Teams vs. Markets

by mike on December 27, 2007

Would you rather invest in or build a startup around a great team or a great market? Obviously, it would be advantageous to have both, but that’s usually the exception. It’s a question that’s been debated for quite some time in the Startup / VC world, and doesn’t have a clearcut answer. For this post, let’s take a look at pros and cons to both arguments. I’ll let you decide.

Great team

The famous Venture Capitalist Arthur Rock once said, “I invest in people, not ideas. If you can find good people, if they’re wrong about the product they’ll make a switch.” A good number of VC’s go along with this philosophy and bet on the team above all else. Most also prefer to invest in entrepreneurs that have successful track records. These entrepreneurs either have great teams or have built them in the past. The idea here is to minimize execution risk early on. To paraphrase Jim Collins of Good to Great: great teams understand that they need to first find the right people, get the wrong people out and then get the right people in the right roles. The hope is that the great team will be able to find the fast-growing market somewhere along the way.

Now for the cons. What if the team is too early for the market? That means no matter how good they execute it will be an uphill battle. The sales cycles will be long and ROI unclear. Customers and users won’t be convinced they need the solution at all. The ecosystem you are counting on won’t exist. This happened to a bunch of startups around ‘99/’00.

Great market

Markets are like waves in the ocean. They are unpredictable, change at the blink of an eye, can be much larger than anticipated or die as quick as they came. The hard part for the entrepreneur (and investor) is picking the right wave to bet on. It takes discipline and focus not to choose the wrong one, but if you pick the right one you are in for the ride of your life. A fast growing market will propel your company forward. Customers will be pounding down your door, investors will be pouring money into the segment (further validating it) and buzz will be in the air.

What if you have a great product in a great market, but bad or mediocre team? The product could be the best in the segment, but your team can’t sell or market it. That’s a problem. Opportunity lost. By the time your team figures this out, competitors are already hot on the trail.

While although great teams are *very* important, markets take precedent and are the most important factor to a company’s ultimate success. Inevitably, mistakes will be made along the way so near perfect execution is unlikely regardless, but markets aren’t.

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