The decision about whether a business plan has potential is an easy one for most investors. Whether a management team can successfully implement the plan is often the more difficult question for investor. Part of the due diligence process involves not only looking into validity of the business plan, but also assessing the management team.
Meeting one-on-one with potential partners is a terrific place to begin the process of assessing a management team. These meetings can provide you with a sense of the personality and drive of an entrepreneur. However, you need to be cautious. Everyone wants to appear in the best possible light. Entrepreneurs may fail to divulge negative information that would impact your decision whether to invest or not.
Requesting complete resumes from all members of a management team is a vital step to obtain the information you want. Interviews with other contacts close to management should be conducted. While there is not a formula for what makes a stellar management team, you should assess the following areas:
1. Leadership. Do members of the management team possess strong leadership qualities? Are they the type of people others will follow?
2. Coachability. Are members of the management team teachable? Can they take direction/guidance and implement it into their business plan when necessary?
3. Commitment. Is the management team committed to the business idea? Will they do everything ethically possibly to make the idea succeed?
4. Areas of weakness or gaps in the team. Do the strength and weakness of team members compliment one another? Is there an area where the management team is lacking in knowledge or expertise?
5. Trustworthiness. Are the principals trustworthy? Do you have confidence in the ability of management to act in an ethical and respectable manner?
6. Credit background checks. What does the credit report of the management team look like?
7. Criminal background checks. Does any member of the management team have a criminal record?
Remember, what one investor may find appealing about a management team may drive off another. Based on your experiences and preferences, you should determine, individually, what an extraordinary management team is comprised of.