Five Traits of Successful Entrepreneurs
Do you have what it takes to run a fast-growing company? You might think so on paper, but private equity and venture capital investors have their own stringent criteria. Over the years, I have evaluated hundreds of entrepreneurs both in considering companies for investment and, later as a shareholder, in seeking senior management candidates for portfolio companies. I have found that successful owners of dynamic small and midsize companies share five essential traits. Savvy entrepreneurs have the ability to:
# 1: Make strategic decisions based on limited data
Are you comfortable making important decisions when you know some but not all of the facts? Given that business conditions change quickly, you rarely have time to gather 100 percent of the information you need before making a strategic decision. Good entrepreneurs, however, can make sound choices based on only 80 percent of the data. They understand that the market will shift before they can get the whole picture, and that waiting to learn more could mean missing an opportunity. Having the ability to act in the midst of uncertainty is a critical component of entrepreneurial success.
#2: Learn from their mistakes
Two of my favorite questions for senior management candidates are: If you could change one thing about your career so far, what would it be? In hindsight, what was your biggest mistake? The answers to these questions are important, since successful entrepreneurs must have the capacity to learn from their mistakes. Typically, we see this trait in entrepreneurs who have started more than one business. Because serial entrepreneurs may have experienced one or more business failures, they often learn more from that setback than from any subsequent success. Entrepreneurs who have trouble answering these questions raise red flags for us -- they may not be willing to discuss problems openly after we have invested in their company.
#3: Understand their weaknesses
Most CEOs have a strong background in one functional area -- be it sales, finance, marketing, operations, or R&D. Although these executives may have a general understanding of other disciplines, they often lack detailed technical knowledge in these areas. The best entrepreneurs understand this, however, and hire experts who can complement their skills. During the evaluation process, we check carefully into all CEOs' hiring records to find out how well they have supplemented their own expertise with that of other specialists.
#4: Spot patterns and separate key data
The companies in which we invest often operate in dynamic markets, where the structure of the industry, the nature of the customer base, or the overall way of doing business has not yet been determined. As a result, the entrepreneurs who run these companies must be confident in building structure where none is currently in place. In addition to identifying patterns, they should be able to separate relevant information from meaningless data.
#5: Partner successfully with others
Success in business is all about partnership. Therefore, one of the important factors we evaluate is how entrepreneurs have treated others. In particular, we ask two key questions: Have they been fair to founders, co-investors, employees, service providers, and other management team members? Have they treated these people with respect?
When we consider entering into a partnership with an entrepreneur, this information is crucial to our decision. Since the relationship may last five years or longer, it must be based on mutual respect and shared goals. The main questions we ask early on are: Is an entrepreneur willing to listen? Does he or she share with us a common strategy to maximize the success of the company? Or, is it all about the entrepreneur? We look for business owners who can put aside their own short-term well being in order to grow the company.
The traits of successful entrepreneurs may seem relatively straightforward, but it is not always easy to determine how they apply to any given candidate. At Summit Partners, we gather information through an intensive process of personal interviews, as well as by checking references with co-workers, investors, employees, vendors, and suppliers.
Before we begin making calls, we also ask candidates what they think their references will say about them -- it can be quite illuminating to compare the way people believe they are perceived with the actual responses from their colleagues. Finally, we spend a great deal of time scrutinizing a candidate's past track record, looking not only for successes and failures, but also for insight into their motivations and thought processes.
In the end, evaluating entrepreneurs is far more than just running down a checklist. It is a rigorous, hands-on undertaking, where we seek to predict how a person will perform in the future by understanding what he or she has accomplished in the past.
Walter G. Kortschak is a managing partner of Summit Partners, a private equity and venture capital firm with offices in Boston, Palo Alto, and London. Summit Partners invests in growing, profitable companies. Walter can be reached at 650.614.6600 or firstname.lastname@example.org.