Tuesday, June 27, 2006

Too Much Management?

Ed Sim, of Dawntreader Ventures, recently wrote that top heavy management teams can turn off early-stage investors. Mr. Sim writes that companies require different teams at different stages of development and hiring senior management too early can be problematic because:
  • Hiring too early is worse than too late
  • Investors would rather build a team around a vision than inherit a fully baked team
  • Companies change often in their early days
  • Sr. Managers have big egos
  • Sr. Managers command high salaries
  • Sr. Managers take lots of equity
Hiring the right management team is definitely a tough task, which is exponentially more difficult for first time entrepreneurs because they come under more scrutiny from investors as unknowns. It is really tempting to hire people with experience to hold titles in order to impress investors and I definitely would have made this mistake if some of the offers I've made had been accepted. However, I did wind up finding a happy medium by putting together advisory boards.

Establishing advisory boards lets entrepreneurs tap into the expertise and networks of senior executives with out giving away too much equity or stressing cash flows. Furthermore, while it may be too early to make a hire now, forming an advisory board will keep the prospective executives close to the company but still provide the flexibility to move in a different direction as the company finds its path.

Despite all of this if you have truly found the right executive, hire them as fast as possible.

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