Here is an excerpt from an article written by Eva de Mol for Harvard Business Review and the HBR Blog Network. To read the complete article, check out the wealth of free resources, obtain subscription information, and receive HBR email alerts, please click here.
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When venture capital investors are doing due diligence, they focus carefully on the financial side of the business. Does the company have an interesting business model? How big is the addressable market? What are the growth plans of the company? They hire expensive experts and use advanced data tools to answer these questions and ensure that every financial detail is on the table.
But when it comes to evaluating the startup team, gut feel and intuition tend to be the main due diligence instruments that come into play. This isn’t a great approach. Data shows us that 60% of new ventures fail due to problems with the team.
What makes a successful startup team?
One common answer is that prior startup experience, product knowledge, and industry skills predict the success of a new venture. But is prior experience sufficient for a team to work well together? In a recent study of 95 new startup teams in the Netherlands, we explored that question.
Read about our study
We found that experience alone was not enough to make a team thrive. While experience broadens the teams’ resource pool, helps people identify opportunities, and is positively related to team effectiveness, a team also needs soft skills to truly thrive. Specifically, our study shows that shared entrepreneurial passion and shared strategic vision are required to get to superior team performance as rated by the external venture capital investors.
Of the startups we studied, the group that reported high levels of previous experience but average to low levels of passion and collective vision demonstrated weak team performance when it came to innovation in products and services, customer satisfaction, cost control, and expected sales growth. Contrary, the group of teams that reported average levels of previous experience but high levels of passion and collective vision demonstrated significantly stronger performance.
We also found that greater team experience only leads to better performance if team members share a strategic vision for the company. Thus, when team members don’t agree on the future strategy of the firm, the knowledge and skills they have will only marginally contribute to team performance.
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All great teams — including startup teams — demonstrate the power of a concept to which St.Paul refers in one of his first letters to the Corinthians: “Many parts, one body.” However different members of great teams may be in most respects, all of them are committed to achieving the same objective. Without that alignment of purpose and focus, success is difficult…if not impossible.
Here is a direct link to the complete article.
Eva de Mol worked on her PhD at the VU University Amsterdam and Berkeley Haas Business School. She’s a Partner at CapitalT, a Dutch venture capital fund investing in early stage tech companies with diverse founding teams.