First published in the Sunday Times on 23rd October 2016.
We all know the world is not black and white but full of shades of grey, and that personality types do not fall into binary categories in real life. Nevertheless, I have found over the years working with many entrepreneurs that most have strong biases in their characters. Below I set out a shorthand method of analysing these founder types.
Sales or costs?
Most entrepreneurs are good at one, but rarely at both. I can normally tell from a brief meeting into which camp a founder falls. Many can win orders and generate revenues, which is the life blood of any business. But, typically, such individuals are much less interested in controlling expenses.
By contrast, certain types are very competent in managing outgoings, cash and the administrative side of the company but have less flair when it comes to new products, marketing and so forth. Often the latter are accountants.
Frequently the strongest business partnerships are a combination of these two different skills. Both types are worth backing, but you need to know which sort they are so that the team around them can compensate for their shortcomings.
Solutions and opportunities, or problems and excuses?
Working with some entrepreneurs, after a a while you find yourself either looking forward to meetings or dreading them. With the former you know that even if conditions are tough, they will deliver and are addressing the issues with vigour. By contrast, when dealing with the latter, you receive the management accounts with trepidation, expecting the worst — and all too often your fears are realised. I tend to find that, among leaders, good gets better while bad gets worse. The obvious conclusion is to avoid the problem/excuse merchants like the plague. They will lose you money, and you’ll have a miserable time while the losses are accumulating.
Unfortunately, discovering beforehand which ones are winners and which are losers is not always simple: CVs, interviews and even references can be misleading. Instinct is at least as good a guide.
Profits or lifestyle?
Ambitious entrepreneurs know that to realise their dreams their business must make real money — to fund growth, to attract investors and to reward their hard work. They are very different animals to the many small business owners and freelancers who do not want the risks and responsibilities of employing staff, finding outside investment, borrowing from banks and so on.
The latter group like the flexibility and satisfaction of being an independent producer but do not have a burning hunger to scale up their undertaking. I back businesses only where the entrepreneurs are sufficiently dedicated and ambitious enough to build a serious concern.
Delegator or micromanager?
Many of the most successful entrepreneurs with whom I’ve partnered have been brilliant at hiring and motivating talented colleagues, happily handing over responsibilities as the enterprise grows. I think this is Sir Richard Branson’s greatest skill. By contrast, I have worked with a number of founders who simply cannot let go of even small tasks; they obsess about details that are perhaps best left to deputies. This can restrict an organisation’s ability to expand, and demoralise managers, who feel the meddling presence of a founder breathing down their necks. But such all-consuming passion can be what creates outstanding companies — a devotion to quality, customer service and so forth that separates enduring firms from the bland ones that come and go.
Ultimately, I like to back wealth creators who are pragmatic about issues such as share dilution and their role. Control freaks who have to maintain a majority stake and can never surrender authority tend not to generate so much value.
Organic growth or deals?
Usually there is a sharp distinction between operators who grow their businesses incrementally and those financial engineers who grow by acquisition. Certain trades are inherently more suited to wheeler-dealers: film production or property development, for example. These are project-based careers, with an inevitable lack of continuity. I would say that, generally, the best businesses emerge from steady internal expansion rather than risky M&A activity. But, as companies get larger, it can be much more difficult for simple organic growth to provide sufficient excitement for all stakeholders. Thus, in middle age, some entrepreneurs who have previously only ever started and grown a single business organically can embark on buying sprees of other companies or assets, egged on by fee-hungry investment bankers.
Such journeys often end in tears. But I have also enjoyed success supporting entrepreneurs who have managed so-called buy and build strategies in sectors such as healthcare and recruitment.
Of course, entrepreneurs can possess several of the above traits — a combination of sales and profits-driven delegator, for example. As ever when trying to decipher the psychology of business creators, I am reminded that there is no single set of attributes that mark out the high achiever. Human nature is far too complicated.
This all adds plenty of opportunities and challenges for those like me who spend their time trying to work out which entrepreneurs to finance.