic or intrinsic? An intrinsically motivated person will work harder to succeed as long as they have autonomy, purpose, and desire for mastery of their area of expertise. (Read “Drive The Surprising Truth About What Motivates Us” by Daniel Pink)

I have been a recruiting consultant in 3 start-ups. One of those three is currently in business, although it had to declare bankruptcy twice prior to being purchased by another company.

Why did they fail? For a variety of reasons, generally revolving around people and their decisions.

The entrepreneur is great at beginning businesses. An excellent and applicable question to ask them during due diligence is “What is your exit strategy?” While they are superb in the initial years, they need to surround themselves with solid managers. Once the business grows beyond the level that they have managed, perhaps it is the time to introduce a new leader who has successfully grown a business from that level to the next level. They can move to the Board and thus have a say.

Bottom line – the team is most important. That is the reason I love what I do!