Strength in numbers

24 August 2007

Entrepreneurship is often seen as a solitary activity, but new research argues that investors prefer to back ventures run by strong teams. The question is - how do you get the right group together?

'Team player' is not a term typically associated with entrepreneurs. Those who start their own businesses are often perceived as single-minded, risk-taking mavericks who are driven by their big idea and disinclined to invite others to share in its future success.

Yet, according to John Cavill in Growth Entrepreneurship: Do we really understand the drivers of new venture success?, ventures run by entrepreneurial teams are more attractive to investors and more likely to succeed than those managed by lone entrepreneurs. In the study, sponsored by the South East England Development Agency (SEEDA) Enterprise Hub Network, Cavill reviews the literature on factors affecting new venture success, focusing on venture capital funding and entrepreneurial teams.

There's nothing new in the concept of many entrepreneurial heads being better than one, of course. 'One of the realities of new venture development is that no one person can do the entire job themselves,' quotes Cavill from a 20-year old article by CW Hofer and WR Sandberg. 'Successful entrepreneurs therefore seek the best people to support them, share the rewards of their success and create a climate that encourages people to do their best.' Teams also bring security in numbers. 'One individual could get run over or decide he doesn't want to go down this route anymore,' Cavill points out.

But there's been little analysis to date of the optimum characteristics of an entrepreneurial team. That's what prompted Cavill, himself a successful entrepreneur, to do his own research. Having exited his business, he set up new venture research company Intermezzo Ventures and is also carrying out doctoral research at Henley Management College into entrepreneurial teams, which he hopes to conclude by early next year.

Part of the problem is that investors don't take a very systematic approach to what makes a good entrepreneurial team, says Cavill, drawing from earlier research into VCs' ability to spot winners. 'In the early stages of their careers they're understandably not that great,' he says, 'but they're pretty good by their mid-careers. However, in their later career, their ability to spot winners starts to tail off because they rely too much on gut feel.'

'I'm trying to put a bit more science into the idea of putting good teams together,' he says. 'I'm hoping to be able to say this mix of individuals, experience, personalities and skills performs much better than another type of mix. So we can say to potential investors or lead entrepreneurs, if you're assessing a team, these are the sort of criteria you should be looking for because they've been shown to be present in successful teams.'

A team can bring a balance of skills and expertise that a sole entrepreneur won't necessarily have - a technical founder, for example, may not have the sales expertise needed to take a product to market. So entrepreneurs need to take an honest look at the gaps in their own skillsets, then go out and find people to fill them - and not just among friends or family, but 'competitors, individuals you've come across at networking events and exhibitions, and people who you've worked with in the past.' They also need to be prepared to hand out equity. 'To persuade good people to leave good stable jobs for a more risky environment, founders must be prepared to encourage them to join by sharing in the longer term rewards.'

And it's not just about getting the right mix of skills and experience - you also need a good blend of complementary personalities. Research by Meredith Belbin found that teams with the right balance of individual personality traits operated more efficiently than teams with the smartest possible individuals, all of whom had similar personalities. What makes the best mix of personalities, however, isn't yet clear. 'We don't yet have the answer because this type of research hasn't been carried out at this level before. There's been a lot of research on demographics, but not a combination of demographics and personalities,' says Cavill.

Earlier this year Cavill, in conjunction with the Information Technologists' Company, established the 'Best Entrepreneurial Team' awards in an effort to highlight the importance of teams. Entrants were assessed on factors such as sales, profit and headcount growth over the last three years, and team members completed a questionnaire about their experience, personalities and working style. 'The idea was to assess not just the lead but the people he or she considers to be part of the business's top management team,' says Cavill, who's using data from the questionnaires in his research.

The winner, Call Connection, a call handling service for the financial services industry, had an annual turnover of £25m, £2.5m profit before tax, and 182 employees, just three years after starting up. Cavill says a key factor in its success was that the team running the business had all worked together before. 'They knew how each other worked and, when they came to start a new business, everyone just cracked on and got started. They are also mature individuals in a market they understand and where they've had success before.'

By Alison Hjul, Webster Buchanan Research

For more information on John Cavill's research into entrepreneurial teams, visit www.intermezzo-ventures.com

To download 'Growth Entrepreneurship: Do we really understand the drivers of new venture success?', visit www.enterprisehubnetwork.co.uk