Liability of newness is a Situation that often causes new firms to falter because the people who start the firms can’t adjust quickly enough to their new roles, and because the firm lacks a “track record” with customers and suppliers. By assembling a talented and experienced new-venture team entrepreneurs can overcome the liability of newness.
Creating a New-Venture Team
The way to impress potential investors, partners, and employees is to put together as strong a team as possible. Investors and others know that experienced personnel and access to good-quality advice contribute greatly to a new venture’s success.
A. The Founder or Founders
Elements of a New-Venture Team are:
- Key employees
- Board of directors
- Other professionals
- Lenders and investors
- Board of advisors
- Management team
1. Size of the Founding Team
Teams bring more talent, resources, ideas, and professional contacts to a new venture than does a sole entrepreneur. The psychological support that co-founders of a business can offer one another can be an important element in a new venture’s success. A founding team larger than four people is typically too large to be practical.
There are three potential pitfalls associated with starting a firm as a team rather than as a sole entrepreneur.
- The team members may not get along.
- If two or more people start a firm as “equals,” conflicts can arise when the firm needs to establish a formal structure and designate one person as the CEO.
- If the founders of a firm have similar areas of expertise, it can be problematic.
2. Qualities of the Founders
The level of a founder’s education is important because it’s believed that entrepreneurial abilities such as search skills, foresight, creativity, and computer skills are enhanced through obtaining a college degree.
Prior entrepreneurial experience, relevant industry experience, and networking are other attributes that strengthen the chances of a founder’s success. Launching a new venture is a complex task, entrepreneurs with prior start-up experience have a distinct advantage.
B. The Management Team and Key Employees
One technique available to entrepreneurs to help prioritize their hiring needs is to maintain a skills profile. A skills profile is a chart that depicts the most important skills that are needed and where skills gaps exist.
Type of Labor for New Ventures
- Full- or part-time employee: Someone who works for a business, at the business’s location, utilizing the business’s tools and equipment and according to the business’s policies and procedures.
- Intern: A person who works for a business as an apprentice or trainee for the purpose of obtaining practical experience.
- Freelancer (or contractor): A person who is in business for themselves, works on their own time with their own tools and equipment, and performs services for a number of different clients.
- Virtual assistant: A freelancer who provides administrative, technical, or creative assistance to clients remotely from a home office.
C. The Roles of the Board of Directors
A board of directors is a panel of individuals who are elected by a corporation’s shareholders to oversee the management of the firm. A board is typically made up of both inside and outside directors. An inside director is a person who is also an officer of the firm. An outside director is someone who is not employed by the firm.
A board of directors has three formal responsibilities:
- Appoint the firm’s officers
- Declare dividends
- Oversee the affairs of the corporation
Attributes of Effective Boards of Directors
- Strong communication with the CEO
- Customer-focused point of view
- A complementary mix of talents
- Decisiveness
- Mutual respect and regard for each other and the firm’s management team
- Ability and willingness to stand up to the CEO and top managers of the firm
- Strong ethics
Attributes of Strong Board Members
- Strong personal and professional networks
- Respected in their field
- Willingness to make personal introductions on behalf of the firm
- Strong interpersonal communication skills
- Pattern recognition skills
- Investment and/or operating experience
- Ability and willingness to mentor the CEO and the firm’s top managers
2. Lend Legitimacy
Achieving legitimacy through high-quality board members can result in other positive outcomes. Investors like to see new-venture teams, including the board of directors, that have people with enough clout to get their foot in the door with potential suppliers and customers. Board members are also often instrumental in helping young firms arrange financing or funding.
Rounding Out the Team: The Role of Professional Advisers
Founders often rely on professionals with whom they interact for important counsel and advice. In many cases, these professionals become an important part of the new-venture team.
A. Board of Advisors
The main purpose of a board of advisors is to provide guidance and lend legitimacy to a firm. The most important thing that advisory board members can do is make high-level introductions to early customers, suppliers, and business partners.
B. Lenders and Investors
Ways Lenders and Investors Add Value to an Entrepreneurial Venture
- Help identify and recruit key management personnel
- Provide insight into the industry and markets in which the venture intends to participate
- Help the venture fine-tune its business model
- Serve as a sounding board for new ideas
- Provide introductions to additional sources of capital
- Recruit customers
- Help to arrange business partnerships
- Serve on the venture’s board of directors or board of advisors
- Provide a sense of calm in the midst of the emotional roller-coaster ride that many new-venture teams experience
Other Professionals
Attorneys, accountants, and business consultants are often good sources of counsel and advice.
Consultants
A consultant is an individual who gives professional or expert advice. the role of the general business consultant has diminished in importance as businesses seek specialists to obtain advice on complex issues such as patents, tax planning, and security laws.
Consultants fall into two categories: paid consultants and consultants who are made available for free or at a reduced rate through a nonprofit or government agency.
