- Resilience, motivation and persuasiveness ranked as most important founder traits
- A co-founder team is preferable to a single founder to balance personalities
- Founder tests include assessing their reaction to bad news or poor restaurant service
Spotting the next Elon Musk or Mark Zuckerberg comes down to seven key character traits, according to a new report from the London-based venture capital firm, Concentric, and Egon Zehnder, the leadership advisory firm.
The findings – which come from qualitative discussions with founders, VCs, angel investors and talent specialists – highlight the characteristics entrepreneurs and investors should look for, to maximise the chance of business success and reduce the risk of founder conflict, which is responsible for the majority of startup failures.
The report ranks the seven personality traits according to their importance, with resilience, motivation and persuasiveness agreed to be the most important. These are followed by vision and humility, then curiosity and the ability to manage stakeholders honestly.
Starting a business is always a risk, with previous studies showing that around 50% of startups fail in the first three years, while only 7% are then able to scale their operations. And, with nearly two thirds (65%) of startup failures occurring due to conflict in the founding team, finding the right mix of skills and personalities is vital. Concentric wanted to understand which characteristics are common to those who do make it.
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“Typically, investors spend the bulk of their time pouring over business plans, looking at the financials and validating the actual idea,” commented Kjartan Rist, Partner at Concentric. “But that often comes at the expense of looking at the people involved, in most cases because people are much harder to quantify and understand. Yet, the founders of a start-up ultimately have the biggest impact on whether or not the business will be successful, while minimising the founder conflict that can be so damaging.”
The report has also identified a range of tests that investors and entrepreneurs can use to assess potential business partners. First and foremost, as it’s difficult to find a single founder with the perfect personality, more than one founder is preferable, with a balance of the seven key characteristics across the team. Experience is also a vital factor, in particular because it can bring improved judgement. Hence why investors tend to prefer second time founders.
Some of the tests are less conventional however. For example, to understand a founder’s motivation, investors should ask how much they are paying themselves, i.e. are they in it for the money, or something deeper? Humility and maturity can be tested by analysing whether they hire people that threaten them, or by meeting their partner and family outside work, to get a true insight into their personality.
Testing for resilience is particularly critical, and the report makes several suggestions on how this can be done. Peer referencing is a valuable tool for assessing development gaps, but investors should then also test how a founder reacts when critical feedback is delivered. Or to take it one step further, take them out for lunch and ask the waiter to bring them the wrong order twice to gauge their reaction!
“We did this work to understand how we can get into the heads of the people we are investing in,” continues Rist. “After all, the business plan will inevitable have to change, probably several times as any business develops and grows. Great people act as insurance against this, giving you the confidence that they’ll find a way through, even when things aren’t going their way.”
The seven key characteristics of a ‘great’ start-up founder were identified as:
- Resilience and energy:Without resilience a start-up founder won’t last long. The ability to handle rejection from customers and dissatisfaction from employees takes its toll on anyone and is the first thing to weed out in potential business partners.
- Ambition and motivation:The question they constantly ask is ‘why are they doing this?’ Are they still hungry and do they have the personal ambition to see out the fight?
- Persuasiveness (ability to convince/ sell):It’s vital to be able to convince others to join you on your journey, including investors, employees and customers. If you cannot sell, you are unlikely to build a big business no matter how good the product.
- Vision:Founders should serve to unite employees, investors and customers behind a common purpose. That means having a compelling vision and being able to communicate it effectively.
- Humility and self-reflection: Good founders continually ask themselves if they are the right person for the job and how they can improve themselves, while making sure they listen to those around them.
- Curious and proactive: Someof the best founders are the ones who have an insatiable curiosity and constantly ask themselves why their environment is the way it is.
- Honest stakeholder management: It’s vital to remain accountable and transparent with key stakeholders – especially investors. Attempting to bury bad news seldom works out well in the long-run, serving only to undermine vital relationships.